Greetings, and welcome to the Empire State Realty Trust Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Keltner, Executive Vice President, General Counsel and Secretary.
Thank you. You may begin.
Good afternoon. Thank you for joining us today for Empire State Realty Trust 4th quarter 2019 earnings conference call. In addition to the press release distributed last evening, a quarterly supplemental package with further details on our results and our latest investor presentation
have been 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 the 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, 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. Finally, during today's call, we will discuss certain non GAAP financial measures such as FFO, modified and 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 John Kessler, President and Chief Operating Officer.
Good afternoon and thank you, Tom. Welcome to our Q4 2019 earnings conference call. TeamViewer is very pleased with our quarter, and here is the run of show for today's call. Tom Durels will speak about the 4th quarter's approximately 346,000 square feet of leases, market demand for our properties and our market leading leasing spreads. Greg Faje will then review our financial performance and balance sheet.
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, can also assist with questions. In the Q4, we completed our multi year redevelopment of the Empire State Building Observatory. Visitor feedback has been positive and the 4th quarter Observatory results will be covered in more detail later in this call. In addition, we completed the $62,000,000 exchange offer for our 2019 series private perpetual preferred units. This oneone exchange of $4,600,000 operating partnership units or perpetual preferred units is accretive for shareholders, locked in effectively permanent capital and reduced our fully diluted share count without using any of our cash.
We also renewed our $500,000,000 Class A common stock and publicly traded operating partnership unit repurchase authorization through December 31, 2020. I'll now turn the call over to Tom Durell. Tom?
Thanks, John, and good afternoon.
By every measurement, our 4th quarter was another strong quarter during which we made solid progress on our 4 drivers of top line embedded growth. The breakdown of these top line revenue growth drivers, which as of December 31, 2019, over the next 5 years we estimate to be $99,000,000 can be found on Page 7 of our investor presentation. For reference, this compares to $559,000,000 in trailing 12 month cash rental revenue as of December 31, 2019. In the 4th quarter, we signed 47 new and renewal leases totaling approximately 346,000 square feet. This included approximately 200 25,000 square feet in our Manhattan office properties, 88,000 square feet in our Greater New York Metropolitan office properties and 33,000 square feet in our retail portfolio.
Significant new office and retail leases signed during the quarter include a 46,000 square foot new office lease at 250 West 57th Street with Concord Music Group and a 33,000 square foot new retail lease with Target at 10 Union Square East that is expected to commence after the existing tenants lease expires in 2023. As a reminder on Page 9 of our supplemental, we have maintained updated disclosure on potential vacates of renewals for leases that expire for the 4 quarters of 2020 full year 2021. This schedule shows tenants to be relocated within our portfolio and vacates to be replaced by new tenants with whom leases have been signed. During the Q4, rental rates on new and renewal leases across our entire portfolio were 20.2% higher on a cash basis compared to prior cash escalated rent. And at our Manhattan office properties, we signed new leases at a positive cash rent spread of 24.4%.
Our leasing spreads vary from quarter to quarter as they are a factor of expired fully escalated rental rates and new leases. On Page 27 of our investor presentation, we estimate our future cash leasing spreads on the release of future expiring Manhattan office leases will vary between 12% 19% based on the assumption of current market rents without any increase. Our weighted average Aspen rents in our Manhattan office buildings have increased by over 3% on a trailing 12 month basis and demand for our product locations and price points remains good. As we show on Page 12 of our investor presentation, our trailing 12 month net effective rent growth on a year over year basis for New Manhattan office increased by 14.8%. This is the 5th straight quarter in which we have experienced net effective rent growth in excess of 5%.
We have a healthy pipeline of leases and negotiation across the portfolio for both full floors and prebuilt. We remain focused on our strategy to vacate and redevelop space that we will bring the market for future lease up. And now I'll turn the call over to Greg Pizzet. Greg?
