What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-05 · 196 added, 265 removed, 308 unchanged (60% of the section changed)

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The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

(i) economic, political and social impact of, and uncertainty relating to, the COVID-19 pandemic, including (a) the effectiveness or lack of effectiveness of governmental relief in providing assistance to businesses that have suffered significant declines in revenues as a result of mandatory business shut-downs, “shelter-in-place” or “stay-at-home” orders and social distancing practices, as well as individuals adversely impacted by the COVID-19 pandemic, (b) the duration of any such orders or other formal recommendations for social distancing and the speed and extent to which revenues of the Company’s tenants, particularly retail, and the Observatory recover following the lifting of any such orders or recommendations, (c) the potential impact of any such events on the obligations of the Company’s tenants to make rent and other payments or honor other commitments, including such tenants’ ability to pay rent following the termination of temporary governmental assistance and benefits programs, (d) the potential impact on the Company’s human capital management, including potential reductions in productivity associated with work-from-home and risks associated with employees returning to the office, (e) international and national disruption of travel and tourism with a resulting decline in Observatory visitors, and (f) macroeconomic conditions, such as a disruption of, or lack of access to, the capital markets, and general volatility adversely impacting the market price of the Company’s Class A common stock and publicly-traded partnership units of the Operating Partnership;

(i) economic, political and social impact of, and uncertainty relating to, the COVID-19 pandemic;

(ii) resolution of legal proceedings involving the Company;

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(xvii) our failure to qualify as a REIT;

and (xviii) environmental uncertainties and risks related to adverse weather conditions, rising sea levels and natural disasters.

other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

(xviii) environmental uncertainties and risks related to adverse weather conditions, rising sea levels and natural disasters, and (xix) the accuracy of our methodologies and estimates regarding ESG metrics, goals and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our ESG efforts.

For a further discussion of these and other factors that could impact the Company's future results, performance or transactions, see the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

While forward-looking statements reflect the Company's good faith beliefs, they are not guarantees of future performance.

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We own, manage, operate, acquire and reposition office and retail properties in Manhattan and the greater New York metropolitan area.

Highlights for the three months ended September 30, 2020 included:

Highlights for the three months ended March 31, 2021 included:

• Incurred net loss of $4.2 million and achieved Core Funds From Operations of $41.0 million.

Same-Store Property Cash NOI excluding lease termination fees was up 9.3% from the third quarter of 2019 primarily driven by lower property operating expenses and free rent burn-off, partially offset by lower revenue.

Strong liquidity position of $1.5 billion as of September 30, 2020, comprised of $373.0 million of cash plus an additional $1.1 billion available under our revolving credit facility.

Moreover, we have no debt maturity until 2024.

In the third quarter and through October 30, 2020, we repurchased $19.5 million of our common stock at a weighted average price of $6.31 per share, which brings the year-to-date total to $134.1 million at a weighted average price of $8.30 per share.

For the total portfolio in the third quarter, we signed 18 new, renewal, and expansion leases, representing 247,449 rentable square feet.

Collected 94% of third quarter 2020 total billings with 96% for office tenants and 84% for retail tenants.

Through October 31, 2020, collected 93% of October total billings, with 94% for office tenants and 86% for retail tenants.

Year-to-date through September 30th, we reduced property operating expenses by $26 million compared to the prior year, driven by reduced tenant utilization and our cost reduction initiatives.

On July 13, 2020, we announced the appointment of R.

Paige Hood to our Board of Directors, effective August 1, 2020, and the departure of William H.

Berkman, effective July 31, 2020.

As of September 30, 2020 , our total portfolio contained 10.1 million rentable square feet of office and retail space.

• Same-Store Property Cash NOI, excluding lease termination fees, was up 3.0% from the first quarter of 2020 primarily driven by lower property operating expenses, partially offset by lower revenue compared to the prior year period.

• Signed 26 new, renewal, and expansion leases, representing a total of 171,817 rentable square feet.

• Collected 94% of first quarter 2021 total billings with 96% for office tenants and 86% for retail tenants.

The Company recorded a non-cash reduction of straight-line balances of $0.6 million and wrote off $0.5 million of tenant receivables assessed as uncollectible during the first quarter of 2021.

• Strong liquidity position of $1.4 billion as of March 31, 2021, which consists of $567 million of cash plus an additional $850 million of undrawn capacity under the Company’s new revolving credit facility entered into during the quarter, which matures in March 2025 and has two six-month extension options subject to certain conditions.

Moreover, the Company has no outstanding debt maturity until 2024.

• In the first quarter and through April 27, 2021, the Company repurchased $3.5 million of its common stock at an average price of $9.22 per share.

This brings the cumulative total, since the stock repurchase program began on March 5, 2020 through April 27, 2021, to $147.2 million at an average price of $8.34 per share.

As of March 31, 2021, our total portfolio contained 10.1 million rentable square feet of office and retail space.

We owned 14 office properties (including three long-term ground leasehold interests) encompassing approximately 9.4 million rentable square feet of office space.

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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.

As of September 30, 2020 , our portfolio included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing approximately 0.2 million rentable square feet in the aggregate.

As of March 31, 2021, our portfolio included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing approximately 0.2 million rentable square feet in the aggregate.

The Empire State Building is our flagship property.

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Our observatory operations are subject to regular patterns of tourist activity in Manhattan and currently impacted by the COVID-19 pandemic.

Historically, 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.

Historically, prior to the outbreak of the COVID-19 pandemic, 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.

On March 16, 2020, we complied with governmental mandates regarding the closing of non-essential businesses in response to the COVID-19 pandemic and closed the Empire State Building Observatory.

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The components of the Empire State Building revenue are as follows (dollars in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Office leases $ 36,268 73.4 % $ 37,083 53.3 %

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Broadcasting licenses and leases 5,026 10.2 % 4,743 6.8 %

We have been undertaking a comprehensive redevelopment and repositioning strategy of our Manhattan office properties.

Total $ 49,436 100.0 % $ 69,680 100.0 %

We have undertaken a comprehensive redevelopment and repositioning strategy of our Manhattan office properties.

This strategy is designed to improve the overall value and attractiveness of our properties and has contributed significantly to our tenant repositioning efforts, which seek to increase our occupancy, raise our rental rates, increase our rentable square feet, increase our aggregate rental revenue, lengthen our average lease term, increase our average lease size, and improve our tenant credit quality.

