Greetings. Welcome to Empire State Realty Trust First Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. Please note this conference is being recorded.
At this time, I will turn the conference over to Thomas Keltner, Executive Vice President and General Counsel. Mr. Keltner, you may now begin.
Good afternoon. Thank you for joining us today for Empire State Realty Trust Q1 2020 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at empirestaterealtytrust.com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements as defined in applicable securities laws, including those related to market conditions, property operations, capital expenditures, income and expense. As a reminder, forward looking statements represent management's current estimates.
They are subject to risks and uncertainties, including ongoing developments regarding the COVID-nineteen pandemic, which may cause actual results to differ from those discussed today. Empire State Realty Trust assumes no obligation to update any forward looking statement in the future, we encourage listeners to review the more detailed discussions related to these forward looking statements in the company's filings with the SEC. Certain of our disclosures today are added specifically in response to the SEC's direction on special additional disclosure due to the changes in our business prompted by the COVID-nineteen pandemic and are unique to this instruction. We do not expect to maintain the same level of disclosure when we resume normal business operations. Finally, during today's call, we will discuss certain non GAAP financial measures such as FFO, modified core FFO, NOI, cash NOI and EBITDA, which we believe are meaningful in evaluating the company's performance.
The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website. Now, I will turn the call over to Tony Malcolm, Chairman and Chief Executive Officer.
Thanks, Tom, and good afternoon to everyone. Our thoughts are with all those affected by the 2019, particularly our colleagues and their families who have experienced illness and loss. Our thanks go out to the frontline responders in New York City, the United States and the world and we honor them with the Empire State Building's nightly beating heart. The heart of New York City beats for all of us. We recognize that the situation remains fluid and continues to evolve.
We will share the facts that we have at this time to the best extent possible as we navigate this environment. In the week of February 24, we began the implementation of our crisis management plan. From the beginning, we looked at this as a marathon and not a sprint. All our actions have been driven by our theme, keep calm and carry on. Our perspective and team preparedness derived from our experience with many cycles, dictated our plans and governed our actions.
Our Observatory remained open until we were instructed to close by the authorities. Happily, none of our Observatory personnel contracted the 19 during this period. Our CapEx teams remained at work to fulfill our obligations under our signed leases not commenced and our long term capital plans until they too were instructed to cease work by authorities. Even today, essential work continues in our New York City portfolio as governed and limited by authorities. We have had no interruption of construction in our Connecticut portfolio.
Our buildings remained open, clean and safe for our tenants' use while we follow the guidelines from authorities. Our business continues as witnessed by the leasing activity and financing we completed towards
the end of the quarter.
Our leasing team has done an excellent job to advance the leases we still have underway and the new leases that certain prospects wish to continue. We have utilized a combination of work from home and small rotational crews at our buildings. Our transition team led by President and COO, John Kessler, has continued its timely and excellent work with special callouts to Greg Fajet in IR, John Hogg in FP and A and our Treasurer and Acting CFO, Drew Prentiss. We have maintained company spirit with extensive employee engagement activities from midday stretches to end of work trivia contests From our ESRT Quarantine Playlists to end of week quarantinis, our culture committee deserves special commendation for their excellent work. We have provided counseling and assistance to employees in need and tracked all incidents of confirmed and probable 19 infections amongst our salaried and union colleagues.
Special callouts to our Chief Talent Officer, Jackie Burns and her team Ziv Sultana, our Crisis Manager Coordinator and Suresh Rangarajan, our Chief Technology Officer and his team for flawless execution. Our Board and I have gratitude and appreciation for the hard work of all ESRT employees during this time. I would like to take a moment and pause as we honor the memory of family of our team who have passed in this time of unprecedented challenge. For years, I have said repeatedly that we would maintain the balance sheet to execute our strategy and provide for future growth. During that period, we have been criticized for too much cash in our balance sheet, too low leverage, failure to repurchase stock and failure to buy at what we have repeatedly said we thought was a market top.
We have avoided exposure to fads like co working and short term leases. As of the quarter end, we held over $1,000,000,000 in cash on hand. Commenced in early March and through April 22, we purchased 8,500,000 shares at a weighted average price of $9.37 per share, totaling $79,800,000 in aggregate. We have taken advantage of volume when it was available and limited purchases during periods of lower volume through a combination of open window purchases and subsequently through an in place 10b5-1 program. I have said in the past that we do not wish to use stock repurchases to inflate our share price and we do not feel we have impacted our stock price with our purchases.
