What changed in this filing

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Item 1. Business

2021-02-26 compared with 2020-02-28 · 153 added, 112 removed, 161 unchanged (62% of the section changed)

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As of December 31, 2020, we owned 14 office properties (including three long-term ground leasehold interests) encompassing approximately 9.4 million rentable square feet of office space, which were approximately 85.6% occupied or 88.3% leased including signed leases not yet commenced.

Nine of these properties are located in the midtown Manhattan market and encompass approximately 7.6 million rentable square feet of office space, including the Empire State Building.

Our Manhattan office properties also contain 511,984 rentable square feet of premier retail space on their ground floor and/or contiguous levels.

Our remaining five office properties are located in Fairfield County, Connecticut and Westchester County, New York, encompassing approximately 1.8 million rentable square feet.

Nine properties are located in the midtown Manhattan market and encompass approximately 7.6 million rentable square feet of office space, including the Empire State Building.

Our Manhattan office properties also contain 0.5 million rentable square feet of premier retail space on their ground floor and/or contiguous levels.

Five office properties are located in Fairfield County, Connecticut and Westchester County, New York, encompassing approximately 1.8 million rentable square feet.

The majority of square footage for these five properties is located in densely populated metropolitan communities with immediate access to mass transportation.

Additionally, we have entitled land at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties, that will support the development of an approximately 415,000 rentable square foot office building and garage, which we refer to herein as Metro Tower.

As of December 31, 2019 , our portfolio also included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing 205,595 rentable square feet in the aggregate.

Additionally, we have entitled land at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties, that will support the development of an approximately 0.4 million rentable square foot office building and garage, which we refer to herein as Metro Tower.

As of December 31, 2020, our portfolio also included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing 0.2 million rentable square feet in the aggregate.

As of December 31, 2020, our standalone retail properties were 97.1% leased.

The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th and 102nd floor observatories that draw millions of visitors per year.

The number of visitors to the observatories was approximately 3,505,000 and 3,805,000 for the years ended December 31, 2019 and 2018, respectively.

The 86th floor observatory has a 360-degree outdoor deck as well as indoor viewing galleries to accommodate guests day and night, all year-round.

The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th and 102nd floor observatories which historically have drawn millions of visitors each year.

The 86th floor observatory has a heated 360-degree outdoor deck as well as indoor viewing galleries to accommodate guests day and night, all year-round.

The 102nd floor observatory is entirely indoors and offers a 360-degree view of New York City from 1,250 feet above ground.

Prior to the outbreak of the novel Coronavirus Disease 2019 ("COVID-19"), the number of visitors to the observatories was approximately 3.8 million and 3.5 million for the years ended December 31, 2018 and 2019, respectively.

More than 60% of visitors historically have been international travelers.

Due to government mandated closure from March 16, 2020 to July 20, 2020, travel restrictions on international and domestic tourists, and other impacts of the pandemic, the number of visitors declined for the year ended December 31, 2020 to 0.5 million visitors.

We had 422,000 visitors in the first quarter 2020, no visitors in the second quarter 2020, 30,000 visitors in the third quarter 2020 and 55,000 visitors in the fourth quarter 2020.

We were organized as a Delaware limited partnership on November 28, 2011.

ESRT, as the sole general partner in our company, has responsibility and discretion in the management and control in our company, and our limited partners, in such capacity, have no authority to transact business for, or participate in the management activities, of our company.

ESRT, as the sole general partner in our company, has responsibility and discretion in the management and control of our company, and our limited partners, in such capacity, have no authority to transact business for, or participate in the management activities, of our company.

As of December 31, 2020, ESRT owned approximately 60.1% of our operating partnership units.

Impact of COVID-19

From March 2020, the COVID-19 pandemic created a global crisis with attendant uncertainty, volatility and disruption of the economy and social systems in the United States and globally.

The stringent measures implemented by governments around the world to attempt to help control the spread of the virus have included business shutdowns and curtailments, and restrictions, prohibitions on all manner of events and gatherings, quarantines, "shelter-in-place" and "stay-at-home" orders, curfews, social distancing, and other measures.

The impacts have been especially harsh on the Northeastern United States, specifically New York City and the tri-state region, the business area for the company.

This has materially, adversely impacted parts of our business and we continue to face challenges.

Amidst these challenges, we moved swiftly and:

• reduced operating expenses across our portfolio;

• reduced general and administrative costs, including reductions in executive compensation, as well as salary reductions for nearly all employees who earned in 2019 more than $200,000 in salary and cash bonus compensation, as well as certain other employees involved in the operation of the observatories at the Empire State Building;

• bolstered our balance sheet with an additional $180.0 million, ten year secured financing to maximize operating runway and we have no outstanding debt maturities until November 2024 and $1.6 billion of liquidity as of December 31, 2020;

• instituted comprehensive health and safety protocols for our workforce and tenants;

• achieved a number of Environmental, Social and Governance ("ESG") accomplishments.