Thanks, Tom. For the Q4, we reported core FFO of $75,000,000 or $0.25 per diluted share. Same store property operations exclude one time lease termination fees and the Observatory results from the respective periods drove a 6.9% cash NOI increase. Page 16 of our supplemental highlights a 13.1% increase in Observatory net operating income to approximately $29,000,000 thanks to our completed redevelopment. Revenue for the Q4 of 2019 increased to $37,700,000 or 9.2 percent from the prior year period, driven primarily by improved pacing.
The brand new 100 and second floor observation deck experience was open for roughly 10 weeks in the Q4 and drove approximately $1,000,000 in additional performance compared to the Q4 of 2018 for a total 100 and second floor contribution for the quarter of $3,400,000 As reported on Page 16 of the supplemental, the Observatory hosted approximately 894,000 visitors in the Q4 of 2019, a decrease of 5.5% compared to the Q4 2018. For the 12 months ended December 31, 2019, Observatory revenue was $128,800,000 a decrease of $2,500,000 or 1.9 percent from the prior year period due to the closure of the 104 observation deck for more than 9 months and lower visitation, partially offset by improved pricing. Net operating income was $95,000,000 a decrease of $3,500,000 compared to the prior period. Excluding the 100 and second floor revenue in the respective periods, Observatory revenue was up 2.1% and NOI was up 1.7% over the same period. The Observatory hosted approximately 3,500,000 visitors in 2019, down 7.9% compared to the 3,800,000 in the prior year.
Our new pricing strategy for the new Observatory experience, which has been in place since January 2020, can be found at esbnyc.com just by clicking on the buy ticket button. Moving to our balance sheet, as of December 31, 2019, we had total debt outstanding of approximately $1,700,000,000 and no borrowing under our $1,100,000,000 unsecured line of credit. The debt has a weighted average interest rate of 4.03 percent and a weighted average term to maturity of 8.3 years. None of our outstanding debt has variable rates. We are well underway with our efforts to replenish our cash balance after the repayment of $250,000,000 exchangeable note in August 20 19.
We aim to finalize long term financing in the Q1 and we will provide final details at such time. As we have stated on prior earnings calls, if you were to take into account our interest rate swap, current spreads and tenure, the initial GAAP interest expense would be in the 4.5% range. As of December 31, 2019, our consolidated net debt to total market capitalization was 25.2% and our consolidated net debt to EBITDA was 4.1 times and we held cash and cash equivalents of $234,000,000 As we look ahead to 2020, please listen carefully to the following insight on items that we expect to impact full year results. First, we have now completed the redevelopment of the Observatory and the 100 and second floor observation deck is back in service. The 9 month closure of the 100 and second floor was an approximate $9,000,000 headwind to 2019 results that won't repeat in 2020.
In addition, we expect to benefit from our new pricing, which can be found on esb.nyc.com. 2nd, we anticipate higher G and A expense in 2020 than in 2019. As a starting point, we would annualize the Q4 2019 run rate of $16,600,000 as seen on Page 18 of the supplemental. When our officers and employees meet certain tests for length of service and age, there is an accelerated accounting vesting period for the time based equity compensation. This accounting treatment will result in $1,300,000 more G and A expense in 2020 than in 2019.
And last, please see Page 6 of the supplemental on which you can see that we have $29,000,000 of annualized free rent burn off, of which $20,000,000 will be realized in cash revenue for 2020 with the balance in 2021. And we have $23,000,000 of signed leases not commenced, of which we expect $4,000,000 to be realized in 2020 revenue with an additional $11,000,000 in 2021 and incremental $5,000,000 in 20.22 and an additional $1,000,000 in 20.23. With that, I'd like to open the call for your questions. To keep the call moving, we ask that each participant limit themselves to one primary question and one follow-up question and rejoin the queue if they have any additional questions. Operator?
Thank you. We will now be conducting a question and answer Our first question comes from the line of Jason Green with Evercore ISI. Please proceed with your question.
Just one question on Observatory visitation. I know revenue and NOI increased, but on visitation, are you seeing anything that gives you confidence that we're getting near a bottom that that number might start to increase year over year?
