What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-07 · 219 added, 134 removed, 370 unchanged (49% of the section changed)

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(xvi) impact of changes in governmental regulations, tax laws and rates and similar matters;

(xvii) our failure to qualify as a REIT;

(xvii) our failure to qualify as a real estate investment trust ("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.

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 the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, and 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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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.

(“ESRT”), a self-administered and self-managed 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.

Highlights for the three months ended June 30, 2021 included:

• Incurred net income of $3.4 million and achieved Core Funds From Operations of $48.8 million.

• Same-Store Property Cash NOI, excluding lease termination fees, was down 6.0% from the second quarter of 2020 primarily driven by a reduction in revenues due to write-offs taken over the one-year period.

• Empire State Building Observatory revenue for the second quarter 2021 increased to $8.4 million, from $2.6 million in the first quarter 2021 as visitation continued to ramp up.

Observatory net operating income was $3.1 million for the second quarter 2021.

• Realized lease termination fees were $3.3 million.

In keeping with historical practice, we include lease termination fees when calculating FFO and Core FFO.

• Signed 35 new, renewal, and expansion leases, representing a total of 190,838 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.

• Collected 95% of second quarter 2021 total billings with 95% for office tenants and 91% for retail tenants.

• Reinstated quarterly dividend at $0.035 per share for the second quarter of 2021, which is one quarter earlier than previously announced, driven by confidence in the New York City recovery and improvement in our results and liquidity.

• From January 1, 2021 and through July 27, 2021, we repurchased $3.5 million of our common stock at a weighted average price of $9.22 per share.

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

As of June 30, 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 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.

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

Three Months Ended March 31,

Six Months Ended June 30,

Office leases $ 70,827 68.8 % $ 74,907 62.4 %

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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.

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.

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.

From 2002 through June 30, 2021, we have invested a total of approximately $956.4 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.

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We have spent approximately $37.3 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.

As of June 30, 2021, we had total debt outstanding of approximately $2.1 billion, with a weighted average interest rate of 3.9%, and a weighted average maturity of 7.7 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.

As of June 30, 2021, we had cash and cash equivalents of $540.6 million.

Our consolidated net debt to total market capitalization was 31.4% as of June 30, 2021.

Impact of COVID-19

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

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.

We currently hold $540.6 million in cash and cash equivalents on our balance sheet and have $850 million undrawn capacity under our unsecured revolving credit facility.

Our $850 million unsecured 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.

All of our office buildings have remained open during the COVID-19 pandemic.

We have scaled back certain building operations in cleaning, security, lobby concierge and recurring maintenance, which reduced costs until buildings are repopulated.

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

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.

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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.

As of June 30, 2021, our portfolio was 88.2% leased, including signed leases not yet commenced, with 4.9% subject to leases scheduled to expire in 2021 and 5.6% subject to leases scheduled to expire in 2022.

New leasing activity was impacted during 2020 by the COVID-19 pandemic and shelter-in-place rules that were in effect for much of the period.

On June 15, 2021, New York State ended pandemic-linked restrictions given the broad-based distribution of the COVID-19 vaccine.

During the second quarter 2021, we have seen a sustained increase in leasing tour volume in our Manhattan office portfolio to about 84% of pre-Covid-19 pandemic 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.

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

Retailers, in general, have been hardest hit by the pandemic.

Our retail-orientated tenants are no exception.

As with all landlords, we are working with some of our retail tenants that are financially challenged.

Some of these tenants may end up in bankruptcy or default in their leases in the near term.

On July 29, 2021, GBG USA Inc., an indirect wholly-owned subsidiary of Global Brands Group Holding Limited, announced that its North America wholesale business and certain subsidiaries and affiliates (collectively, “GBG USA”) filed for bankruptcy under Chapter 11.

At the time of the filing, GBG USA leased 353,325 square feet of office space at 1333 Broadway and the Empire State Building, or 3.5%, of our total portfolio rentable square feet , representing approximately 3.6% of total portfolio annualized rent.