Additional information regarding the impact of COVID-19 on our business can be found under the section titled "Impact of COVID-19" included within Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K and risks related to COVID-19 can be found under Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

Our Competitive Strengths

We believe that we distinguish ourselves from other owners and operators of office and retail properties due to the following competitive strengths:

Irreplaceable Portfolio of Office Properties in Midtown Manhattan .

Our Manhattan office properties are located in one of the most prized office markets in the world due to a combination of supply constraints, high barriers to entry, near-term and long-term prospects for job creation, vacancy absorption and rental rate growth.

Management believes these properties could not be replaced today on a cost-competitive basis, if at all.

As of December 31, 2019 , we owned nine Manhattan office properties (including three long-term ground leasehold interests) encompassing approximately 7.6 million rentable square feet of office space, including the Empire State Building, our flagship property.

Unlike traditional office buildings, the Empire State Building provides us with a significant source of income from its observatory and broadcasting operations.

All of these properties include premier retail space on their ground floor and/or contiguous levels, which comprise 511,984 rentable square feet in the aggregate and some of which have recently undergone significant redevelopments.

We believe the high quality of our buildings, services and amenities, their desirable locations and commuter access to mass transportation should allow us to increase rents and occupancy to generate positive cash flow and growth.

Attractive Retail Locations in Densely Populated Metropolitan Communities .

As of December 31, 2019 , our portfolio also included six standalone retail properties and retail space at the ground floor and/or lower levels of our Manhattan office properties, encompassing a total of 717,579 rentable square feet, 696,291 square feet in Manhattan and 21,288 square feet in Westport, Connecticut, which were approximately 90.3% occupied in the aggregate.

All of the Manhattan properties are located in dynamic retail corridors with convenient access to mass transportation, a diverse tenant base and high pedestrian traffic and/or main destination locations, qualities which set them apart from retail properties in the high rent or low traffic corridors which have suffered in recent market conditions.

Our current Manhattan retail rents are below current market rents, and as we recapture and redevelop retail space there, we expect to be able to drive strong positive spreads on newly leased space.

We have retail expirations in the coming years that should allow us to increase our cash flows further.

Our retail tenants cover a number of industries, and include Bank of America;

Bank Santander (Sovereign Bank);

Charles Schwab;

Martens AirWair USA;

Duane Reade/Walgreen's;

JP Morgan Chase;

New Cingular Wireless;

Panera Bread;

Potbelly Sandwich Works;

and Urban Outfitters.

Our Westport, Connecticut retail properties are located on Main Street, the main pedestrian thoroughfare in Westport, Connecticut, and have the advantage of being adjacent to one of the few available large-scale parking lots in town.

• Irreplaceable Portfolio of Office Properties in Midtown Manhattan at an Attractive Value Proposition .

Our Manhattan office properties are located in one of the most prized office markets in the world due to a combination of supply constraints, high barriers to entry, and long-term prospects for job creation.

These properties have undergone significant redevelopment to become fully modernized, with a focus on energy efficiency and indoor environmental quality.

Historically, the Empire State Building, our flagship property, has also provided us with a significant source of income from its observatories.

We believe the high quality of our buildings, services and amenities, their desirable locations and commuter access to mass transportation represent a value proposition with rents at a substantially lower price point than new construction and with a premium product offering over similar vintage unrenovated buildings.

Management believes these properties could not be replaced today for the value imputed by our current stock price.

• Well Located Retail Locations in Densely Populated Metropolitan Communities .

Our retail properties are comprised of retail space at the base of our Manhattan office properties, four standalone retail properties in Manhattan and two contiguous standalone retail properties in Westport, Connecticut.

All of the Manhattan properties are located in historically dynamic retail corridors with convenient access to mass transportation, a diverse tenant base and high pedestrian traffic and/or main destination locations, qualities which set them apart from retail properties in the high rent or low traffic corridors.

Our Westport, Connecticut retail properties are located on Main Street, the main pedestrian thoroughfare in Westport, and have the advantage of being adjacent to a large public parking plaza.

Our retail tenants cover a number of industries, and include Charles Schwab, JP Morgan Chase, Sephora, Target, TJ Maxx, Urban Outfitters, Lululemon, Athleta, Starbucks, ATT Mobile, Sprint, Chipotle, Footlocker, and Walgreens, among others.