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This strategy has shown what we believe to be attractive results to date, and we believe has the potential to improve our operating margins and cash flows in the future.

From 2002 through September 30, 2020 , we have invested a total of approximately $942.1 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties pursuant to this program.

We intend to fund these capital improvements through a combination of operating cash flow, cash on hand, and borrowings.

From 2002 through March 31, 2021, we have invested a total of approximately $951.1 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties pursuant to this program.

We intend to fund capital improvements through a combination of operating cash flow, cash on hand, and borrowings.

The Greater New York Metropolitan Area office market is soft, and we compete with properties that have been redeveloped recently or have planned redevelopment.

We expect to spend approximately $40 million over 2018 through 2020 on these well-maintained and our well-located properties’ common areas and amenities to ensure competitiveness and protect our market position.

Expenditures, which began during the second quarter 2018, were $35.0 million through September 30, 2020 .

As of September 30, 2020 , excluding principal amortization, we had no debt maturing until 2024.

As of September 30, 2020, we had total debt outstanding of approximately $2.0 billion, with a weighted average interest rate of 4.0% , and a weighted average maturity of 8.3 years.

93.7% of our total debt outstanding is fixed-rate indebtedness and 6.3% is variable-rate indebtedness.

As of September 30, 2020 , we had cash and cash equivalents of approximately $373.1 million .

Our consolidated net debt to total market capitalization was approximately 46.3% as of September 30, 2020 .

We have spent approximately $36.3 million over 2018 through 2021 on these well-maintained and our well-located properties’ common areas and amenities to ensure competitiveness and protect our market position.

As of March 31, 2021, we had total debt outstanding of approximately $2.2 billion, with a weighted average interest rate of 3.9%, and a weighted average maturity of 7.9 years.

94.2% of our total debt outstanding is fixed-rate indebtedness.

Excluding principal amortization, we had no outstanding debt maturing until November 2024.

As of March 31, 2021, we had cash and cash equivalents of $567.1 million.

Our consolidated net debt to total market capitalization was 32.6% as of March 31, 2021.

Impact of COVID-19

In March 2020, the outbreak of the novel Coronavirus Disease 2019 ("COVID-19") was recognized as a pandemic by the World Health Organization.

In March 2020, the outbreak of the novel COVID-19 was recognized as a pandemic by the World Health Organization.

The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented economic, social and political uncertainty, volatility and disruption in the United States and globally.

We have taken the following actions in response to the impact of the COVID-19 pandemic on our business.

In March 2020, we bolstered our balance sheet to ensure proper liquidity by raising $300.0 million in net proceeds in two financings and drawing down $550.0 million under our $1.1 billion unsecured revolving credit facility.

In September 2020, we repaid the $550.0 million draw on our revolving credit facility.

We currently hold $373.1 million in cash on our balance sheet and have $1.1 billion undrawn capacity under our revolving credit facility.

During 2020, we bolstered our balance sheet to ensure proper liquidity by raising $480.0 million in net proceeds in three financings.

In March 2020, we drew down $550.0 million under our unsecured revolving facility and in September 2020, we repaid the $550.0 million draw.

In March 2021, we closed on our new $850.0 million unsecured revolving credit agreement.

We currently hold $567.1 million in cash and cash equivalents on our balance sheet and have $850 million undrawn capacity under our new revolving credit facility.

Our new revolving credit facility matures in March 2025 and has two six-month extension options, subject to certain conditions.

Property Operations

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A portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries.

Our operations team worked diligently to develop plans for tenants reoccupation of 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 access by tenants and their guests.

All New York State capital improvement work, except for essential work as defined by the authorities which includes safety-related work and work to demobilize previously started projects, was stopped in March 2020 until June 8, 2020, when government restrictions were lifted.

The spend was significantly curtailed under the restrictions.

Our operations team worked diligently to develop and implement plans for tenants' reoccupation of our buildings to ensure a safe, clean and healthy work environment.

These plans involved staff reassigned to screen tenants and visitors, changes to cleaning and maintenance standards, and changes to building operations for access by tenants and their guests.

Despite the challenge of the uncertain near-term environment, we continue to believe in the long-term demand for office space.

Many have now experienced the inefficiencies of working from home and miss 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 many tenants have acknowledged the challenges, inequities, and worries about divided workplaces between home and office work, the challenges with onboarding new employees and miss the connectivity and productivity that an office environment provides.

The economic uncertainty relating to the COVID-19 pandemic has slowed the pace of our leasing activity and could result in higher vacancy than we otherwise would have experienced, a longer amount of time to fill vacancies and potentially lower rental rates.

As of September 30, 2020, our portfolio was 89.7% leased, including SLNC, including 2.6% subject to leases scheduled to expire in 2020 and 6.2% subject to leases scheduled to expire in 2021.

New leasing activity was impacted during the third quarter by the pandemic and shelter-in-place rules that were in effect for much of the period.

During this time period, we instituted a number of online measures to maintain our relationships with brokers and expose our availabilities to the market.

While physical tours resumed on June 22, 2020 and coincided with Phase 2 reopening, we expect lower leasing volumes for the third and fourth quarters based on current tenant activity.

Rent Collections

As of October 31, 2020, we have experienced steady improvement in the collection of our property billings.

The following table reflects the percentages of rent collected from total billings.

Collections as of October 30, 2020

Second Quarter 2020

Third Quarter 2020

Total billings collected

Rent deferrals

Security deposits collected

Uncollected - covered by security deposit

As of March 31, 2021, our portfolio was 88.7% leased, including signed leases not yet commenced, including 5.9% subject to leases scheduled to expire in 2021 and 5.5% subject to leases scheduled to expire in 2022.

New leasing activity was impacted during 2020 by the pandemic and shelter-in-place rules that were in effect for much of the period.

In 2021, we have seen a reduction in New York state pandemic-linked restrictions such as office capacity which will be raised to 75% effective May 15th.

Over March and April 2021, we have seen a noticeable increase in tour volume in our Manhattan office portfolio to about two-thirds of pre-Covid levels.

While the recent increase is a positive sign that some tenants are beginning to re-engage, any potential lease transactions that stem from these tours will likely appear in the second half of the year.

Healthy buildings and Indoor Environmental Quality is the most asked about topic before and during space tours.

Our smaller food and service type retailers have been hit particularly hard.