We believe shareholders will benefit long term from our purchases. As we look forward, I am pleased to announce that we have appointed a new EVP and CFO. Please watch for our press announcement and 8 ks, which will follow today's market close. We are also very close to the announcement of our next hire, a Chief Investment Officer, to build our external growth initiative to take advantage of our balance sheet and an environment that we feel will offer the opportunities upon which we have maintained the ability to act. While it is presently closed, the excellent better than market performance of our Observatory in the 1st 2 months of 2020 disclosed on Page 19 of our investor presentation, even without the annual bump of Lunar New Year trample from China gives us great confidence for the future.
There is only 1 Empire State Building. Its brand is better than ever and we look forward to the future with this in mind. Finally, a congratulations to our Director of ESG, Senior Vice President and Senior Leasing Counsel, Justine Urbatey and Dana Robbins Snyder, Senior Vice President of Energy and Sustainability for the excellent work and the expanded actions disclosed in our proxy. I will now turn the call over to John Kessler.
John? Good afternoon and thank you, Tony. In the Q1, we had a healthy January February across the business prior to the early disruption from the emerging pandemic. We saw steady leasing activity and a strong pipeline, and the Observatory showed significant revenue growth post completion of our redevelopment at the end of last year. In the remainder of today's call, Tom Durels will speak about the Q1 leasing results and how we have responded to the COVID-nineteen impact on our business.
Greg Fajet will then review our financial performance and balance sheet, and Tony will then provide some additional details on our outlook for the Observatory. As always, we are joined by Drew Prentiss, our Chief Accounting Officer, Treasurer and Acting CFO and John Hogg, our Head of Financial Planning and Analysis, who can also assist with questions. In March, we completed our planned actions to bolster our already strong and flexible balance sheet. We are grateful for the excellent work by our team and our wonderful financing partners. In 2 financings, we raised $300,000,000 in net incremental cash proceeds at attractive all in blended costs of approximately 3.6 percent inclusive of the effect of swap agreements and with a weighted average maturity over 8 years.
In the first transaction, we raised $175,000,000 in a private placement of 12 15 year unsecured notes to Prudential, NetLife and AIG. In the second transaction, we proactively refinanced our existing 265,000,000 dollars unsecured term loan, which was due in 2022, with 2 new unsecured term loans totaling 390,000,000 dollars which mature in 2025 and 2026, respectively. This term loan financing generated net incremental proceeds of $125,000,000 To ensure adequate liquidity, not just for a very extended runway of operations, but also to take advantage of new opportunities, we have drawn down $550,000,000 under our $1,100,000,000 unsecured revolving credit facility. As of quarter end, we held over $1,000,000,000 in cash on our balance sheet and continue to have ample undrawn capacity under our credit facility. We will now assess potential longer term options for financing to restore the full credit facility drawdown capacity.
Finally, I would like to add my welcome to our new CFO and to say it has been a great experience to lead our transition team as we have executed at a high level and not miss a beat during our nearly 1 year without a permanent CFO. I'll now turn the call over to Tom Durell. Tom?
Thanks, John, and good afternoon. Today, I will comment on our Q1 leasing results and then provide insights into our operations during the COVID-nineteen situation, including April rent collections, rent deferral requests, actions taken to reduce operating expenses and capital improvement costs and preparations for when shelter in place orders are lifted. First, a word about our properties and our staff. As Tony mentioned, all of our buildings have remained open during the current crisis to all our tenants who provide essential services as permitted by the authorities. We thank our dedicated building staff who make this possible.
They are well prepared and trained and we are incredibly grateful for their work and commitment to serve our tenants as we continue with day to day pivots and course corrections. In the Q1, we signed 35 new and renewal leases totaling approximately 149,000 square feet. This included approximately 94,000 Square Feet in our Manhattan office properties, 24,000 Square Feet in our Greater New York Metropolitan Office Properties and 32,000 square feet in our retail portfolio. The most significant new lease signed during the quarter was a 23,000 square foot new retail lease with Starbucks as reported in the Real Deal yesterday that will occupy 3 levels including the recently vacated Northeast Corner Store at the Empire State Building. This unique concept will be a tremendous amenity, providing an engaging experience and amenity for our office tenants and the servitory visitors and a destination attraction, allowing time for to relocate our recently extended term with our move of an existing Chipotle store, we expect Starbucks to be opened in 2021.
During the Q1, rental rates on new and renewal leases across our entire portfolio were 3.4% higher on a cash basis compared to the prior cash escalated rents. And at our Manhattan office properties we signed new leases at a positive cash rent spread of 19.4%. Except for lease transactions that were in negotiation prior to the city's order to shelter in place, lease prospect tours have stopped and new leasing activity has slowed to a trickle. While physical showings are prevented by order of the authorities, we remain fully engaged with the brokerage community with digital outreach and virtual space tours. We will continue to do these online social interactions after the shelter in place order is lifted.