We acknowledge that the COVID-19 pandemic has materially impacted in-store retail, with particular damage to locations typically patronized by daytime workers.

While we are constructive on the long-term trends of retail that serves daytime work populations, and well-located retail in general, the near term impacts of COVID-19 on retail are material and negative.

• Expertise in Repositioning and Redeveloping Manhattan Office Properties .

We have substantial expertise in redeveloping, upgrading and repositioning Manhattan office properties, having invested through December 31, 2019 a total of approximately $918.6 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties since we assumed full control of the day-to-day management of these properties in 2002 through 2006.

We also have substantial experience in enhanced tenant amenities, and we recently expanded the service offerings we make available to our tenants.

We believe that the post-redevelopment high quality of our buildings and the service we provide also attract higher credit-quality tenants for larger spaces at rents above similar vintage buildings, and below new construction, thus defining a new price point and allowing us to drive superior returns on invested capital per square foot.

Leader in Energy Efficiency Retrofitting .

We redevelop, and reposition Manhattan office properties.

As of December 31, 2020, we have invested a total of $948.1 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties since we assumed control of the day-to-day management of these properties in the period between 2002 through 2006.

Through our redevelopment work, our properties have become fully modernized, with a focus on energy efficiency and indoor environmental quality, and we have added tenant amenities such as the tenant-only fitness center and conference center at the Empire State Building, and a recently completed tenant-only lounge at 1400 Broadway.

• Leader in Energy Efficiency Retrofits .

We have pioneered certain practices in energy efficiency, beginning at the Empire State Building where we partnered with the Clinton Climate Initiative, Johnson Controls Inc., Jones Lang LaSalle and the Rocky Mountain Institute to create and implement a groundbreaking, replicable process for integrating energy efficiency retrofits in the existing built environment.

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We believe that higher quality tenants in general place a higher priority on sustainability, controlling costs, and minimizing contributions to greenhouse gases.

We believe our expertise in this area gives us the opportunity to attract higher quality tenants at higher rental rates, in addition to lowering our expenses.

As a result of our efforts, approximately 76% of our portfolio square feet is Energy Star certified, including the Empire State Building, even with the more stringent ENERGY STAR scoring methodology rolled out in late 2019.

As a result of the energy efficiency retrofits, we estimate that the Empire State Building has reduced energy use by 43% of its pre-retrofit level of energy use, resulting in over $6.9 million of annual energy cost savings at pre-retrofit utility rate levels.

Johnson Controls Inc.

has guaranteed minimum energy cost savings of $2.2 million annually, from 2010 through 2025, with respect to certain of the retrofits in which Johnson Controls Inc.

was project leader.

2018 energy cost savings was $6.9 million for the whole building retrofits, out of which $5.7 million savings was achieved against the guaranteed savings.

We are implementing cost justified energy efficiency retrofit projects in our Manhattan and greater New York metropolitan area office properties based on our work at the Empire State Building.

We have implemented other cost justified energy efficiency retrofit projects in our Manhattan and greater New

York metropolitan area office properties based on our work at the Empire State Building.

Based on our calculations, we have no exposure to fines in 2024 under New York City's Local Law 97.

100% of our portfolio is contracted for renewable wind electricity as of January 2021.

Finally, we maintain a series of management practices utilizing recycling of tenant and construction waste, recycled content carpets, low off-gassing paints and adhesives, “green” pest control and cleaning solutions and recycled paper products throughout our office portfolio.

We believe that our portfolio’s attractiveness is enhanced by these practices and that this should result in higher rental rates, longer lease terms and higher quality tenants.

Environmental, Social and Governance ("ESG") Initiatives.

We are committed to integrated portfolio-wide strategies for environmental, social and governance initiatives.

We have requirements in our buildings for practices to enhance the health and wellness of our building occupants.

Our sustainability program is structured around quantifiable improvement in key areas, including:

energy efficiency, water efficiency, recycling and waste diversion and healthy work environments for our tenants and employees (indoor environmental quality).

Our CEO, Anthony E.

• Robust Environmental Leadership.

We are leaders in the environmental sustainability space.

Our Chairman, President and CEO, Anthony E.

Malkin, is the Chair of the Sustainability Policy Advisory Board of the Real Estate Roundtable and was appointed to the New York City Climate Mobilization Advisory Board for the implementation of Local Law 97, the sole landlord representative on the board.

To continue to elevate our company culture, we have committed to elevate employee engagement and pursued initiatives based upon surveys and employee-led cross-departmental committees.

We provide learning and

development opportunities to our employees through in-house training, mentorship and online courses.

In addition, we provide robust health benefits and wellness programs for our employees.