They provide critical amenities and services to our office tenants.

Our plan is to convert some of their fixed rent to a percentage rent structure, with a payback of the difference between current and percentage rent over a defined period.

In many instances, we have converted some of their fixed rent to a percentage rent structure, with a payback of the difference between current and percentage rent over a defined period.

We intend to support our food and service retailers so that they can service our office tenants when they re-occupy.

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On March 16, 2020, we complied with governmental mandates regarding the closing of non-essential businesses in response to the COVID-19 pandemic and closed the Empire State Building Observatory.

While closed, we reduced our annualized operating expense run-rate from $35 million in February 2020 to approximately $14 million in May 2020, a 60% reduction.

Approximately two-thirds of the reduction was attributable to lower payroll expenses as we furloughed staff and the balance is due to lower operational and other costs.

The observatory reopened under New York State's Phase 4 guidelines, Low-Risk Outdoor Arts and Entertainment, on July 20, 2020.

The 102nd observation deck was reopened on August 24, 2020.

Subsequent to these dates, we continue to operate with reduced hours, staffing, services, operating costs, credit card fees and marketing expenses.

We anticipate that initially we will have a higher local visitor mix, followed by a ramp up of nationally sourced travel, which will then be followed by a restoration of our typical visitor mix that is approximately two-thirds international which we do not expect to be achieved until the broad resumption of international air travel some time in 2022.

With the Observatory reopened, for the balance of 2020, we will operate with reduced hours, staffing, services, operating costs, credit card fees and marketing expenses.

We project we can operate at this level until we reach 60% of 2019 attendance, after which expenses will ramp up.

The closure of our Observatory caused us during the quarter to choose to perform an impairment test related to goodwill.

First quarter 2021 attendance was at nearly 9% of 2019 comparable attendance;

a gradual improvement from 2020 levels and consistent with our hypothetical admissions forecast.

We anticipate expenses to be approximately $6-7 million per quarter for the balance of 2021 dependent upon the pace of visitor ramp-up.

The closure of our observatory caused us during each quarter of 2020 and during the first quarter of 2021 to choose to perform an impairment test related to goodwill.

We engaged a third-party valuation consulting firm to perform the valuation process.

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We will continue to assess the impairment of the observatory reporting unit goodwill going forward and that continued assessment may again utilize a third-party valuation consulting firm.

Goodwill allocated to the Observatory reporting unit was $227.5 million at September 30, 2020.

Expense Reductions

We have undertaken meaningful cost reduction measures to ensure our ongoing strength and position the business optimally through the current environment broken down as follows:

Named Executive Officer compensation:

($0.4) million from reduction in annual base salary for Anthony E.

Malkin, our Chairman, President and Chief Executive Officer, and Thomas P.

Durels, our Executive Vice President, Real Estate, through December 31, 2020;

($1.2) million from the change in age requirement from 60 to 65 for the accounting vesting period for time-based equity compensation;

($2.7) million from the departure of our former Chief Operating Officer.

Other corporate overhead:

($1.5) million of net changes from the addition of investment personnel and reductions in executive and corporate staff, and temporary corporate salary reductions through December 31, 2020;

Balance from department budget cuts and lower anticipated spending due to the COVID-19 pandemic.

In addition, we announced a $3.9 million reduction in 2021 NEO annual equity compensation, comprised of a $2.7 million reduction for Mr.

Malkin and $1.2 million reduction for Mr.

Property operating expenses

Year-to-date through September 30th, we reduced property operating expenses by $26 million compared to the prior year period, driven by reduced tenant utilization and our cost reduction initiatives.

$4 million on an annualized basis of permanent cost reductions due to staffing and other reductions.

Capital expenditures

$24 million in lower planned 2020 capital expenditures for building improvements compared to 2019 due to focus only on mandatory spending and work previously commenced.

Goodwill allocated to the observatory reporting unit was $227.5 million at March 31, 2021.

Results of Operations

The discussion below relates to our financial condition and results of operations for the three and nine months ended September 30, 2020 and 2019, respectively.

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

The following table summarizes our historical results of operations for the three months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30,

Rental revenue

Observatory revenue

Lease termination fees

Third-party management and other fees

Other revenues and fees

Total revenues

Operating expenses:

Property operating expenses

Ground rent expenses

General and administrative expenses

Observatory expenses

Real estate taxes

Impairment charge

Depreciation and amortization

Total operating expenses

Operating income (loss)

Other income (expense):

Interest income

Interest expense

IPO litigation expense

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Private perpetual preferred unit distributions

Net income (loss) attributable to common unitholders

Rental Revenue

The decrease in rental revenue was attributable to the write-off of straight-line receivables and uncollectible tenant receivables and lower tenant expense reimbursements, consistent with lower expenses.

Observatory Revenue

Observatory revenues were lower driven by the closure of the Observatory on March 16, 2020 due to the COVID-19 pandemic.

The Observatory reopened on July 20, 2020 but New York tourism continues to be impacted by international, national, and local travel restrictions and quarantines.

Observatory revenue included $2.0 million of deferred revenue from unused tickets and earned income from tour and travel partners, as well as $1.2 million of fixed license fee for the gift shop.

Lease Termination Fees

Lower termination fees were earned in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Third-Party Management and Other Fees

Management fee income was consistent with prior year.

Other Revenues and Fees

The decrease in other revenues and fees was due to lower food and beverage sales and lower parking income due to the COVID-19 pandemic, partially offset by a $0.8 million development project reimbursement.

Property Operating Expenses

The decrease in property operating expenses was primarily due to lower repair and maintenance costs, lower payroll costs, lower utility costs and lower professional fees.

The lower costs are primarily due to lower tenant utilization in our buildings.

Ground Rent Expenses

Ground rent expense was consistent with 2019.

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to equity compensation expense, partially offset by lower legal leasing costs.

Observatory Expenses

Lower Observatory expenses were driven by the closure and then limited operations of the Observatory during the three months ended September 30, 2020.

Real Estate Taxes

The increase in real estate taxes was primarily due to higher assessed values for multiple properties.

Impairment charge

Reflects a $2.1 million write-off of prior expenditures on a development project that is unlikely to continue.

There was an $0.8 million development project reimbursement reflected in Other Revenues and Fees.

Depreciation and Amortization

The increase in depreciation and amortization was consistent with 2019.