Moving to rent collections. As shown on Page 8 of the investor presentation, as of April 20, we collected 69% of our total April rent charges, with 73% for office tenants and 46% for retail tenants. To the extent we apply the applicable portion of security deposits, which we hold as cash or letters of credit, we will have collected 87% of the total April rent charges with 93% for office tenants and 59% for retail tenants. Such application is currently in process and will require impacted tenants to restore their full security deposits. We have received requests for rent deferral from 170 office and retail tenants that represent approximately 32% of our annual rental revenue.
3 tenants represent approximately 8.8% of an annualized rent and have agreed to deferral terms in documentation. Before any consideration to any tenant request for rent deferral, we require that tenant provide an explanation of the actions taken to mitigate the impacts of COVID-nineteen on their business, current financial statements including recent monthly comparisons to prior year, proof that the tenant has applied for financial relief through the CARES Act and verification that a claim under their insurance policy has been submitted in the event that the federal government provides new supplements to typical exclusions and limitations on business interruption insurance in response to the COVID-nineteen situation. We then assess each request on an individual basis. Deferral requests to date have generally been for no more than 3 months. Our smaller food and service type retailers have been hit particularly hard.
They provide critical amenities and service to our office tenants. Our plan is to convert the remaining 2020 fixed rents to a percentage rent structure with a payback of the difference between current and percentage rent over a defined period. We want these service and food providers to reopen so that they are there to provide services when our office tenants reoccupy. Given the current disruption, it is logical to suspend temporarily an update of our 4 growth drivers. We continue to provide on Page 6 of our supplemental, the schedules of free rent burn off and signed leases not commenced.
For the timing of lease commencement, specifically the GAAP revenue components, we assume a July 1st date for when the government mandated suspension of non essentials construction will be lifted. Our quarterly supplemental continues to provide the details on vacant space without an estimate of market rent. We have provided the historic mark to market for the office and retail space and will not speculate on taking rents given the absence of leasing activity. We have scaled back certain building operations in cleaning, security, lobby concierge and recurring maintenance, which will reduce costs until buildings are repopulated. We estimate that these efforts will reduce operating expenses by approximately 25% from 2019 levels or approximately 40 $1,000,000 to $45,000,000 on an annualized basis.
A portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries. Our operations team is hard at work to maintain plans for when work from home orders are lifted and our tenants reoccupy our buildings to ensure a safe, clean and healthy work environment. These plans involve additional staffing, cleaning and maintenance and changes to building operations for building access by tenants and their guests. All New York State capital improvement work except for essential work is defined by the authorities, which includes safety related and work demobilize previously started projects, has been stopped until such time that the government restrictions are lifted. The spend is significantly curtailed under the current restrictions.
Work continues in Connecticut as permitted by the authorities. We have looked at every one of our leases for where we have an obligation to complete work. We have notified tenants where appropriate of the force majeure event, which will extend completion dates without penalty. Despite the challenge of the uncertain near term environment, we continue to believe in the long term demand for office space. Most of us have now experienced the inefficiencies of working from home and missed the connectivity and productivity that an office environment provides.
That said, we believe the pandemic may cause some fundamental changes to how tenants use their office space in the future, including less densification and smarter open floor plans with appropriate spacing. We also believe current co working build outs are too dense and will be poorly positioned for tenant demand in the new paradigm. We believe in the resilience of New York City and the demand for employers and employees to be located here. New York City has recovered from past economic cycles and external shocks and come out stronger, more diversified and more vibrant each time. For now, we continue to run our business and serve our tenants as allowed by the guidelines and instructions of the authorities and preserve value for our shareholders.
And now, I will turn the call over to Greg Pizzet. Greg?
Thanks, Tom. For the Q4, we reported core FFO of $54,000,000 or $0.18 per diluted share. Same store property operations, if you exclude one time lease termination fees and the Observatory results for the respective periods, drove a 4.8% increase in cash NOI. Turning to our Observatory operations, we started the year off on a strong basis following the conclusion of our Observatory redevelopment project in the Q4 of 2019. Revenue for the 1st 2 months of 2020 was up 13.2% compared to the 1st 2 months of 2019, reflecting previously announced pricing actions.
