Empire State Realty OP, L.P. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to our company and its consolidated subsidiaries. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or phrases. In particular, statements pertaining to our capital resources, portfolio performance, dividend policy and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our portfolio from operations, acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). 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; (ii) resolution of legal proceedings involving the Company; (iii) reduced demand for office or retail space, including as a result of the COVID-19 pandemic; (iv) changes in our business strategy; (v) changes in technology and market competition that affect utilization of our office, retail, broadcast or other facilities; (vi) changes in domestic or international tourism, including due to health crises such as the COVID-19 pandemic, geopolitical events and/or currency exchange rates, which may cause a decline in Observatory visitors; (vii) defaults on, early terminations of, or non-renewal of, leases by tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of LIBOR after 2021; (ix) declining real estate valuations and impairment charges; (x) termination or expiration of our ground leases; (xi) changes in our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow additional funds in compliance with drawdown conditions and financial covenants; (xii) decreased rental rates or increased vacancy rates; (xiii) our failure to redevelop and reposition properties, or to execute any newly planned capital project successfully or on the anticipated timeline or at the anticipated costs; (xiv) difficulties in identifying properties to acquire and completing acquisitions; (xv) risks related to our development projects (including our Metro Tower development site) and capital projects, including the cost of construction delays and cost overruns; (xvi) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvii) our failure to qualify as a REIT; (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. The Company disclaims any obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company. 26 Overview Empire State Realty OP, L.P. is the entity through which Empire State Realty Trust, Inc. (“ESRT”), a self-administered and self-managed real estate investment trust ("REIT"), conducts all of its business and owns (either directly or through subsidiaries) substantially all of its assets. 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 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 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. Nine of these properties are located in the midtown Manhattan market and aggregate approximately 7.6 million rentable square feet of office space, including the Empire State Building. Our Manhattan office properties also contain an aggregate of approximately 0.5 million 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 in the aggregate 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 0.4 million rentable square foot office building and garage. 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. The Empire State Building provides us with a diverse source of revenue through its office and retail leases, observatory operations and broadcasting licenses and related leased space. Our observatory operations are a separate reporting segment. Our observatory operations are subject to regular patterns of tourist activity in Manhattan and currently impacted by the COVID-19 pandemic. 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. The Observatory reopened on July 20, 2020. The components of the Empire State Building revenue are as follows (dollars in thousands): 27 Three Months Ended March 31, 2021 2020 Office leases $ 36,268 73.4 % $ 37,083 53.3 % Retail leases 1,762 3.6 % 1,616 2.3 % Tenant reimbursements & other income 3,777 7.6 % 6,694 9.6 % Observatory operations 2,603 5.2 % 19,544 28.0 % Broadcasting licenses and leases 5,026 10.2 % 4,743 6.8 % 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. These improvements include restored, renovated and upgraded or new lobbies, elevator modernization, renovated public areas and bathrooms, refurbished or new windows, upgrade and standardization of retail storefront and signage, façade restorations, modernization of building-wide systems, and enhanced tenant amenities. We have also aggregated smaller spaces in order to offer larger blocks of office space, including multiple floors, that are attractive to larger, higher credit-quality tenants as well as to offer new, pre-built suites with improved layouts. 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 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 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 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. Liquidity 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 All of our office buildings have remained open during the COVID-19 pandemic to tenants that provide essential goods and services, as permitted by the authorities. We have scaled back certain building operations in cleaning, security, lobby concierge and recurring maintenance, which will reduce costs until buildings are repopulated. A portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries. 28 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. 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. Leasing 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 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. 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. Observatory Operations 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. 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. 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. Based upon the results of the goodwill impairment test of the stand-alone observatory reporting unit, which is after the intercompany rent expense paid to the Real Estate reporting unit, we determined that the fair value of the observatory reporting unit exceeded its carrying value by less than 10.0%. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods. 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 March 31, 2021. 29 Results of Operations Overview 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 % Revenues: Rental revenue $ 140,231 $ 148,113 $ (7,882) (5.3) % Observatory revenue 2,603 19,544 (16,941) (86.7) % Lease termination fees 1,289 211 1,078 510.9 % 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 31,447 29,254 (2,193) (7.5) % Depreciation and amortization 44,457 46,093 1,636 3.5 % Total operating expenses 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) % 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 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 operating expenses. Observatory Revenue 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. 30 Lease Termination Fees 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 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. 