Interest Income

The decrease in interest income was primarily due to lower interest rates.

Interest Expense

Interest expense increased due to new financings entered into in March 2020 and a draw on our unsecured revolving credit facility.

The draw on our credit facility was fully repaid on September 1, 2020.

IPO Litigation Expense

Represents an accrued expense which reflects an estimated liability associated with the Initial Public Offering-related litigation.

The increase in income tax benefit was attributable to higher net loss for the Observatory segment.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

The following table summarizes our historical results of operations for the nine months ended September 30, 2020 and 2019 (dollars in thousands):

Nine Months Ended September 30,

The discussion below relates to our financial condition and results of operations for the three months ended March 31, 2021 and 2020, respectively.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

The following table summarizes our historical results of operations for the three months ended March 31, 2021 and 2020 (dollars in thousands):

Three Months Ended March 31,

2021 2020 Change %

Rental revenue

$ 140,231 $ 148,113 $ (7,882) (5.3) %

Observatory revenue 2,603 19,544 (16,941) (86.7) %

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Third-party management and other fees

276 346 (70) (20.2) %

Other revenues and fees

905 2,010 (1,105) (55.0) %

Total revenues

145,304 170,224 (24,920) (14.6) %

Operating expenses:

Property operating expenses

30,279 41,468 11,189 27.0 %

Ground rent expenses

2,331 2,331 — — %

General and administrative expenses

13,853 15,951 2,098 13.2 %

Observatory expenses

4,588 8,154 3,566 43.7 %

Real estate taxes

Impairment charges

31,447 29,254 (2,193) (7.5) %

Depreciation and amortization

44,457 46,093 1,636 3.5 %

Total operating expenses

Operating income (loss)

126,955 143,251 16,296 11.4 %

Operating income

18,349 26,973 (8,624) (32.0) %

Other income (expense):

Interest income

122 637 (515) (80.8) %

Interest expense

(23,554) (19,618) (3,936) (20.1) %

Loss on early extinguishment of debt (214) (86) (128) (148.8) %

IPO litigation expense

Income (loss) before income taxes

(5,297) 7,906 (13,203) (167.0) %

Income tax benefit

2,106 382 1,724 451.3 %

Net income (loss)

(3,191) 8,288 (11,479) (138.5) %

Private perpetual preferred unit distributions (1,050) (1,050) — — %

Net income (loss) attributable to common unitholders

$ (4,241) $ 7,238 $ (11,479) (158.6) %

Rental Revenue

Observatory Revenue

Observatory revenues were lower driven by the closure of the Observatory on March 16, 2020 due to the COVID-19 pandemic.

The Observatory reopened on July 20, 2020 but New York tourism continues to be impacted by international, national, and local travel restrictions and quarantines.

Observatory revenues increased during the first two months of 2020 by 13.2%, after adjusting for the 102nd floor observation deck, to $14.4 million from $12.7 million in the first two months of 2019.

Observatory revenues were lower due to the COVID-19 pandemic as New York tourism continues to be impacted by international, national, and local travel restrictions.

Lease Termination Fees

Lower termination fees were earned in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Higher termination fees were earned in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Third-Party Management and Other Fees

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Property Operating Expenses

The decrease in property operating expenses was primarily due to lower repair and maintenance costs, lower payroll costs, lower repair, lower utility costs and lower professional fees.

The decrease in property operating expenses was primarily due to lower repair and maintenance costs, lower payroll costs, lower utility costs and lower professional fees.

The lower costs are primarily driven by lower tenant utilization in our buildings.

Ground Rent Expenses

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General and Administrative Expenses

The increase in general and administrative expenses was primarily due to severance costs and equity compensation expense, partially offset by lower legal leasing costs.

The decrease in general and administrative expenses was primarily due to lower equity compensation expense and lower legal leasing costs.

Observatory Expenses

Lower Observatory expenses were driven by the closure of the Observatory due to the COVID-19 pandemic.

The decrease in observatory expenses was driven by limited operations of the observatory during the three months ended March 31, 2021.

Real Estate Taxes

The increase in real estate taxes was primarily due to higher assessed values for multiple properties.

Impairment charges

Reflects a $4.1 million write-off of prior expenditures on a potential energy efficiency project that is not economically feasible in today's regulatory environment and a $2.1 million write-off of prior expenditures on a development project that is unlikely to continue.

Depreciation and Amortization

The increase in depreciation and amortization reflects tenant improvement write-offs due to the early termination of a tenant.

Depreciation and amortization expense were consistent with 2020.

Interest Income

The decrease in interest income was primarily due to lower interest rates in the current year and higher short-term investments in the prior year.

The decrease in interest income was primarily due to lower interest rates.

Interest Expense

Interest expense increased due to new financings entered into in March 2020 and a draw on our unsecured revolving credit facility.

The draw on our credit facility was fully repaid on September 1, 2020.

Loss on Early Extinguishment of Debt

Loss on early extinguishment of debt was incurred in connection with the refinancing of the term loan in the first quarter 2020.

IPO Litigation Expense

Represents an accrued expense which reflects an estimated liability associated with the Initial Public Offering-related litigation.

Interest expense increased due to higher debt levels in the three months ended March 31, 2021.

The increase in income tax benefit was attributable to higher net loss for the Observatory segment.

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Based on the historical experience of our management and our business strategy, in the foreseeable future we anticipate we will generate positive cash flows from operations.

In order for ESRT to qualify as a REIT, ESRT is required under the Internal Revenue Code of 1986 to distribute to its stockholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains.

We expect to make quarterly distributions to our securityholders.

regard to the deduction for dividends paid and excluding net capital gains.

We expect to make quarterly distributions, as required, to our securityholders.

While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations.

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ESRT's charter does not restrict the amount of leverage that we may use.

At September 30, 2020 , we had approximately $373.1 million available in cash and cash equivalents, and $1.1 billion available under our unsecured revolving credit facility.

Through August 2021, Q REIT Holding LLC, a Qatar Financial Centre limited liability company and a wholly owned

subsidiary of the Qatar Investment Authority, a governmental authority of the State of Qatar (“QREIT”, together with any eligible transferee, “QIA”) will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected, at our discretion, to seek out a joint venture partner in real estate investment opportunities.