Our employees enjoy a diverse and inclusive culture which we constantly strive to enhance.

To further diversify our team, most recently we expanded our board, hired a new Senior Vice President of Energy and Sustainability, hired a new Chief Technology Officer and promoted our long serving Senior Vice President and Lead Leasing Attorney to Director of ESG.

Our governance initiatives include annual board member outreach to over 80% of our stockholders and by-law amendments to provide proxy access and to permit stockholders to amend bylaws.

Most recently, we codified the authority and duties of our lead independent director in our written corporate governance guidelines.

He is a Co-Chair of Local Law 97 Technical Pathways for Commercial Building Working Group.

Our SVP and Director of Energy, Sustainability, and ESG, Dana Robbins Schneider, serves on the Local Law 97 Commercial Buildings Working Group, Board of Directors for Urban Green, REBNY Sustainability Committee, Real Estate Roundtable Sustainable Policy Advisory Committee, and is a LEED Fellow, member of the USGBC LEED Steering Committee, and NYSERDA Clean Fight final Judge.

In 2020, we were the first commercial real estate portfolio in the Americas to achieve the WELL Health-Safety Rating for Facility Operations and Management from the International WELL Building Institute.

The WELL Health-Safety Rating is an evidence-based, third-party verified rating for new and existing buildings focused on operational policies, maintenance protocols, emergency plans and stakeholder engagement strategies to help organizations prepare their spaces for re-entry in a post-COVID-19 environment.

We participated in the GRESB Real Estate Assessment for the first time in 2020 and earned the highest possible GRESB 5 Star Rating and Green Star recognition, and a score of 88, an achievement that places us in the top 20% of all respondents.

Our score is approximately 10 points higher than our peer group average and almost 20 points higher than the global GRESB Average.

We also achieved an A rating, which is the highest possible score, on the GRESB Public Disclosure.

GRESB is the leading ESG benchmark for real estate and infrastructure investments covering over 1,200 property companies, REITs, funds and development companies.

Furthermore, we were named a Fitwel champion in 2020 with Fitwel certified properties that represent 6.7 million square feet or approximately 83% of our Manhattan properties.

These Fitwel certifications were awarded to us for our leadership in health and sustainability achievements.

Fitwel is a rigorous third-party healthy building certification system operated by the Center for Active Design.

Fitwel was created as a joint initiative between the U.S.

Centers for Disease Control and Prevention and the General Services Administration to set the industry standard for evidence-based strategies that promote positive health outcomes for building occupants and communities.

76% of the square feet in our portfolio is ENERGY STAR Certified.

Our headquarters office is one of the charter Energy Star for Tenant certificants.

• Experienced and Committed Management Team with Proven Track Record .

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We take an intensive, hands-on approach to the management of our portfolio and quality brand building.

As of December 31, 2019 , our named executive officers owned 11.8% of ESRT's common stock on a fully diluted basis (including shares of common stock and operating partnership units as to which Anthony E.

Malkin, our chief executive officer, disclaims beneficial ownership except to the extent of his pecuniary interest therein), and therefore their interests are aligned with those of ESRT's securityholders and they are incentivized to maximize returns to ESRT's securityholders.

Strong Balance Sheet Supportive of Future Growth .

As of December 31, 2019 , we had total debt outstanding of approximately $1.7 billion , with a weighted average interest rate of 4.03% and a weighted average maturity of 8.3 years.

Additionally, we had approximately $1.1 billion of available borrowing capacity under our unsecured revolving and term credit facility as of December 31, 2019 .

We had cash and cash equivalents and short-term investments of $233.9 million at December 31, 2019 .

Our consolidated net debt represented 25.2% of enterprise value.

Excluding principal amortization, we have no debt maturing in 2020 and 2021 and $265.0 million of debt maturing in 2022.

We continue to extend and ladder our debt maturities, increase our access to a variety of capital sources and maintain low leverage with significant capacity on our balance sheet.

This low level of leverage gives us flexibility to cover our capital program and to take advantage of opportunities to acquire additional properties as and when we see compelling opportunities.

We believe that lower levered companies outperform over the long term.

As of December 31, 2020, our named executive officers owned 12.7% of ESRT's common stock on a fully diluted basis (including shares of common stock and OP Units as to which Anthony E.

Malkin, our Chairman, President and CEO, disclaims beneficial ownership except to the extent of his pecuniary interest therein), and therefore their interests are aligned with those of ESRT's securityholders and they are incentivized to maximize returns to ESRT's securityholders.

• Flexible Balance Sheet Provides Operating Runway and Ability to Take Advantage of Opportunities That May Arise .