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 driven by lower tenant utilization in our buildings. Ground Rent Expenses Ground rent expense was consistent with 2020. General and Administrative Expenses The decrease in general and administrative expenses was primarily due to lower equity compensation expense and lower legal leasing costs. Observatory Expenses 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. Depreciation and Amortization Depreciation and amortization expense were consistent with 2020. Interest Income The decrease in interest income was primarily due to lower interest rates. Interest Expense Interest expense increased due to higher debt levels in the three months ended March 31, 2021. Income Taxes The increase in income tax benefit was attributable to higher net loss for the Observatory segment. Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make distributions to our securityholders and fulfill other general business needs. 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 31 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. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of cash on hand and cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit facility. We expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital expenditures from cash flows from operations, cash on hand, debt issuances, and available borrowing capacity under our unsecured revolving credit facility. The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements. We expect to meet our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset sales. Our properties require periodic investments of capital for individual lease related tenant improvements allowances, general capital improvements and costs associated with capital expenditures. Our overall leverage will depend on our mix of investments and the cost of leverage. ESRT's charter does not restrict the amount of leverage that we may use. 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 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 32 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 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 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. as Joint Lead Arrangers, Capital One, National Association, as syndication agent, U.S. Bank National Association and Truist Bank, as documentation agents, and the lenders party thereto. The Term Loan Facility is in the original principal amount of $175 million which we borrowed in full at closing. We may request the Term Loan Facility be increased through one or more increases or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount not to exceed $225 million. Certain of our subsidiaries are guarantors of our obligations under the Term Loan Facility. Amounts outstanding under the Term Loan Facility bear interest at a floating rate equal to, at our election, (x) the LIBOR rate, plus a spread that will range from 1.5% to 2.2% depending upon our leverage ratio, or (y) a base rate, plus a spread that will range from 0.5% to 1.2% depending upon our leverage ratio. If we achieve investment-grade ratings, subject to the terms of the Term Loan Facility, we may elect for amounts outstanding to bear interest at a floating rate equal to, at our election, (x) the LIBOR rate, plus a spread that will range from 1.4% to 2.25% depending upon our credit rating, or (y) a base rate, plus a spread that will range from 0.4% to 1.25% depending upon our credit rating. The Term Loan Facility matures on December 31, 2026. 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 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 March 31, 2021, we were in compliance with the covenants. 33 Senior Unsecured Notes On March 17, 2020, we entered into an agreement to issue and sell an aggregate $175 million of senior unsecured notes, consisting of (a) $100 million aggregate principal amount of 3.61% Series G Senior Notes due March 17, 2032 (the “Series G Notes”) and (b) $75 million aggregate principal amount of 3.73% Series H Senior Notes due March 17, 2035 (the “Series H Notes”), in a private placement to entities affiliated with Prudential Capital Group, AIG Asset Management and MetLife Investment Management, LLC. The issue price for the Series G Notes and Series H Notes was 100% of the aggregate principal amount thereof. The senior unsecured notes are senior unsecured obligations and are unconditionally guaranteed by each of our subsidiaries that guarantees indebtedness under the unsecured revolving credit and term loan facility. Interest on the senior unsecured notes is payable quarterly. The terms of the Series G Notes and Series H Notes agreement include customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. It also requires compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. 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 March 31, 2021, we were in compliance with the covenants under the outstanding senior unsecured notes. Financial Covenants 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 We expect to employ leverage in our capital structure in amounts determined from time to time by ESRT's board of directors. Although ESRT's board of directors has not adopted a policy that limits the total amount of indebtedness that we may incur, we anticipate that ESRT's board of directors will consider a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such indebtedness that will be either fixed or floating rate. ESRT's charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken (including, but not limited to, recourse or non-recourse debt and cross-collateralized debt). 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. Capital Expenditures The following tables summarize our leasing commission costs, tenant improvement costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts). 34 Office Properties (1) Three Months Ended March 31, Total New Leases, Expansions, and Renewals 2021 2020 Number of leases signed (2) 25 31 Total square feet 170,757 117,481 Leasing commission costs (3) $ 3,473 $ 1,546 Tenant improvement costs (3) 12,782 7,818 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) 74.85 66.55 Total leasing commissions and tenant improvement costs per square foot (3) $ 95.19 $ 79.71 Retail Properties (4) Three Months Ended March 31, Total New Leases, Expansions, and Renewals 2021 2020 Number of leases signed (2) 1 4 Total square feet 1,060 31,662 Leasing commission costs (3) $ 31 $ 1,465 Tenant improvement costs (3) — 7,215 Total leasing commissions and tenant improvement costs (3) $ 31 $ 8,680 Leasing commission costs per square foot (3) $ 29.37 $ 46.28 Tenant improvement costs per square foot (3) — 227.86 Total leasing commissions and tenant improvement costs per square foot (3) $ 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. Includes the Empire State Building broadcasting licenses and observatory operations. (2) Presents a renewed and expansion lease as one lease signed. (3) Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid. (4) Includes an aggregate of 504,284 and 509,244 rentable square feet of retail space in our Manhattan office properties in 2021 and 2020, respectively. Excludes the Empire State Building broadcasting licenses and observatory operations. Three Months Ended March 31, 2021 2020 Total Portfolio Capital expenditures (1) $ 3,662 $ 13,933 _______________ (1) Excludes tenant improvements and leasing commission costs. 