The right of first offer period will be extended for 30 months so long as at least one joint venture transaction is consummated by us and QIA during the initial term, and will be extended for a further 30-month term if at least one more joint venture transaction is consummated during such initial extension period.

As of September 30, 2020 , we had approximately $2.0 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.0% and a weighted average maturity of 8.3 years.

As of September 30, 2020 , excluding principal amortization, we had no debt maturing until 2024.

Our consolidated net debt to total market capitalization was 46.3% as of September 30, 2020 .

At March 31, 2021, we had $567.1 million available in cash and cash equivalents, and $850 million available under our unsecured revolving credit facility.

For a five year right of first offer period expiring August 23, 2021, Q REIT Holding LLC, a Qatar Financial Centre limited liability company and a wholly owned subsidiary of the Qatar Investment Authority, a governmental authority of the State of Qatar (“QREIT”, together with any eligible transferee, “QIA”) will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected, at our discretion, to seek out a joint venture partner in real estate investment opportunities.

The right of first offer period will be extended for 30 months beyond its original expiration date so long as at least one joint venture transaction is consummated by us and QIA during the initial five year term, and will be extended for a further 30-month term if at least one more joint venture transaction is consummated during such initial extension period.

As of March 31, 2021, we had approximately $2.2 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.9% and a weighted average maturity of 7.9 years.

As of March 31, 2021, excluding principal amortization, we have no outstanding debt maturing until November 2024.

Our consolidated net debt to total market capitalization was 32.6% as of March 31, 2021.

Unsecured Revolving Credit and Term Loan Facilities

Du ring March 2020, we entered into an amendment to an existing credit agreement with the lenders party thereto, Bank of America, N.A., as administrative agent, and Bank of America, Wells Fargo Bank, National Association and Capital One, National Association, as the letter of credit issuers party thereto.

The amendment amends the amended and restated senior unsecured revolving credit and term loan facility, entered into in August 2017, with Bank of America, N.A., as administrative agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC as Joint Lead Arrangers and Joint Bookrunners, Wells Fargo, National Association and Capital One, National Association, as co-syndication agents, and the lenders party thereto.

This new amended unsecured revolving credit and term loan facility is comprised of a $1.1 billion revolving credit facility and a $215 million term loan facility.

We borrowed the term loan facility in full at closing.

We also borrowed $550.0 million on the revolving credit facility in March 2020 which we repaid in September 2020.

The amended unsecured revolving credit and term loan facility contains an accordion feature that would allow us to increase the maximum aggregate principal amount to $1.75 billion under specified circumstances.

Certain of our subsidiaries are guarantors of our obligations under the amended unsecured revolving credit and term loan facility.

On March 31, 2021, we entered into a second amendment to an existing credit agreement ("Amended Credit Agreement") that will govern an amended senior unsecured credit facility (the “Credit Facility”) with Bank of America, N.A., as administrative agent, and Bank of America, Wells Fargo Bank, National Association, Capital One, National Association and JPMorgan Chase Bank, N.A., as co-syndication agents, and the lenders and the letter of credit issuers party thereto.

The Amended Credit Agreement amends the amended and restated credit agreement dated August 29, 2017, as amended, by and among the parties named therein.

This Credit Facility is comprised of a $850 million revolving credit facility and a $215 million term loan facility.

We borrowed the term loan facility in full in August 2017.

The Credit Facility contains an accordion feature that would allow us to increase the maximum aggregate principal amount to $1.5 billion under specified circumstances.

Certain of our Operating Partnership's subsidiaries are guarantors of our obligations under the amended unsecured revolving credit and term loan facility.

Amounts under the amended revolving credit facility bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 1.30% to 1.70% depending upon our leverage ratio or (y) a base rate, plus a spread that will range from 0.30% to 0.70% depending upon our leverage ratio.

If we achieve investment-grade ratings, subject to the terms of the Amended Credit Agreement, we may elect for the amounts outstanding to bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 0.775% to 1.45% depending upon our credit rating, or (y) a base rate, plus a spread that will range from 0.0% to 0.45% depending upon our credit rating.

The LIBOR replacement provisions in the Amended Credit Agreement provide for the use of rates based on the secured overnight financing rate ( “SOFR”) administered by the Federal Reserve Bank of New York.

The Amended Credit Agreement also

includes a sustainability component whereby the revolving credit facility pricing is reduced upon our achievement of certain sustainability ratings.

Amounts outstanding under the term loan facility bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 1.20% to 1.75% depending upon our leverage ratio, or (y) a base rate, plus a spread that will range from 0.20% to 0.75% depending upon our leverage ratio.

If we achieve investment-grade ratings, subject to the terms of the amended unsecured revolving credit and term loan facility, we may elect for amounts outstanding to bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 0.85% to 1.65% depending upon our credit rating, or (y) a base rate, plus a spread that will range from 0.0% to 0.65% depending upon our credit rating.

Amounts under the revolving credit facility bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 1.10% to 1.50% depending upon our leverage ratio or (y) a base rate, plus a spread that will range from 0.10% to 0.50% depending upon our leverage ratio.

If we achieve investment-grade ratings, subject to the terms of the amended unsecured revolving credit and term loan facility, we may elect for the amounts outstanding to bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 0.825% to 1.55% depending upon our credit rating, or (y) a base rate, plus a spread that will range from 0.0% to 0.55% depending upon our credit rating.

We paid certain customary fees and expense reimbursements in connection with the amended unsecured revolving credit and term loan facility, including a facility fee on commitments under the revolving credit facility that range from 0.125% to 0.35%, subject to the terms of the amended unsecured revolving credit and term loan facility.

The initial maturity of the unsecured revolving credit facility is August 2021.

We have the option to extend the initial term for up to two additional six-month periods, subject to certain conditions, including the payment of an extension fee equal to 0.0625% and 0.075% of the then outstanding commitments under the unsecured revolving credit facility on the first and the second extensions, respectively.

If we achieve investment-grade ratings, subject to the terms of the Amended Credit Agreement, we may elect for amounts outstanding to bear interest at a floating rate equal to, at our election, (x) the Eurodollar rate, plus a spread that will range from 0.85% to 1.65% depending upon our credit rating, or (y) a base rate, plus a spread that will range from 0.0% to 0.65% depending upon our credit rating.

We paid certain customary fees and expense reimbursements in connection with the Credit Facility, including a facility fee on commitments under the revolving credit facility that range from 0.20% to 0.35% (or 0.125% to 0.30% if we achieve investment-grade ratings and elect the alternative pricing described above), subject to the terms of the Amended Credit Agreement.