As of December 31, 2020, we had cash and cash equivalents of $526.7 million and our consolidated net debt represented 37.2% of enterprise value.

We had total debt outstanding of $2.2 billion, with a weighted average interest rate of 3.91% and a weighted average maturity of 8.2 years.

Additionally, we had $1.1 billion of available borrowing capacity under our unsecured revolving credit facility as of December 31, 2020.

Our credit facility matures in August 2021 and has two six-month extension options, subject to certain conditions.

As expected, we have begun a process to evaluate a potential recast or extension of the credit facility.

Excluding principal amortization, none of our debt

matures until November 2024.

We continue to extend and ladder our debt maturities, increase our access to a variety of capital sources and maintain modest leverage and ample liquidity.

Our flexible balance sheet provides operating runway to navigate the challenging market environment and the ability to take advantage of attractive investment opportunities that may arise.

Business and Growth Strategies

Our primary business objectives are to maximize cash flow and total returns to our securityholders and to increase the value of our properties through the pursuit of the following business and growth strategies:

Increase Existing Below-Market Rents and Exploit our Price Position in the Market .

Our primary business objectives are to maximize cash flow and total returns to our shareholders and to increase the value of our properties through the pursuit of the following business and growth strategies:

• Lease-up Vacant Redeveloped Space.

To date, we have capitalized on the opportunity to capture the significant embedded, de-risked growth from repositioning of our Manhattan office portfolio.

For example, we expect to benefit from the re-leasing of 7.4% , or approximately 558,246 rentable square feet (including month-to-month leases), of our Manhattan office leases expiring during 2020, which we generally believe are currently at below market rates.

These expiring leases represent a weighted average base rent of $54.43 per square foot based on current measurements.

As older leases expire, we expect to continue to upgrade certain space to increase rents further.

Our concentration in Manhattan and the greater New York metropolitan area should also enable us to benefit from increased rents associated with current stability in the financial and economic environment in New York.

We also expect to benefit from our price positioning, as we command prices that are above comparable vintage properties due to the quality of our newly developed space and our attractive amenities, but below new construction.

Complete the Redevelopment and Repositioning of Our Current Portfolio .

We intend to continue to increase occupancy, improve tenant quality and enhance cash flow and value by completing the redevelopment and repositioning of our Manhattan office properties.

We intend selectively to continue to allow leases for smaller spaces to expire or relocate smaller tenants in order to aggregate, demolish and re-demise existing office space into larger blocks of vacant space, which we believe will attract higher credit-quality tenants at higher rental rates, while achieving returns of approximately 10%.

We apply rigorous underwriting analysis to determine if aggregation of vacant space for future leasing to larger tenants will improve our cash flows over the long term.

In addition, we are a

leader in developing economically justified energy efficiency retrofitting and sustainability and have made it a portfolio-wide initiative.

We believe this makes our properties desirable to high credit-quality tenants at higher rental rates and longer lease terms.

Pursue Attractive Acquisition and Development Opportunities .

We will opportunistically pursue attractive opportunities to acquire office and retail properties.

For the foreseeable future, we intend to focus our acquisition strategy primarily on Manhattan office properties and, to a lesser extent, office and multi-tenanted retail properties in densely populated communities in the greater New York metropolitan area and other markets we may identify in the future.

We believe we can utilize our industry relationships (including well-known real estate owners in Manhattan), brand recognition, and our expertise in redeveloping and repositioning office properties to identify significant acquisition opportunities where we believe we can increase occupancy and rental rates.

We also believe there is growth opportunity to acquire and reposition additional stand-alone retail spaces.

Our strong balance sheet, access to capital, and ability to offer operating partnership units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions.

We have redeveloped 95% of the office and retail space in our Manhattan portfolio and have the opportunity to lease up 690,000 square feet of currently vacant redeveloped office and retail space, of which 258,000 square feet are pre-built suites that are ready for immediate tenant occupancy.

We also expect to benefit from our price positioning, as our fully modernized portfolio offers energy efficiency, indoor environmental quality, services and amenities, and desirable locations near mass transit with rents substantially below new construction.

We acknowledge that the COVID-19 pandemic has materially impacted office use with the majority of our tenants’ employees not at work in their offices.

While we are constructive on the long-term importance of office use, we think that it will be several months before office use recommences and business return to the market to lease space at the same rate as in 2019.

• Pursue Attractive Acquisition and Redevelopment Opportunities .

We have built a dedicated investment function with our hire of a Chief Investment Officer and a full acquisitions team to position us to take advantage of potential opportunities.

Our flexible balance sheet, access to capital, expertise in redevelopment of existing property into modernized, fully amenitized, healthy buildings with energy efficiency and indoor environmental quality combined with our ability to offer operating partnership units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions.