Hi, Jason. Tony Malkin here. I'm happy to say that our bottom line performance has improved as a result of the very well received redeveloped observatory. That said, I think we have to look at how we're going to perform over the year ahead. We have a new competitor in the Edge in Hudson Yards, which opens in March.
We have previewed the product and believe it will compete most directly with 1 World, Top of the Rock and One Vanderbilt when it opens. That said, we expect a lot of noise based upon the new competition and we had tough to see how the full year is going to unfold.
Got it. And then I guess I know it's difficult to track, but have you seen any quantifiable downtick in visitation due to coronavirus or just less tourism in general?
Well, the Chinese market accounted for approximately 3% of revenue in Q1 twenty nineteen. We disclosed that previously. And it accounts for a similar percentage of revenue on an annual basis. We have not seen a go to 0 here, but we have seen a reduction. While we had a modest headwind perhaps here, it is not as severe for us as the headlines would suggest.
Do keep in mind that while Chinese group travel to the U. S. Has been canceled in total, in early 2019, we began our shift away from this highly discounted source of visitors. So look, I think that there's no question we have a study that was put together of all flights to and from New York City from China. They are down to 6 weekly flights to and from China, all carriers around the world and these are just 2 Chinese carriers that are probably making these flights.
So that's said, there's no question there's a big impact there. I think that if we have a more broad
spread of this, we could have
a more broad impact. At the moment, it's really not material to us.
Got it. Thank you very much.
Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please proceed with your question.
Hey guys. Could you give us
an update on the CFO search?
Sure. Tony Malkin again on that subject. Our transition team has done and continues to do an excellent job. I'd point out that the high level of execution we have maintained since David Karp's departure demonstrates that ESRT's success as a team driven does not belong to any one person. That said, we have a lot of interest in this position.
We're not going to fill it till we have the right person. And as we've seen our team members step up post David's requirement, candidly, that helps us get a better definition as to who that right fit would be. So in short, very pleased with the way things are going, very, very happy with the work that's been done by Drew Prentice and John Hogg under the watchful eye of John Kessler. And it's really making sure we've got the right person on a go forward basis for us as we look towards growth in the future. And it's a different job definition than the one that David held.
So, a lot of interest, no rush, when we have something to report, we'll report it.
Great. And then, Greg, I know you had mentioned that you guys are still in process of sourcing the replacement debt for the exchangeable. I'm just curious, as you guys are kind of doing the calculus, I mean does it make sense to just flush the $9,000,000 on the swap and not replace the debt given kind of the cash balance you guys have versus kind of the capital needs you're going to have here in the next 12 to 18 months?
If we could, Kenny, knock in here. Let's just remember to be kind to everybody and ask one question. We'll answer this one, but we'll ask for you in the future just to ask one question and that way we rotate ourselves around and then we're going to be a chance to get his question in.
Hey Craig, John here. Just to respond there, I think as you know our plan has been consistent to replenish the capital from the exchangeable and that's why
we think we had the swap
in place that we did and I think that continues to be our plan. So other than that, we're going to we'll keep that swap in place until it makes sense to unwind it.
Great, thanks.
Our next question comes from the line of Manny Korchman from Citi. Please proceed with your question.
Hey, it's Michael Bilerman here. Tony, it's really hard to only ask one question, but I will for you. As we think about the unit exchange that you did and I know John talked about on the in the opening comments, how that didn't use cash and took a what was perpetual in the sense of common stock and made it perpetual in the sense of preferred. My understanding is while the liquidation preference is effectively where you bought it back at, how will that work in a buyout of that security, number 1. Number 2, it does carry a higher dividend, right?
So there is some cash leakage just from the fact that the preferred will carry a dividend yield of north of 5 relative to your common stock of about 3. So if you can address those two points about introducing more of these preferred securities, what happens in a wind up or in a take out of those securities and dealing with the higher dividend distribution?