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. Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund capital improvements through a combination of operating cash flow, cash on hand and borrowings under the unsecured revolving credit facility. 35 Contractual Obligations 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 three months ended March 31, 2021. Off-Balance Sheet Arrangements As of March 31, 2021, we did not have any off-balance sheet arrangements. Distribution Policy In order for ESRT to qualify as a REIT, it must distribute to its securityholders, 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. In addition, it will be subject to U.S. federal income tax at regular corporate rates to the extent that it distributes less than 100% of its net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount, if any, by which its distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. We intend to distribute our net income to our securityholders in a manner intended to allow ESRT to satisfy its REIT 90% distribution requirement and to allow ESRT to avoid U.S. federal income tax liability on its income and the 4% nondeductible excise tax. Before we pay any distribution, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any. However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our units in order to allow ESRT to satisfy its REIT 90% distribution requirement and to avoid U.S. 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. 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 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. The timing, manner, price and amount of any repurchases will be determined by ESRT and us at our discretion and will be subject to stock price, availability, trading volume and general market conditions. 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. 36 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 Cash Flows Comparison of Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020 Net cash . 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 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 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 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 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 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. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly-timed purchases or sales. 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 37 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. NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other companies that do not define the measure exactly as we do. 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 March 31, 2021 2020 (unaudited) Net income (loss) $ (3,191) $ 8,288 Add: General and administrative expenses 13,853 15,951 Depreciation and amortization 44,457 46,093 Interest expense 23,768 19,704 Income tax (benefit) (2,106) (382) Less: Third-party management and other fees (276) (346) Interest income (122) (637) 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 $ 654 $ 908 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-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. In addition, FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT’s operating performance. 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 38 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 is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to another. Modified Funds From Operations ("Modified FFO") 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 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. There can be no assurance that Modified FFO presented by us is comparable to similarly titled measures of other REITs. Modified 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. Modified FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Core Funds From Operations ("Core FFO") Core FFO adds back to Modified FFO the following 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. Core 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. Core FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. 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 March 31, 2021 2020 (unaudited) Net income (loss) $ (3,191) $ 8,288 Private perpetual preferred unit distributions (1,050) (1,050) Real estate depreciation and amortization 43,104 44,430 FFO attributable to common stockholders 38,863 51,668 Amortization of below-market ground leases 1,958 1,958 Modified FFO attributable to common stockholders 40,821 53,626 Loss on early extinguishment of debt 214 86 Core FFO attributable to common stockholders $ 41,035 $ 53,712 Weighted average Operating Partnership units Basic 277,881 292,645 Diluted 277,881 292,645 Factors That May Influence Future Results of Operations Impact of COVID-19 39 See "Overview" section. Leasing We signed 0.9 million rentable square feet of new leases, expansions and lease renewals for the year ended December 31, 2020. 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. As a result, we believe it is more appropriate when analyzing trends in average rent and tenant improvement and leasing commission costs to review activity over multiple quarters or years. Tenant improvement costs include expenditures for general improvements occurring concurrently with, but that are not directly related to, the cost of installing a new tenant. 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 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. These leases are expected to represent approximately 6.0% and 6.5%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. 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 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. We believe that despite the short-term lower occupancy levels we may experience, we will continue to experience increased rental revenues as a result of the increased rents which we expect to obtain following the redevelopment and repositioning of our properties. Observatory Operations 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. The observatory was closed for the entirety of the second quarter 2020 and reopened the 86th floor observation deck on July 20, 2020 with new protocols and processes under New York State's Phase 4's Low-Risk Outdoor Arts and Entertainment guidelines. The 102nd floor observation deck reopened on August 24, 2020. 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 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; (iii) seasonal trends affecting the number of visitors to the observatory; (iv) competition, in particular from other new and existing observatories; and (v) weather trends. 40 Critical Accounting Estimates Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our critical accounting estimates. There were no material changes to our critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. 41