Visitation was flat in this 2 month time period compared to the prior year. This attendance and revenue growth occurred despite the absence of Chinese New Year activity in January and a pullback in demand in March from European countries where COVID-nineteen was rampant. In the first half of March, the Observatory saw lower visitor density. We followed the mandate of government authorities and closed the Observatory on March 16. Page 16 of our supplemental details our Observatory results.
Revenue for the Q1 of 2020 declined to $19,500,000 or 5% from the prior year period, driven primarily by the aforementioned Observatory closure. Observatory net operating income decreased 12.3% to $11,400,000 The Observatory hosted approximately 422,000 visitors in the Q1 of 2020, a decrease of 29.8% compared to the Q1 of 2019, primarily attributable to the 15 days that the Observatory was closed in the quarter due to the COVID-nineteen pandemic. Now for a word about our strong and flexible balance sheet. We have looked at our near term cash requirements as part of our stress testing analysis and believe we are in great shape, leaving us with significant capital to deploy opportunistically as we see fit. As of March 31, 2020, the company had total debt outstanding of approximately $2,500,000,000 on a gross basis and $1,500,000,000 on a net basis.
The company's total debt has a weighted average interest rate of 3.6% and a weighted average term to maturity of 7.2 years. Our consolidated net debt to total market capitalization was 35.5 percent and consolidated net debt to EBITDA was 4.4x. We have no near term maturities and a well laddered maturity schedule. Our revolving credit facility expires in August 2021 and has 2 6 month extension options. Our next maturity is until November 2024.
And last, we would highlight that we have no joint ventures, no WeWork or similar new generation shared office tenants and no dead book. I would like to add my own welcome and congratulations to our new CFO. I look forward to working with her. Finally, thanks to John Kessler for his leadership of the transition team. Now, I will turn the call over to Tony to provide some additional thoughts on our Observatory business as we think about it on a go forward basis.
Tony?
Thanks, Greg. Before we go to Q and A, a little more information about the Observatory expenses and a view of how a reopening may look. On expenses, we have reduced our annualized expense run rate from $35,000,000 in February to $14,000,000 a 60% reduction. There have been certain wind down costs that have continued in April and we will reach this run rate in May. Approximately 2 thirds of the reduction is attributable to lower payroll costs as we furloughed staff and the balance is due to lower operational and other costs.
We anticipate we will initially reopen on a reduced hours basis and most of these expenses will come back when we reopen. Our remaining costs relate to payroll for our management and sales staff, certain fixed operating costs, skeleton, custodial and security crew and other contracted costs. With respect to our outlook for a reopening, our current base case for admissions ramp up is outlined on Page 20 of our investor presentation. It assumes 2019 monthly levels as the baseline visitation comparison reference point and that we will reopen on July 1. We anticipate an opening of July 1 with admissions at 20% of the 2019 level and we subsequently project that admissions will ramp up 40% for the August 2020 through March 2021 period.
By Easter 2021, we expect admissions to be at 60% of the 2019 level. Admissions then ramp up to 75% by June 2021, followed by 90% in August 2021 and hold for the remainder of 2021. We anticipate return to full admissions by January 2022. These estimated visitation levels are entirely of our own derivation and just happen to align with certain independent consulting work of which we are aware that was prepared for other market participants. We anticipate initially that we will have a higher local visitor mix, followed by a ramp up of nationally sourced travel and then followed by a restoration of our typical visitor mix that is approximately 2 thirds international that will not be achieved until the broad resumption of international air travel sometime in 20 22.
While the Observatory has been closed, we have remained relevant and active in the promotion of our brand through numerous social media initiatives. As known broadly and shown on Pages 3637 of the investor presentation, we are the heartbeat of New York City and have achieved significant growth and engagement metrics in our digital social presence. These results along with the reported results from the 1st 2 months of 2020 give us confidence that we are well positioned for when the Observatory reopens due to the authenticity and iconic status of the Empire State Building. We believe when the dust clears, we will emerge stronger than ever as the brand and icon of New York City. With that, I would like to open the call for your questions.
To keep the call moving, as always, we ask that each participant limit him or herself to one primary question and one follow-up and rejoin the queue if you have an additional question. Operator?
Thank you. We will
now be conducting a question and answer session. Thank you. Our first question is coming from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.
So Tony, I appreciate the commentary here, particularly surrounding the balance sheet and kind of how you guys have been deliberately conservative there and now potentially have the ability to unleash it. So I'm just curious on 2 things. Number 1, what's the incremental appetite for buybacks here? And then just number 2, with the hiring of a CIO, I mean, are you guys expecting to see a real ramp in opportunities coming on the other side of this?