The revolving credit facility matures on March 31, 2025.

We have the option to extend the initial term for up to two additional six-month periods, subject to certain conditions, including the payment of an extension fee equal to 0.0625% and 0.075% of the then outstanding commitments under the revolving credit facility on the first and the second extensions, respectively.

T he term loan facility matures on March 19, 2025.

We may prepay the loans under the amended unsecured revolving credit and term loan facility at any time in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar Rate borrowings.

Also during March 2020, we entered into a senior unsecured term loan facility (the “Term Loan Facility”) with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC as sole bookrunner, Wells Fargo Securities, LLC, Capital One, National Association, U.S.

We may prepay the loans under the Credit Facility at any time in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar Rate borrowings.

During March 2020, we entered into a senior unsecured term loan facility (the “Term Loan Facility”) with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC as sole bookrunner, Wells Fargo Securities, LLC, Capital One, National Association, U.S.

Bank National Association and SunTrust Robinson Humphrey, Inc.

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We may prepay loans under the Term Loan Facility at any time, in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar rate borrowings and, if the prepayment occurs on or before December 31, 2021, a prepayment fee.

If the prepayment occurs on or prior to December 31, 2020, the prepayment fee is equal to 2.0% of the principal amount prepaid, and if the prepayment occurs after December 31, 2020 but on or prior to December 31, 2021, the prepayment fee is equal to 1.0% of the principal amount prepaid.

Both the amended revolving credit and term loan facility and the Term Loan Facility (collectively, the "Credit Facilities") include the following financial covenants, subject to customary qualifications and cushions:

the agreement) to consolidated fixed charges will not be less than 1.50x, (iv) the aggregate net operating income with respect to all unencumbered eligible properties to the portion of interest expense attributable to unsecured indebtedness will not be less than 1.75x, and (v) the ratio of total unsecured indebtedness to unencumbered asset value will not exceed 60%.

If the prepayment occurs after December 31, 2020 but on or prior to December 31, 2021, the prepayment fee is equal to 1.0% of the principal amount prepaid.

Both the Credit Facility and the Term Loan Facility (collectively, the "Credit Facilities") include the following financial covenants, subject to customary qualifications and cushions:

(i) maximum leverage ratio of total indebtedness to total asset value of the loan parties and their consolidated subsidiaries will not exceed 60%, (ii) consolidated secured indebtedness will not exceed 40% of total asset value, (iii) adjusted EBITDA (as defined in the agreement) to consolidated fixed charges will not be less than 1.50x, (iv) the aggregate net operating income with respect to all unencumbered eligible properties to the portion of interest expense attributable to unsecured indebtedness will not be less than 1.75x, and (v) the ratio of total unsecured indebtedness to unencumbered asset value will not exceed 60%.

The Credit Facilities contain customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates, and requires certain customary financial reports.

The Credit Facilities contain customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control (as defined in the respective Credit Facilities).

As of September 30, 2020, we were in compliance with the covenants.

As of March 31, 2021, we were in compliance with the covenants.

Senior Unsecured Notes

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The agreement also contains customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, the occurrence of certain change of control transactions and loss of real estate investment trust qualification.

As of September 30, 2020, we were in compliance with the covenants under the outstanding senior unsecured notes.

As of March 31, 2021, we were in compliance with the covenants under the outstanding senior unsecured notes.

Financial Covenants

As of September 30, 2020 , we were in compliance with the following financial covenants:

Financial covenant

September 30, 2020

In Compliance

Maximum total leverage

Maximum secured debt

Minimum fixed charge coverage

Minimum unencumbered interest coverage

Maximum unsecured leverage

As of March 31, 2021, we were in compliance with the following financial covenants:

Financial covenant Required March 31, 2021 In Compliance

Maximum total leverage < 60% 40.7 % Yes

Maximum secured debt < 40% 14.8 % Yes

Minimum fixed charge coverage > 1.50x 2.2x Yes

Minimum unencumbered interest coverage > 1.75x 4.5x Yes

Maximum unsecured leverage < 60% 33.6 % Yes

Leverage Policies

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Our overall leverage will depend on our mix of investments and the cost of leverage, however, we initially intend to maintain a level of indebtedness consistent with our plan to seek an investment grade credit rating.

ESRT's board of directors may from time to time modify our leverage policies in light of the then-current economic conditions, relative costs of debt and equity capital,

market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of ESRT's common stock and our traded OP units, growth and acquisition opportunities and other factors.

ESRT's board of directors may from time to time modify our leverage policies in light of the then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of ESRT's common stock and our traded OP units, growth and acquisition opportunities and other factors.

Capital Expenditures

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Office Properties (1)

Nine Months Ended September 30,

Three Months Ended March 31,

Total New Leases, Expansions, and Renewals 2021 2020

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Total square feet

170,757 117,481

Leasing commission costs (3)

$ 3,473 $ 1,546

Tenant improvement costs (3)

Total leasing commissions and tenant improvement costs (3)

$ 16,255 $ 9,364

Leasing commission costs per square foot (3)

$ 20.34 $ 13.16

Tenant improvement costs per square foot (3)

Total leasing commissions and tenant improvement costs per square foot (3)

$ 95.19 $ 79.71

Retail Properties (4)

Nine Months Ended September 30,

Three Months Ended March 31,

Total New Leases, Expansions, and Renewals 2021 2020

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Leasing commission costs per square foot (3)

$ 29.37 $ 46.28

Tenant improvement costs per square foot (3)

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$ 29.37 $ 274.14

_______________

(1) Excludes an aggregate of 504,284 and 509,244 rentable square feet of retail space in our Manhattan office properties in 2021 and 2020, respectively.

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Excludes the Empire State Building broadcasting licenses and observatory operations.

Nine Months Ended September 30,

Three Months Ended March 31,

Total Portfolio

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$ 3,662 $ 13,933

_______________

(1) Excludes tenant improvements and leasing commission costs.

As of September 30, 2020 , we expect to incur additional costs relating to obligations under existing lease agreements of approximately $130.1 million for tenant improvements and leasing commissions.

As of March 31, 2021, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $99.3 million for tenant improvements and leasing commissions.