For the foreseeable future, we intend to focus our acquisition strategy primarily on Manhattan office properties and, to a lesser extent, office and multi-tenanted retail and multi-family properties in densely populated communities in the greater New York metropolitan area and other markets we may identify in the future.

We also believe there may be opportunities to acquire and reposition additional stand-alone retail spaces.

We believe we can identify investment opportunities where we can achieve attractive returns on invested capital.

Further, we have a development site, Metro Tower at the Stamford Transportation Center, which is adjacent to our Metro Center property, which we believe to be one of the premier office buildings in Connecticut.

All zoning approvals have been obtained to allow development of an approximately 415,000 rentable square foot office tower and garage.

All zoning approvals have been obtained to allow development of an approximately 0.4 million rentable square foot office tower and garage.

We intend to develop this site when we deem the appropriate combination of market and other conditions are in place.

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• Enhanced our Observatory Operations.

In 2019 we completed a multi-year re-imagination and redevelopment of the entire Observatory experience at the Empire State Building.

The new Observatory entrance on 34th Street, opened in August 2018, improved the experience for Observatory visitors as well as office tenants- and has increased pedestrian traffic in front of the retail space on the 34th street side of the building.

A new 2nd floor immersive museum, opened in July 2019, provides guests with numerous, distinct experiences as they progress through the tour.

The 2nd floor museum includes 10,000 square feet of exhibits such as a history of the Empire State Building, from its initial construction to its leadership role in sustainability, an exclusive series of interactive kiosks programmed by NYC & Company through which visitors may compose itineraries for their visits to New York City, a panorama of the skyline of New York City rendered in wallpaper derived from the exclusive artwork of memory artist Stephen Wiltshire, a seventy screen display that highlights the Empire State Building's starring role in pop culture in every decade since the 1930's, and an opportunity to take a photograph in King Kong's hand, to name a few.

The new 102nd floor Observatory, accessed via a new glass elevator from the 86th floor, enclosed by 24 eight-foot tall floor to ceiling windows, provides a climate-controlled platform for New York City's finest views.

Visitor and industry feedback have been positive.

We are focused on maintaining a brand that tenants associate with a consistently high level of quality of services, installations, maintenance and amenities, and long term financial stability.

In December 2019 we completed a comprehensive $160 million multi-year re-imagination and redevelopment of the entire observatory experience at the Empire State Building.

The new observatory includes a dedicated visitor entrance on 34th Street, a 10,000 square foot 2nd floor tactile and digital immersive museum experience that celebrates the Empire State Building, from the moment it was conceived to its place in pop-culture today, and the newly renovated 102nd floor observatory that features floor-to-ceiling glass windows where guests can step right to the edge of the World’s Most Famous Building.

The observatory’s recent renovations includes indoor environmental quality measures with MERV 13 filters, ventilation and an Atmos Air bipolar ionization air purification system, which we have installed in select spaces, which neutralizes more than 99.9%

of coronavirus particles, according to studies performed by Microchem Laboratory, one of the nation’s preeminent laboratories for testing EPA- and FDA-registered sanitizing products.

Visitor feedback of the new experience and our safety protocols has been very positive.

Our focus is to maintain a brand that tenants associate with a consistently high level of quality of services, healthy buildings, amenities, maintenance, and tenant installations, with high performance design guidelines for energy efficiency and indoor environmental quality, and long term financial stability.

Through our commitment to brokers, we have developed long-term relationships that focus on negotiating attractive transactions with high credit-quality tenants.

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We presently self-manage all of our properties.

We proactively manage our properties and rent rolls to (i) aggregate smaller demised spaces to create large blocks of vacant space in order to attract high credit-quality tenants at higher rental rates, and (ii) create efficient, modern, pre-built offices that can be rented through several lease cycles and attract better credit-quality tenants.

We aggressively manage and control operating expenses at all of our properties.

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Our observatory segment operates the 86th and 102nd floor observatories at the Empire State Building.

These two lines of businesses are managed separately because each business requires different support infrastructure, provides different services and has dissimilar economic characteristics such as, investments needed, stream of revenues and marketing strategies.

We account for intersegment sales and rent as if the sales or rent were to third parties, that is, at current market prices.

These segments are managed separately because each business requires different support infrastructure, provides different services and has dissimilar economic characteristics such as, investments needed, stream of revenues and marketing strategies.

We account for intersegment sales and rent as if the sales or rent were to third parties at current market prices.

This intersegment rent is eliminated upon consolidation.

For more information about our segments, refer to “Financial Statements-Note 12-Segment Reporting” in this Annual Report on Form 10-K.