Thanks, Greg. First of all, the buyback is a decision made from time to time. We have unused capacity in our Board authorization. In all cases, our effort is to buy at a time when we can avoid impact on our stock price. And that means candidly, we can take advantage of really significant volumes.
It's harder when there's thinner trading. Outside of that, I would say that we look at how we deploy our capital in the way that's going to create the greatest benefit over time and really don't want to add any more other comment with regards to the buyback. With regard to our plan, we do have for external growth, our plan for external growth, we do have a candidate that is will shortly be announced, number 1. Number 2, just some color, candidate is from a private equity background. We expect to build out a team and we do think that this situation will create a significant change in the economy and in the valuation and availability of assets.
And we view this as a really a 12 to 36 month opportunity set. And I've always said, we've always said we've come to a fork in the road, we'll take it. We think this is a fork in the road and therefore it's time for us to move to this different footing.
That's helpful. And just as a follow-up, would you guys be interested in if there's any dislocations in buying debt positions or are you solely focused on kind of equity positions?
We look at equity joint venture, we look at participations. We will look at fee positions. We will look at ground lease positions. We will look at senior preferred equity. We will look at mezz.
We will be omnivorous opportunivores. That is what we were in the past before our IPO. That is what we will be going forward.
Great. Thank you.
Our next question comes from the line of Jason Green with Evercore.
Please proceed with your question.
Thanks. On office collection coming in at 73% so far for the month of April, are you able to elaborate on the tenants that are driving this figure lower, whether it's their average size or general common characteristics?
Hey, Jason. This is Tom. What we've seen is that as of April 20, there are roughly 170 office tenants representing about 32% of our annualized rental revenue have requested rent deferrals. We've seen tenants make deferral requests, tenants of all sizes, public companies, private companies and companies in various industries. Clearly, there are certain industries that have been more severely and directly impacted by COVID-nineteen, particularly those with direct ties to retail, hospitality, travel and then even some of the advertising consulting and legal firms that support those businesses.
I'll say that we have seen opportunistic requests by both office and retail tenants with good balance sheets and credit, and we're surprised by those requests, and we will pursue aggressively collection of rent. These tenants are obligated to pay their rents. But overall, the tone out there by tenants is to conserve cash, lengthen the runway of cash spent through the downturn and some of this approach has showed up in tenants' attitude towards rent payment. We'll work with some tenants on deferrals. We will reject certain deferral requests and we will pursue all collections across the board.
What we saw in April is not an indication of the future and at this point we certainly can't make any prediction about May in the months ahead.
Got it. And then just on the capital allocation side, I mean, how should we think about the $1,000,000,000 of capital you have for some of these collection issues that you guys are experiencing? Can you opportunistically utilize capital in this environment? Or do you
need to see collections back to
a normal level before you do so?
This is Tony here. We have done extensive stress testing of our company model. We have done this internally through a granular breakdown of our expenses. We have modeled a broad variety of run rate and runway length experiences. We have reviewed this in pieces and with our finance committee.
It will be a presentation to our Board shortly. And we believe that we have two things going for us. Number 1, we have the $1,000,000,000 of cash, but we can always increase that to $1,500,000,000 with our line. And again, on that first leg on the finance side, we will proceed with as to look at terming out those borrowings against our line so that we have an opportunity to restore that. And number 2, we have the strongest balance sheet amongst our peers possibly aside from companies and liquidation and the office sector in total.
We have the ability to commit new capital. We, with confidence, continued our share buyback. We feel very comfortable that this is life during wartime, if you will. And the fact is, this is where we should shine, and we look forward to the opportunity.
Got it. Thank you.
The next question comes from the
line of Manny Korchman with Citi. Please proceed with your question.
Hi, it's Michael Bilerman. I'm not here with Manny, but Manny is on the phone with me. Tony, I wanted to go through a little bit the decision to hire an actual CIO. If you go back to the IPO process a number of times on these conference calls, you've talked a lot about your relationships, your family's relationships with potential other families and investment opportunities that have come about. I think about your executive management team today, the top 5 executives are making close to $30,000,000 Total G and A is approaching $65,000,000 in aggregate.
You are still acting as CEO. You have Kessler as a President. Durels obviously has the operations. You'll be hiring a CFO that sounds to be much more CFO esque than acting as a quasi capital markets investment person. If I'm struggling, why hire another person into an already pretty bloated management team that has the relationships relative to the size of your enterprise, which is about $6,500,000,000 $7,000,000,000 gross assets.
So can you sort of explain a little bit how you sort of see this evolving in different roles and responsibilities across the management team?