We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand, additional property level mortgage financings and borrowings under the unsecured revolving credit facility.

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our contractual obligations.

There have been no material changes, outside the ordinary course of business, to these contractual obligations during the nine months ended September 30, 2020.

There have been no material changes, outside the ordinary course of business, to these contractual obligations during the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

As of September 30, 2020 , we did not have any off-balance sheet arrangements.

As of March 31, 2021, we did not have any off-balance sheet arrangements.

Distribution Policy

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federal income tax and the 4% nondeductible excise tax in that year.

In 2020, we had a unique situation whereby we had no requirement to pay a dividend beyond the quarterly dividends paid in the first and second quarters of 2020 due to two primary factors:

(i) the significant decline in revenue due to lower levels of observatory visitation, and (ii) ESRT had a net operating loss carryforward available to reduce the amount of REIT taxable income otherwise required to be distributed by ESRT to meet REIT requirements.

After careful consideration and focus on long-term shareholder value creation and preservation of our balance sheet strength and flexibility, our management and the Board of Directors concluded the best course of action was to temporarily suspend our quarterly dividend and to activate our share repurchase program.

During August 2020, we announced the suspension of our third and fourth quarter 2020 dividends to holders of ESRT's Class A common stock and Class B common stock and to holders of our Series ES, Series 250 and Series 60 operating partnership units and Series PR operating partnership units.

We expect to have no taxable income in 2020, and therefore no requirement to pay any dividend on our common stock in either the third or fourth quarter of 2020.

We and our Board believe that payment of a dividend is currently not the highest and best use of our balance sheet.

Distributions to Securityholders

Distributions and dividends amounting to $65.4 million and $96.4 million have been made to securityholders for the nine months ended September 30, 2020 and 2019, respectively.

During December 2020, we announced the continued dividend suspension for the first and second quarters of 2021.

The Board of Directors will continue its regular review of its dividend and capital allocation policies at each Board meeting.

As of March 31, 2021, our parent and general partner, Empire State Realty Trust, Inc., had net operating loss ("NOL") carryforwards that may be used in the future to reduce the amount otherwise required to be distributed by ESRT to meet REIT requirements.

However, for federal income tax purposes, the NOL will not be able to offset more than 80% of ESRT’s REIT taxable income and, therefore, may not be able to reduce the amount required to be distributed by ESRT to meet REIT requirements to zero, except for the tax year ended December 31, 2020, of which ESRT was able to offset 100% of its taxable income in accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The federal NOL may be carried forward indefinitely.

Other limitations may apply to ESRT’s ability to use its NOL to offset taxable income.

Stock and Publicly Traded Operating Partnership Unit Repurchase Program

ESRT's Board of Directors reauthorized the repurchase of up to $500 million of ESRT Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units through December 31, 2020.

ESRT's Board of Directors authorized the repurchase of up to $500 million of ESRT Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units through December 31, 2021.

Under the program, ESRT may purchase ESRT Class A common stock and we may purchase our Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions.

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The authorization does not obligate ESRT or us to acquire any particular amount of securities, and the program may be suspended or discontinued at ESRT and our discretion without prior notice.

The following table summarizes ESRT's purchases of equity securities in each of the three months ended September 30, 2020 and the month of October 2020:

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plan

Maximum Approximate Dollar Value Available for Future Purchase (in thousands)

September 2020

Comparison of Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Cash and cash equivalents and restricted cash were $428.0 million and $330.3 million , respectively, as of September 30, 2020 and 2019 .

The increase was primarily due to the issuance of financings, partially offset by the repurchase of common shares during the nine months ended September 30, 2020.

The following table summarizes ESRT's purchases of equity securities in each of the three months ended March 31, 2021:

Period Total Number of Shares Purchased Weighted Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Approximate Dollar Value Available for Future Purchase (in thousands)

January 2021 337,339 $ 9.17 337,339 $ 496,908

February 2021 45,732 $ 9.65 45,732 $ 496,467

March 2021 — $ — — $ 496,467

Comparison of Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020

Cash and cash equivalents and restricted cash were $607.4 million and $1,045.9 million, respectively, as of March 31, 2021 and 2020.

The decrease was primarily due to a $550.0 million draw on the unsecured revolving credit facility in March 2020 which was subsequently repaid in September 2020.

Operating activities .

Net cash provided by operating activities decreased by $34.8 million to $163.6 million for the nine months ended September 30, 2020 compared to $198.4 million for the nine months ended September 30, 2019 , primarily due to changes in working capital and settlement of derivative contracts.

Net cash provided by operating activities increased by $8.6 million to $73.4 million for the three months ended March 31, 2021 compared to $64.8 million for the three months ended March 31, 2020, primarily due to changes in working capital.

Investing activities .

Net cash provided by investing activities decreased by $323.7 million to $113.4 million used in investing activities for the nine months ended September 30, 2020 compared to $210.3 million net cash provided by investing activities for the nine months ended September 30, 2019 , due to proceeds from maturing short-term investments in 2019.

Net cash used in investing activities decreased by $19.8 million to $20.8 million for the three months ended March 31, 2021 compared to $40.6 million for the three months ended March 31, 2020, due to lower capital expenditures.

Financing activities .

Net cash provided by financing activities increased by $455.4 million to $106.2 million provided by financing activities for the nine months ended September 30, 2020 compared to $349.2 million used in financing activities for the nine months ended September 30, 2019 , primarily due to the net proceeds from issuance of debt in the nine months ended September 30, 2020 compared to the payment of debt in the nine months ended September 30, 2019.

Net cash provided by financing activities decreased by $763.2 million to $13.1 million used in financing activities for the three months ended March 31, 2021 compared to $750.1 million provided by financing activities for the three months ended March 31, 2020, primarily due to $850.0 million of net proceeds from issuance of debt, partially offset by higher repurchases of common shares of $59.1 million and dividends and distributions of $31.6 million which occurred in the three months ended March 31, 2020.

Net Operating Income ("NOI")

Our internal financial reports include a discussion of property net operating income.

Our financial reports include a discussion of property net operating income, or NOI.

NOI is a non-GAAP financial measure of performance.

NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by:

(i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt, impairment charges and loss from derivative instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner.

The cost of funds is eliminated from net operating income because it is specific to the particular financing capabilities and constraints of the owner.

The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future.

(i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner.

The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner and because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future.

Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions.

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We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue, generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs.

by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs.