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In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons.

Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such

contamination.

Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.

Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.

Some of our properties are adjacent to or near other properties used for industrial or commercial purposes or that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

Some of our properties are adjacent to or near other properties which are used for industrial or commercial purposes or have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

Releases from these properties could impact our properties.

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Some molds may produce airborne toxins or irritants.

Indoor air quality

issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria.

Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria.

Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions.

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The policies described above cover certified terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 (TRIA) and subsequent extensions.

On January 12, 2015, the President of the United States signed into law TRIPRA, which extends TRIA through December 31, 2020.

On December 20, 2019, the President of the United States signed into law TRIPRA act of 2019, which extended TRIA through December 31, 2027.

TRIA provides for a system of shared public and private compensation for insured losses resulting from acts of terrorism.

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In addition to insurance held through ESRT Captive Insurance described above, we carry terrorism insurance on all of our properties in an amount and with deductibles which we believe are commercially reasonable.

Our insurance policies include substantial self-insurance portions and significant deductibles and co-payments for certain events, and hurricanes in the United States have affected the availability and price of such insurance.

We may discontinue certain insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the risk of loss.

Additionally, we do not carry insurance for certain losses, including, but not limited to, losses caused by war.

Furthermore, business interruption insurance due to pandemic level or other public health events may not be readily available at commercially acceptable rates.

In addition, while our title insurance policies insure for the current aggregate market value of our portfolio, we may decide to not increase our title insurance policies as the market value of our portfolio increases.

The leasing of real estate is highly competitive in Manhattan and the greater New York metropolitan market in which we operate.

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Adverse impacts on domestic and international travel and changes in foreign currency exchange rates may also decrease demand in the future, which could have a material adverse effect on our results of operations, financial condition and ability to make distributions to our securityholders.

competitors offer space at rental rates below current market rates, below the rental rates we currently charge our tenants, in better locations within our markets or in higher quality facilities, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire.

If our competitors offer space at rental rates below current market rates, below the rental rates we currently charge our tenants, in better locations within our markets or in higher quality facilities, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire.

ESRT's Tax Status as a REIT

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So long as ESRT qualifies as a REIT, it generally will not be subject to U.S.

federal income tax on its net taxable income that ESRT distributes to its securityholders.

federal income tax on its net taxable income that ESRT distributes to its security holders.

If ESRT fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, ESRT will be subject to U.S.

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federal, state and local taxes on its income or property.

In order to qualify as a REIT, we must distribute to our securityholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for distributions paid and excluding net capital gains.

In addition, we will be subject to U.S.

federal income tax at the generally applicable corporate tax rate to the extent that we distribute less than 100% of our net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S.

federal income tax laws.

In addition, to qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-backed securities.

The remainder of our investment in securities (other than government securities, securities of corporations that are treated as Taxable REIT Subsidiaries ("TRSs") and qualified REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.

In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real

estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs.

Rents from real property are generally not qualifying income for purposes of the REIT gross income tests if the rent is treated as “related party rent.” Related party rent generally includes (i) any rent paid by a corporation if the REIT (or any person who owns 10% or more of the stock of the REIT by value) directly or indirectly owns 10% or more of the stock of the corporation by vote or value and (ii) rent paid by a partnership if the REIT (or any person who owns 10% or more of the stock of the REIT by value) directly or indirectly owns an interest of 10% or more in the assets or net profits of the partnership.

Under an exception to this rule, related party rent is treated as qualifying income for purposes of the REIT gross income tests if it is paid by a TRS of the REIT and (i) at least 90% of the leased space in the relevant property is rented to persons other than either TRSs or other related parties of the REIT, and (ii) the amounts paid to the REIT as rent from real property are substantially comparable to the rents paid by unrelated tenants of the REIT for comparable space.

Income from admissions to the Empire State Building observatory, and certain other income generated by the observatory, would not likely be qualifying income for purposes of the REIT gross income tests.

We jointly elected with Observatory TRS, which is the current lessee and operator of the observatory and which is wholly owned by our operating partnership, for Observatory TRS to be treated as a TRS of ours for U.S.

federal income tax purposes.

Observatory TRS leases the Empire State Building observatory from the operating partnership pursuant to a lease that provides for fixed base rental payments and variable rental payments equal to certain percentages of Observatory TRS’s gross receipts from the operation of the observatory.

Given the unique nature of the real estate comprising the observatory, we do not believe that there is any space in the Empire State Building or in the same geographic area as the Empire State Building that is likely to be considered sufficiently comparable to the observatory for the purpose of applying the exception to related party rent described above.