Michael, I think it will be clear what our actions will be towards your thinking and your question in the months ahead.
I guess what is that? Are you realigning your existing management team? Or are you reducing base salaries or comp of the existing management team to fit more people in? What does that mean?
As I said, I think it will be clear what we are doing in the months ahead.
What you are doing on
the management team or were you
doing on the external growth I'm just trying to figure out what question you're answering.
Marco, your question wasn't about external growth. Your question was about the if I recall correctly, the term used was bloat. And we will be clear on our actions in the months ahead.
Okay. Thank you. Your next question comes from the
line of Jamie Feldman with Bank
of America Merrill Lynch. Please proceed with your question.
Great. Thank you. I was hoping you could dig down a little deeper into 32% of the tenants that didn't pay April rent versus the 8% that sounds like you're going to give deferrals to. How do we think about what's in that pool? Does it include any of the tenants on your top 20?
And how do we kind of handicap the buckets of which how much of that is opportunistic versus how much of that is stuff that you will seriously consider?
Hey, Jamie, it's Tom. I will just have to repeat some of the comments I made before, but as I said, we've seen requests for deferral from tenants of all sizes, public companies, private companies and in various industries. And certainly those tenants with direct ties to retail, hospitality and travel have been more severely impacted. But then as you work down the tenant list to some of those appropriate firms that have tied to those businesses such as in consulting and legal have also been impacted and they've made requests. We're going through a very methodical approach.
We are not ramping blanket deferrals across the board. There's not one formula that fits all. In fact, just the opposite. We have established SOP. We take very clear, deliberate steps with our tenants.
We seek information from them that we've outlined in our investor deck. And those requests range from updated financials, seeking a verification of tenant as applied for financial support under the CARES Act. We want to understand the impact to their businesses and then actions taken to reduce costs. And then of course we're looking at the existing lease and the condition of our space and things like that. We are also looking at opportunities to extend term or do early renewals where we think there's an economic benefit and it makes sense for us.
But for those tenants that have taken an opportunistic approach to seek a deferral or not pay their rent, we will aggressively pursue collection of the rent. But candidly, we're surprised by some of those requests. So there are tenants with good balance sheets that have the ability to pay the rent and we will pursue them.
Okay. Can you say how much of that 32% is comprised of that last group you were talking about?
No, we haven't provided a greater breakdown than what I've already provided. As we did report, we have agreed to 3 deferrals that represents about 8.8 percent of the rental revenue. But again, as we move through this in a very methodical approach, certainly we will give further updates.
Okay. That's helpful. And then thinking about just when people start to go back to work, two questions. One is, can you talk about what tenants are requesting, what type of changes tenants might be requesting immediately to their workspaces and kind of building flow or anything like that? And then also to the extent there need to be upgrades to air quality and ventilation, do you think your portfolio that would take a lot of CapEx to your portfolio to be able to meet those standards or the renovations you have done already are at the highest end?
Yes. I think it's a really good question, Jamie. And I will say at first, we will follow the guidelines laid out by the government authorities and in new guidelines that come out with. But as I commented in my opening remarks, our operation team is incredibly hard at work in the development of plans for when our tenants return to work. Those protocols, which will be guided by the authorities but augmented by our own considerations, may include things like temperature checks through thermal scans, requirement of face masks before entry to the building, hand sanitizing before entry to our buildings, that's going to apply to tenants, building employees, visitors, vendors, contractors, delivery personnel.
We'll look at staggering and restricting certain deliveries. We will require food delivery and pick ups by tenants outside the building lobbies. We will certainly increase our frequency of cleanings in high touch point areas, require social distancing in lobbies, stagger occupancy of elevators and then we will also use a reservation system to limit the number of persons allowed into our gyms and other amenity spaces. There may be some added costs and staffing costs associated with these, But I view most of the changes being operational in nature along the lines of what I just mentioned and many of our tenants have requested the things that I just stated and we give our tenants updates in regular town hall meetings. As far as air filtration systems, we already meet or exceed ASHRAE's 62.1 standards for ventilation and we spec and use MERV 13 filters, which are high performance filters for all our fan systems.
And we already perform annual indoor air quality testing in all our properties and we'll look to see if we want to increase the frequency of those air testings.
Okay.
And is that the air quality you are talking about, I mean, is that standard across a lot of New York City or because you have done so many renovations that's actually you kind of upgraded all of that?
We exceed the industry norm. MERV 13 filters are high performance filter.
And that's in all of your buildings?
Yes, except for where we have a handful of legacy systems. But for the vast majority of systems out there, they're currently using MERV 13 filters.