Well, Manny, Michael, it's John. Just first on the topic of the dividend, so the private perpetual preferred pays a $0.70 annual dividend, which is above what our common dividend is, as you know. And that but the key is that it's obviously it's just a preferred and it's got a fixed return and it has the benefit of reducing our common share count. In the event of a liquidation of the company, there is a liquidation value, which is $13.52 a share. And then in certain other instances such as a capital transaction and M and A transaction, there are triggers where we have the ability to call those preferred in, but that would be at our option.
And in that case, it
would be at a premium preference.
And so they will not would they participate in that upside? So if someone
is not earning any tomorrow we would just
Yes. So you effectively
bought back right. So you effectively bought back $62,000,000 worth of stock. You're giving that $62,000,000 a higher rate at 5.2%. So, a $1,000,000 more of cash flow, but you've effectively locked in that massive spread relative to NAV to do it. Fair?
Yes. Way of characterizing it? Okay. Thank you.
And we will welcome another question from you, Michael, as soon as we make it through the queue.
Our next question comes from the line of John Guinee from Stifel. Please proceed with your question.
Great. Mr. Behrman's second question was that your G and A is up to $66,000,000 for the run rate, which is 17% overall cash NOI and 24% of cash NOI excluding the Observatory, how big an impact do you think that has on your share price?
John, this is Greg here. We carefully monitor our G and A and we've tried to communicate here to the streets as people understand what's coming as we look forward to 2020. It's something we look at in relation to our peer set and both the public peer set as well as the private real estate market we compete with in New York. It's a competitive market. And so we try and keep our competition in line with it.
And we're giving all the details to the streets that can pull digestion as they look out towards 2020.
Yes, that's John.
Tom Malkin here. We absolutely do maintain a focus on this. We have a couple of unique situations which will work their way through the snake as Greg laid them out. Specifically, we've got the unique situation that we've got some folks who are aging and leadership. And as they age, due to our retirement policy, even though the vesting doesn't change the accounting for the unvested stock which the issued does.
We also have the recognition that we've got some unique situations that we've begun to look at the folks who have deferred cash comp in exchange for stock and that's beginning to bite. And we additionally absolutely are looking at our total load. We're looking at our total load and our total expenses versus what we've got on the ability to put capital out there. And that's something that's a major focus of mine specifically in 2020. I would add, of course, that a significant component of the G and A is on the basis of performance, stock grants.
Well, the bottom line is we don't earn it, we don't get it. So, if our stock price doesn't perform and if our bottom line doesn't perform, then that G and A is actually overstated to the extent that those grants will not be earned. Thank you.
Next question comes from the line of Elvis Rodriguez from Bank of America. Please proceed with your question.
Good afternoon, gentlemen. Perhaps we can get an update on the target lease that you did in Union Square, maybe the mark to market on that lease and how long those conversations took and when will they actually occupy the space? Thank you.
Travis, this is Tom. The new lease with Target, which is for 32,600 square feet is for long term with nearly 16 years down at 10 Union Square East. That space has 22,460 Square Feet on grade and about 9,000 Square Feet on a low level plus 1,000 Square Foot Loving Back. And the blended rent for that store is $123 a square foot. So it's a blended rent on both the grade and below grade space in LendingDoc and that's equates to $4,000,000 in annual starting rent, which resulted in a 100% mark to market.
So we are doubling the rent from the prior full year store rent of the existing tenant. Now the existing tenant's lease does not expire until April 30, 2023 and the expected new lease commencement will be in January of 2024 on a GAAP basis that would be mid year of 2024 that is laid out on Page 6 of the supplemental.
Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Thank you. Good afternoon. I'd like to revisit one of my favorite topics, which is your signed leases not commenced disclosure on Page 6. So if you look at 2020, you have $4,400,000 of base cash rent that will be contributing and starting this year, the $4,400,000 for 20 20. Last quarter, that figure was 7,300,000 dollars and a number of tenants are no longer on the schedule of distinguished concerts, La Cite, institutional capital.