NOI may fail to capture significant trends in these components of net income which further limits its usefulness.

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The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI for the periods presented (amounts in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income (loss)

$ (3,191) $ 8,288

General and administrative expenses

13,853 15,951

Depreciation and amortization

44,457 46,093

Interest expense

Income tax expense (benefit)

Impairment charges

IPO litigation expense

23,768 19,704

Income tax (benefit)

(2,106) (382)

Third-party management and other fees

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Net operating income

$ 76,383 $ 88,671

Other Net Operating Income Data

Straight-line rental revenue

$ 6,347 $ 8,193

Net increase in rental revenue from the amortization of above-and below-market lease assets and liabilities

Amortization of acquired below-market ground leases

$ 1,958 $ 1,958

Funds from Operations ("FFO")

We present below a discussion of FFO.

We compute FFO in accordance with the “White Paper” on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-downs of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures.

We compute FFO in accordance with the “White Paper” on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-off of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures.

FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs.

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We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results of operations, the utility of FFO as a measure of performance is limited.

as a measure of performance is limited.

There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.

FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating

activities determined in accordance with GAAP.

FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP.

FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions.

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Modified FFO adds back an adjustment for any above or below-market ground lease amortization to traditionally defined FFO.

We consider this a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under GAAP, which stems from the third quarter 2014 acquisition of two option properties as they carry significantly below market ground leases, the amortization of which is material to our overall results.

We consider this a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under GAAP, which stems from the third quarter 2014 acquisition of two option properties following our formation transactions as they carry significantly below market ground leases, the amortization of which is material to our overall results.

We present Modified FFO because we consider it an important supplemental measure of our operating performance in that it adds back the non-cash amortization of below-market ground leases.

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Core FFO adds back to Modified FFO the following items:

deferred tax asset write-off, loss on early extinguishment of debt, acquisition expenses, severance expenses and IPO litigation expense.

The Company presents Core FFO because it considers it an important supplemental measure of its operating performance in that it excludes non-recurring items.

IPO litigation expense, severance expenses and loss on early extinguishment of debt.

The company presents Core FFO because it considers it an important supplemental measure of its operating performance in that it excludes items associated with its IPO and formation transactions and other non-recurring items.

There can be no assurance that Core FFO presented by the company is comparable to similarly titled measures of other REITs.

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The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO for the periods presented (amounts in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income (loss)

$ (3,191) $ 8,288

Private perpetual preferred unit distributions

(1,050) (1,050)

Real estate depreciation and amortization

Impairment charges

43,104 44,430

FFO attributable to common stockholders

38,863 51,668

Amortization of below-market ground leases

Modified FFO attributable to common stockholders

40,821 53,626

Loss on early extinguishment of debt

Severance expenses

IPO litigation expense

Core FFO attributable to common stockholders

$ 41,035 $ 53,712

Weighted average Operating Partnership units

277,881 292,645

Factors That May Influence Future Results of Operations

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We signed 0.9 million rentable square feet of new leases, expansions and lease renewals for the year ended December 31, 2020.

During the nine months ended September 30, 2020 , we signed 0.5 million rentable square feet of new leases, expansions and renewals.

During the three months ended March 31, 2021, we signed 0.2 million rentable square feet of new leases, expansions and renewals.

Due to the relatively small number of leases that are signed in any particular quarter, one or more larger leases may have a disproportionately positive or negative impact on average rent, tenant improvement and leasing commission costs for that period.

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Leasing commission costs are similarly subject to significant fluctuations depending upon the length of leases being signed and the mix of tenants from quarter to quarter.

As of September 30, 2020 , there were approximately 1.0 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 10.3% of the net rentable square footage of the properties in our portfolio.

As of March 31, 2021, there were approximately 1.1 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 11.3% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 5.9% and 5.5% of net rentable square footage of the properties in our portfolio will expire in 2021 and in 2022, respectively.

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Further, our revenues and results of operations can also be affected by the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant.

Despite the challenge of the uncertain near-term environment, we continue to believe that as we complete the redevelopment and repositioning of our properties we will, over the long-term, experience increased occupancy levels and rents.

Despite the challenge of the uncertain near-term environment, we continue to believe that as we have largely completed the redevelopment and repositioning of our properties we will, over the long-term, experience increased occupancy levels and rents.

Over the short-term, as we renovate and reposition our properties, including aggregating smaller spaces to offer large blocks of space, we may experience lower occupancy levels as a result of having to relocate tenants to alternative space and the strategic expiration of existing leases.

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The 102nd floor observation deck reopened on August 24, 2020.

Observatory revenues for the first two months of 2020 increased by 13.2%, after adjusting the for the 102nd floor observation deck which was closed during the first quarter of 2019.

The Observatory hosted approximately 30,000 visitors in the third quarter of 2020, compared to 1,042,000 visitors in the third quarter of 2019, a decrease of 97.1%.

The observatory hosted approximately 51,000 visitors in the first quarter of 2021, compared to 55,000 visitors in the fourth quarter of 2020 and visitors of 422,000 visitors in the first quarter of 2020.

The first quarter is historically the seasonally lightest quarter for the observatory due to the winter weather conditions.

In spite of the ongoing nature of international, national, and local travel restrictions and quarantines, the observatory has seen steady, weekly increases in visitors.

Our return of attendance to pre-COVID-19 levels is closely tied to national and international travel trends and these remain adversely impacted by developments around the COVID-19 pandemic.

Observatory revenues for the three months ended September 30, 2020 were $4.4 million, driven by low visitation levels and less days of operation in the quarter.

Observatory revenue included $2.0 million of deferred revenue from unused tickets and earned income from tour and travel partners, as well as $1.2 million of fixed license fee for the gift shop.

Observatory revenues for the three months ended March 31, 2021 were $2.6 million, driven by low visitation levels.

Observatory revenue included $0.1 million of deferred revenue from unused tickets.

Observatory expenses were $4.6 million for the three months ended March 31, 2021.

Observatory revenues and admissions are dependent upon the following:

(i) the number of tourists (domestic and international) who come to New York City and visit the observatory, as well as any related tourism trends;

(ii) the prices per

admission that can be charged;

(ii) the prices per admission that can be charged;

(iii) seasonal trends affecting the number of visitors to the observatory;

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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-Q

Item 2. Management’s Discussion and Analysis