Okay. All right.
Thank you. This is helpful.
You bet.
Our next question is from the line of John Guinee with Stifel.
Please proceed with your question.
Great. Thank you very much. Nicely done, guys. Question, just looking and doing the back of the envelope, so I might have this wrong. But it looks like your cash balance went up by $775,000,000 this quarter, but your debt outstanding went up by $843,000,000 So that's a $68,000,000 gap.
How much of that went to share repurchases in the quarter and how much of it was just cash bleed?
Hey, John, it's Craig Fushee here. The vast majority we gave you some details there
in the share repurchases was $80,000,000 The vast majority of it did occur during the quarter, but there's some remaining CapEx that's also detailed in the supplemental.
So how much of the $80,000,000 was spent in 3Q and how much was spent in 4Q?
I am sorry,
you are talking about 1Q? I think
you gave me one more I
think you gave me one more time
to view, John, don't you?
Yes. I am sorry. We're not going to break out the share repurchase. We're just giving you a year to date total there. I'm happy to talk about the CapEx offline if you want a little more color.
Okay.
And then the share count went down.
It's safe to say, John, as to Greg's earlier comment that the meaningful component of this took place in the Q1, but a very meaningful component that also took place in the Q2.
Why would you not give this answer?
We will talk about it. We will talk about it. Jeff will talk to you. We did not.
Okay. All right. Hey, Tom, I was looking at your lease economics for this last quarter on both Greater New York and New York City on Page 78. And as you know, they were extraordinarily weak. I think you spent $120 a foot to have rents go up 3.4% in the city and out in
the suburbs, you spend about $55 a foot, maybe $60 a
foot to have rents go down by 8%. Is that the new normal or is that just a bad hair day?
I think it's a good question, John. Thanks for raising it. I would first point to you on Page 15 of our investor presentation that talks about our historical net effective rent growth, but specifically this quarter with regards to lease costs, our lease costs for office for Manhattan were about $14.62 per square foot per year, which is higher than where we have been trending over the last 4 to 5 quarters, but this was due to a higher percentage of our leasing was comprised of 1st generation prebuilts. And in fact, roughly 2 thirds of our leasing in Manhattan was for 1st generation new prebuilts. Now the good news is, as we've seen in prior quarters, depending on the volume of leasing that we're doing and depending on the mix of spaces, But what we've seen is that when those 1st generation pre booked go to 2nd gen, we spend significantly less leasing costs.
So that will appear in later quarters. Next on retail, we did have higher leasing costs related to the Starbucks lease that was announced by the press. We think it's a unique deal and what it brings to the building. And then we did have some relocation costs, one for Chipotle in connection with a relocation that's necessary to implement the Starbucks installation and a FedEx relocation down at Union Square in order to consolidate the corner. So I think that these were this was a unique quarter from those two perspectives, higher percentage of 1st generation pre builds and then these unique retail leases.
Great. Thank you.
Hey, John, just a quick follow-up. I want to get back to you
on the share repurchase activity. It was $61,000,000 in the Q1.
Thank you. As a reminder
And John, Tony, John, we're not trying to be cute here. We're all of us in different locations. And so it may take a moment to go forward. You know us well enough to know we are not cute. We are not that attractive.
Thank
you.
The next question is from the line of Daniel Ismail with Green Street Advisors.
Great. Thank you. I understand it's still a bit early, but can you maybe share any insights on the conversations you're having with both new and renewal tenants on rental rates and tenant concessions?
Sure, Dan. This is Tom. As I mentioned in my opening remarks, new leasing activity is largely frozen at this time. Lease physical lease tours have stopped, But we have seen some leases that were in negotiation before the shelter in place orders have continued. Some of those leases and term sheet remain in negotiations.
Some have been placed temporarily on hold and we expect that they will resume once the shelter in place orders have lifted and some deals have died. So we're seeing a bit of a mixed bag out there from the carryover of the activity we had in the first beginning of Q1. But as far as new leasing activity, it's pretty much frozen at the current time until lease tours can resume and the shelter and place orders are lifted. We are in discussion with a number of tenants on renewals. Into the Q2, we signed a good sized renewal lease out in the Greater New York Metropolitan Portfolio and have some other renewal activity underway right now.
But so anything you could share on the rental rates or the mobile
concessions for those leases? Yes. As far as rental rates, with the absence of transactions, there really are no comps and it's really difficult for us. We cannot speculate. So it's as in fact, as you see in our investor presentation, we removed the market rates typically shown in our mark to market slides.