It looks like those leases actually started in the Q4 on a GAAP basis. But my question is, is that $3,000,000 difference, is that going to be contributing and be in addition to your Q1 2020 cash NOI here or has that already been recognized in the 4th quarter?
John, no. This is Greg here. No, the short answer to your question and we can walk you through it. I'll find the math behind it in detail so you can get firm grasp on the numbers, if that helps you.
I'm just wondering why those tenants are no longer on this list. I'm assuming it's because of GAAP recognition, but I'm just I would think that a cash contribution is still going to occur this year?
Yes. Well, the lease legally commenced. So those examples you said, it's when the lease legally commenced and they're under construction in the space. It's a good example. So if you look at like InterDigital as an example, right, the lease legally commenced in the quarter and they're under construction in the space.
So GAAP revenue begins a little bit later in the year and then cash revenue recognition behind that as an example, but we can walk you through individual leases offline if you want in detail.
Our next question comes from the line of Daniel Ismail from Green Street Advisors. Please proceed with your question.
Great. Thank you.
I was hoping you could
talk a little bit more about the leasing environment and outlook for 2020, and maybe specifically where you see concessions going for your Manhattan office portfolio?
Sure, Guillermo. This is Tom. Overall in Manhattan, our pipeline of activity for Manhattan office space remains solid. We have leases or proposals in negotiation on full floors and prebuilts throughout our portfolio and from a wide spectrum of tenant types and that includes a TAMI, financial sector, consumer product, professional service, non profit, you name it. We've increased, as I know before, our asking rents by 3% on a trailing 12 month basis on a year over year weighted average basis for our Manhattan office portfolio.
And of course, as I've noted previously, our actual trailing 12 month net effective rent growth on a year over year basis for our new Manhattan office increased by 14.8% this quarter and that's laid out on Page 12 of our investor presentation that also shows that our median Manhattan net effective rent growth for new leases over the last 5 years has been or last 5 quarters has been over 6%. We see good activity. We've got deals in negotiation, as I said before, on both full floors and pre builds beyond that. I'm not going to provide greater guidance, but overall, the activity is healthy. And then also, I'm sorry, you had asked about concessions.
I would point out that our average lease cost per lease year for TI and commissions for all new and renewal Manhattan office leases in the 4th quarter was $10.45 a square foot and that's very much in line with our average of about 10.25 for the past 8 quarters. So what we've been seeing is steady run rate on our average lease cost per lease year on lease on concessions combined with steady increase in rental rates and that's been producing the above average net effective rent growth.
Great. That's helpful. Thank you.
You
bet. Our next question is a follow-up question from the line of Manny Korchman from Citi. Please proceed with your question.
Hey, it's Michael Bilerman again. So I wanted if you can maybe provide some goalposts on the Observatory for 2019. I think Greg sort of referenced $9,000,000 of income of a loss in 2019 that won't repeat, right? So if you take the $95,000,000 of NOI that's listed on Page 16, ideally you're, I guess, at least indicating as a starting point getting to $104,000,000 1st calendar year 2020, the offsets being potentially if the coronavirus has a bigger impact on travel, tourism overall, not just from China, but other Asian regions, the competition from The Edge and eventually 101 and Vandy Open Draw offset by your revised pricing strategy. So maybe you can give us at least some range knowing that you've given us the $9,000,000 already, but just sort of dialing into some sort of guideposts for the Observatory deck for 2020?
I'll start and then Tony will add on to the comment.
Sorry, go
ahead, Tony. Please do. Michael, just to clarify, it's a $9,000,000 revenue impact from the 100 and second floor in 2019 that we won't have. Now it's the 100 and second floor is back online in 2020. So it's a revenue number, not an NOI number.
And then I'll turn it over to Tony.
So revenue in NOI then?
Correct. That's not an NOI, that's a revenue impact.
Yes. So what is that NOI impact then?
Yes. It's a fairly high contribution for the 102nd floor. We have not broken out, but it's a fairly high contribution.