We have received from the IRS a private letter ruling that the rent that our operating partnership receives from Observatory TRS pursuant to the lease of the Empire State Building observatory is qualifying income for purposes of the REIT gross income tests so long as such rent reflects the fair market rental value of the Empire State Building observatory as determined by an appraisal rendered by a qualified third party appraiser.

In addition, our operating partnership has acquired various license agreements (i) granting certain third party broadcasters the right to use space on the tower on the top of the Empire State Building for certain broadcasting and other communication purposes and (ii) granting certain third party vendors the right to operate concession stands in the observatory.

We have received from the IRS a private letter ruling that the license fees that our operating partnership receives under the license agreements described above constitute qualifying income for purposes of the REIT gross income tests.

Substantially all of our leases provide for separate real estate tax and operating expense escalations.

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Our observatory business is subject to tourism trends and weather, and therefore does experience some seasonality.

During the past ten years of our annual observatory revenue, approximately 16% to 18% was realized in the first quarter, 26.0% to 28.0% was realized in the second quarter, 31.0% to 33.0% was realized in the third quarter and 23.0% to 25.0% was realized in the fourth quarter.

Historically, prior to the outbreak of COVID-19, approximately 16.0% to 18.0% of our annual observatory revenue was realized in the first quarter, 26.0% to 28.0% was realized in the second quarter, 31.0% to 33.0% was realized in the third quarter, and 23.0% to 25.0% was realized in the fourth quarter.

We do not consider the balance of our business to be subject to material seasonal fluctuations.

As of December 31, 2019 , we had 831 employees, 136 of whom were managers and professionals.

There are currently collective bargaining agreements which cover the workforce that services all of our office properties.

Management believes that its relationship with employees is good.

Human Capital Management

As of December 31, 2020, the company employed 755 people, of whom approximately 543 are covered by collective bargaining agreements.

We recognize that our success is realized through the attraction, retention, development, engagement and empowerment of the highly valued employees amongst our diverse pool of talent, and we endeavor to set our policies and practices accordingly.

Diversity and Inclusion.

We believe diverse perspectives and experiences enhance effective decision making and innovation.

We strive to create a diverse, inclusive workplace where people can be authentic in their roles.

We are proud of the strides we have made in the past two years in terms of enhancing the gender and ethnic diversity of our board and management team through the appointment of new directors and a new Chief Financial Officer.

We also promoted our Senior Vice President and Director of Energy and Sustainability to Director of ESG with direct reporting lines to our Chairman, CEO, and President and our board.

Talent Acquisition and Retention.

We know our future success depends upon our continued ability to attract, retain and motivate our valued employees.

We offer what we believe to be generally competitive compensation and benefits.

To reward and reinforce participation in the company’s outcomes, we also make equity grants to employees.

For senior management, we grant such equity annually, with vesting contingent upon (a) the individual’s continuing service at the company and/or (b) the company’s performance against total shareholder return results.

Other employees may receive shares of stock in the company on multi-year employment anniversaries.

Employee Engagement.

We regularly collect employee feedback to understand and improve the employee experience at our company.

Training and Development.

We believe continuous learning by our employees supports productivity, innovation and retention, as well as personal and professional growth for the individual employee.

We invest in training, including certain programs which are mandatory for all employees and other programs which are voluntary and self-directed on platforms provided by the company.

Health, Safety and Wellness.

We have been recognized for leadership in indoor environmental quality, retrofit energy efficiency, and sustainability in the built environment.

During the ongoing COVID-19 pandemic, we established protocols for building re-occupancy, including online screening for our staff, no-touch temperature checks for all entry to our buildings, and tests of indoor air quality and water systems.

We have allowed working remotely where needed to accommodate health or childcare circumstances and to enhance social distancing in the workplace.

We have provided and required personal protective equipment during the pandemic.

Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120.

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The information found on, or otherwise accessible through, ESRT's website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K or any other report or document ESRT or we file with or furnish to the SEC and ESRT makes available, free of charge, on or through the SEC Filings section of its website, ESRT's and our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after ESRT or we electronically file such material with, or furnish it to, the SEC.

ESRT has also posted on its website the Audit Committee Charter, Compensation Committee Charter, Finance Committee Charter, Nominating and Corporate Governance Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics, which govern its directors, officers and employees.

ESRT has also posted on its website the Audit Committee Charter, Compensation and Human Capital Committee Charter, Finance Committee Charter, Nominating and Corporate Governance Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics, which govern its directors, officers and employees.

Within the time period required by the SEC, ESRT will post on its website any amendment to its Code of Business Conduct and Ethics and any waiver applicable to its senior financial officers, and its executive officers or directors.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business