But at this point, where we are right now with the absence of transactions and there not being any leasing comps, we just don't want to speculate on where asking rents are headed.
Okay. And then maybe just if I
could sneak one in. If I
take a step back, is
there anything specific about the Empire State portfolio that would make it more or less impacted by these type of rent collections? Or I guess said differently, is this a citywide it would be comparable across Manhattan Offs landlords, this level of land collections?
Well, I think our portfolio is a pretty good reflection of the broader market and economy because we have a very, very diversified portfolio and a diversified rent roll. And we have seen these requests come in from a variety of tenants. So as I mentioned earlier, there are those industries that are clearly more directly and severely impacted. What we do like about our portfolio and our rent roll is that it is diversified. We are multi tenanted and we think that at least it gives us some protection going forward.
We're not too heavily weighted in one single industry. But beyond the remarks that I made earlier, I can't really give any further insight.
Great. Thank you.
You bet.
Thank you. The next question is
from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks. Good
afternoon. Just following up on Dan Schuhl's question, Tom, you guys have done a good job of capturing some of the additional demand from tech tenants that has come to the city this cycle. And I think before the coronavirus hits, there was an expectation for a substantial amount of leasing to be done by some of the large tech players that were growing their footprint in Manhattan. Can you comment at all on what you're seeing from those guys and tech tenants in general? Are they going ahead with leasing?
Is that leasing on hold? Or is there any chance of them just backing away from those expansion plans?
Well, I would prefer that you refer those questions to those other landlords that you may be talking about that are in negotiation or having a negotiation on some large tech deals. But I will say overall, we have certainly seen an increase in the tech demand in the city. And as you know, within our portfolio, we have a good collection of really high quality tech tenants that includes Microsoft, the length of division of Microsoft, Expedia, Shutterstock, Workday, ServiceNow, Anaplan, these are all really, really solid tenants and they had been growing with us pre shutdown and I'm happy that they're in our portfolio and I look for more growth going forward. But as far as those active lease negotiations, of course, we hear things, but I really would not want to comment on those other activities.
Okay. That's fair and helpful response.
And then just real quickly as
a follow-up, sorry if I missed this, but can you talk about the terms of deferral that you guys have agreed to thus far? I think you mentioned on average you're deferring for 3 months. How long are you giving them to pay back that deferred rent or is that also kind of on a case by case basis?
Yes, Blayne. First, just remember, we're not necessarily approving every deferral request. We will reject many deferral requests. On average, the requests have come in for a 3 month deferral or less. And as a reminder, this is we will only consider a deferral, not an abatement.
Generally, we're looking for a payback within 12 months or less. And then separately, opportunistically, if there's an opportunity to recast the lease or do a blended extend or do an early renewal where it makes economic sense and the tenant has a good business, then we'll certainly look at those opportunities. But generally, the payback is 12 months or less and a 3 month deferral or less.
All right. We're going to move to the speed round here because we realize people are going to want to get to the SL Green call. So that's one more call. We have some closing comments to make. One more question.
Let's keep it quick.
Thank you.
And the next question is from John Kim with BMO Capital Markets.
Thank you. Can you provide
any more color on why you decided to draw down the line at this time without the use of proceeds? Did you fear of any like counterparty risk or any of the capital?
We are concerned of what occurred in prior crises. So with our Board, we decided to flex our minds.
On the investment team and CIO hires, are you contemplating providing any capital to your tenants or making any investments outside real estate?
No.
If I could squeeze in
one more, the $170,000,000 deferral request, are any of those related to May?
No. Let's go to DMO, please. Operator?
Yes. We have Mr. Kim from BMO on the line.
Did you
see Mr. Kim?
The deferral request, are any of them related to May rent or
is that just for April? Yes, John, it's Tom. The deferral request came in April. Some of those have paid upper rents and still seeking as much as a 3 month deferral, which would commence in May.
Great. Thank you. Thank you.
Mr. Malkin? Okay. That's a wrap. Just as a reminder, if we could please, the depth and breadth of our disclosures this quarter are unusual and specifically to address the SEC direction to share the impacts on our business of the 2019.
We will anticipate that on our return to normal, much of this additional disclosure will fall away. Ted, the kindness and compassion towards each other and the opportunity to engage with each other helps. A good luck will see us all through this, and a good balance sheet helps as well. Things will continue to develop over time. Please remember that forward statements on plans to reopen our Observatory and return to business are for discussion purposes only and to help you with your models.
They are not guidance nor are they guarantees. So we thank you all very much. We'll be busy on our end and we look forward to our Q2 results in July. Until then, please stay safe and onward and upward.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.