So the margin, apply higher margin than the rest of the business?
Correct.
Okay. And then Tony, sorry.
I just need to clarify what Greg just said that the fact is that those are incremental dollars on top of fixed expenses. So I'm not sure if your question, Manny, were larger contribution, any additional revenue should flow. And as far as the business going forward, it's really very early. Nonetheless, I could say we're very happy to look at what we have accomplished with the new Observatory. The reviews have been spectacular.
The installation itself is great. The activity on social is huge. We are very happy to take a look at get a preview of what was going on at the Edge with Hudson Yards. While that is new competition, it is very clear to us that that is very much a sort of a one world experience with a nicer restaurant and an outside deck. It has an elevator feature similar to One World.
That's about it as far as special features. I think they're going to have an added charge opportunity during better weather involving some sort of limited activity where people cannot charge. We're pleased with the pricing. Our pricing remains at constant and available at any time. That's one of the beauties of the new exhibit.
It's really gotten rid of crowds inside the exhibit. People pace themselves through the exhibit, whereas the edge is anytime over $50 and so we like our competitive position there. The fact is, though, that there will be more competition and the fact is that if we have something that extends broadly beyond China to impact international travel, we have a significant as we've disclosed previously international component to our visitors. At the moment in the steady state world, we feel pretty comfortable. We feel very comfortable, very happy the way things are working and we will see noise, I'm quite sure from the opening of the edge.
So I think it's very difficult for us to give you better clarity than that.
Yes. I was just trying
to, I mean, with the office business, because of
the leasing and the schedules, I think we can make pretty good assumptions. I think the Observatory has always been a little bit more difficult to model and clearly some of the stuff that's been going in the last few years has muddled it a little bit. I was just trying to get a sense for 2020. You gave us the 102nd floor sort of positive impact. I was trying to weigh the competitive landscape relative to your pricing and whether those wash it out, whether we should be thinking that NOI is going down or is NOI going up outside of the 100 and second floor being open this year relative to last.
And that's I didn't want the street to get ahead of themselves nor did I want them to be too low either. That's why I was just trying to get a picture of what we should be thinking about for that business?
Right. I would just encourage folks to take a look at esbnycdot com and go to the buy ticket section and take a look at our new pricing and that covers all of our various upcharges. You'll note that we increased the pricing to the 102nd floor as part of its new experience. And then the additional part that I would say is, I feel quite confident that the Edge at Hudson Yards is going to open with quite a splash with a big spend. At the same time, having been through the we were invited by a party with whom we have a client relationship to an event that happened to be a preview of the Edge.
And having seen the Edge, we feel very good. The difference and the security is really not well laid out. It's not going to support high volume. The experience itself aside from the elevator is very sterile and modern. So I think that competes very much with the folks at OneWorld.
I think you should be prepared to see significant drop off in some of these folks who've relied significantly on the China bus tour business, specifically One World has become really dominated by that business and that business is gone. When it comes back,
it was a
highly discounted business to begin with. So our move to the independent traveler and our inroads in the China markets really paid off nicely. And outside of that, Michael, I wish I could give you more definition. We're as eager to get this year underway and play it out as you are.
And that's really helpful color on the competitive landscape and what you're thinking about and the impact. And I think the pricing that we all can now look at on the website gives us some indication of the varied. I think we'd all love to be able to see the percentages of those tickets sold in each of those categories and so that we can start track not just the baseline net revenue that you're collecting, but how the composition of it is and so as you move to this pricing model sharing a little bit more getting to look under the skirt a little bit more about how to say how non veterans are coming in by type would be something that would be great addition to the supplemental?
We appreciate that very much and we'll look at that carefully. We'd really just like to see how the Edge and One Bandy open up. We don't want to influence the way they do their business by giving them too much insight as to how the business works. And once we get a little bit of stability and we see what they're doing, maybe we
can look at that a
little more closely and give them a little more information.
Okay. Thank you.
Our next question is a follow-up question from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Thank you. Just a question for Tom. I was wondering if you could describe like the depth of the office leasing market in Manhattan at the $60 to $70 price point as far as expansionary tenants now that the co working tenants are basically installed? And also if you could discuss leasing economics because it looks like CapEx this quarter was unusually high during the quarter on relatively average leasing volumes. So I was wondering if this is a good run rate going forward as far as tenant improvement costs?
Sure, Don. So first, as I said before, our pipeline of activity for Manhattan office portfolio remains really solid. We've got activity across the portfolio for both full floors and prebuilds. And we're seeing inboard activity and interest from a wide spectrum of tenants that has always been a hallmark, I think, of our portfolio that we do attract a wide range of tenants and that as I look at deals in negotiation or in proposal phase right now that those tenant types range from TAMI to professional services to the fire sector and beyond. As far as co working or WeWork specifically, I just would make a comment that we've continued to see steady activity in our prebuilt program.
We offer a wide range of pre books throughout our portfolio. We for the year of 2019, we did over 45 prebuilt deals, about a quarter over a quarter,000 square feet of prebuilt activity for the year. And so we really haven't seen any impact from that. And we have expanded our services as we look at broadening our appeal to tenants through offering truly turnkey experience of furnished wired and move coordination services. And as far as concessions, I commented earlier, the average lease cost per lease year for TI's commissions has remained steady at $10.45 per square foot cost per lease year this past quarter and that's very much in line with the past eight quarters.
Okay. So that $87,000,000 that's really just timing as far as when leases started or when you paid out the TI?
I don't know, Greg, do you want to Yes. Correct. There is
a bit of a timing lag between what we report Tom is talking about the leasing activity in the quarter and when the actual CapEx dollars go out the door.
Got it. Okay. Thank you.
You bet.
Our next question is a follow-up question from the line of John Guinee with Stifel. Please proceed with your question.
Great. Investment market in New York City,
where are you guys overall in current taking prices, current closing prices versus what you think is appropriate? Are you 5% low or 15% low in the current environment?
Hey, John. John here. Continue to look and underwrite potential deals in our market and we have not seen anything which has been attractive enough for us to act. The capital markets remain strong and we haven't gotten close to not going to quantify for you the gap.
Great. And then your cash and cash equivalents went down about $60,000,000 this last quarter from $294,000,000 to $234,000,000 How much burn rate more burn do we have? You are done with the Observatory. How much burn do you have until you break even on sources and uses?
Hey, John. This is Greg here. If we look at in terms of if
you look at Page 9
of our investor presentation, we still have some redevelopment work to go. We have approximately 550,000 square feet. If you use an average cost per square foot of $200 that implies about $110 in total spend until the entire portfolio has been redeveloped. In addition, as you know well aware, as we noted in our Q1 2018 earnings call,
we anticipate additional spending of approximately $40,000,000
in the Greater New York Metropolitan Portfolio.
To date, we spent $29,000,000
And so we're getting there, but there's still some additional CapEx spending to go and the trend line has been trending down. And so that's where I'll leave it for right now.
Great. Thank you.
There are no further questions in the queue. I'd like to hand the call back to Mr. Malkin for closing remarks.
Thank you very much. So folks, this was a solid quarter for ESRT. Our leasing volume, cash spreads and net effective rent growth all highlight the strength of our core real estate operations, which experienced strong NOI growth from recurring operations. I am pleased to see stronger bottom line contribution to our results from the multiyear Observatory redevelopment. As discussed on our last earnings call, we have expanded our team with key hires in ESG and Technology.
You can find more details on our ESG and Technology initiatives in our new slides in our investor presentation and we look forward to sharing more details of our work over the course of 2020. Overall, hard work and great results. Thanks to the team. And we thank you very much for your time and your questions. And we look forward to chances to meet with you at upcoming conferences, NDRs and property tours.
We look forward to reporting our Q1 results in April and until then all the best.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.