Of that total, all but 191,000 square feet, or 1.9% of our total portfolio rentable square feet, has been sublet to tenants, where both GBG USA and the subtenant are liable for the rent, and we have the right to require the subtenant to pay directly to us.

The sublets are for GBG USA’s entire premises at 1333 Broadway and have been in effect for several years.

We have current discussions to convert the subtenants to direct tenants.

We collected rent from GBG USA through June 2021 and have converted the full balance of its $17.0 million letter of credit to cash, which we will apply against amounts due to us.

In the short-term, we expect the current circumstances will cause us to record a non-cash write-off in the third quarter of $1.6 million in straight line rent receivables.

We actively monitor these developments to review our alternatives.

Observatory Operations

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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.

Due to the lifting of New York State COVID-19 restrictions, on June 16, 2021, the observatory fully reopened with interactive exhibits.

We continue to operate with reduced hours, staffing, services, operating costs, credit card fees and marketing expenses.

We have seen a higher local visitor mix, followed by a ramp up of nationally sourced travel.

We anticipate

this pattern 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.

Second quarter 2021 attendance was at nearly 17% of 2019 comparable attendance;

a gradual improvement from 2020 levels and above 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.

The closure of our observatory caused us during each quarter of 2020 and during the first and second quarters 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 March 31, 2021.

Goodwill allocated to the observatory reporting unit was $227.5 million at June 30, 2021.

Results of Operations

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,

The discussion below relates to our financial condition and results of operations for the three and six months ended June 30, 2021 and 2020, respectively.

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

The following table summarizes our historical results of operations for the three months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30,

2021 2020 Change %

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31,354 29,579 (1,775) (6.0) %

Impairment charges

— 4,101 4,101 100.0 %

Depreciation and amortization

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3,226 (22,068) 25,294 114.6 %

Income tax benefit (expense)

1,185 2,450 (1,265) (51.6) %

Net income (loss)

4,411 (19,618) 24,029 122.5 %

Private perpetual preferred unit distributions (1,051) (1,047) (4) (0.4) %

Net income (loss) attributable to common unitholders

$ 3,360 $ (20,665) $ 24,025 116.3 %

Rental Revenue

The increase in rental revenue as compared to the prior year was attributable to the prior year write-off of straight-line receivables in the three months ended June 30, 2020.

Observatory Revenue

The Observatory was closed for the entire second quarter 2020 due to COVID-19 pandemic restrictions.

The increase in revenues reflects increased visitors due to the lifting of COVID-19 pandemic restrictions in the second quarter 2021.

Lease Termination Fees

Higher termination fees were earned in the three months ended June 30, 2021 compared to the three months ended June 30, 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 higher bad debt recovery income received in the three months ended June 30, 2020.

Property Operating Expenses

Property operating expenses were consistent with 2020.

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.

Also contributing to the decrease were higher severance costs recorded in the three months ended June 30, 2020.

Observatory Expenses

Due to the observatory closure in the second quarter 2020, we reduced variable costs such as labor, union, security, and cleaning costs.

During the second quarter 2021, the observatory was open to visitors, which resulted in increased expenses compared to the second quarter 2020.

Real Estate Taxes

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

Impairment charge

The variance reflects a $4.1 million of prior expenditures on a Combined Heat Power/ Redundancy onsite power generation project in our real estate segment that is rendered economically unviable due to New York City’s Local Law 97 and from its measurement of carbon from natural gas combustion generates fines, recorded in the second quarter 2020.

Depreciation and Amortization

The decrease in depreciation and amortization reflects tenant improvement write-offs due to the early termination of a tenant in the second quarter 2020.

Interest Income

The decrease in interest income reflects higher cash investments in 2020 compared to 2021 and lower interest rates in 2021.

Interest Expense

Interest expense was consistent with 2020.

The decrease in income tax benefit was attributable to lower net loss for the Observatory segment.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

The following table summarizes our historical results of operations for the six months ended June 30, 2021 and 2020 (dollars in thousands):

Six Months Ended June 30,

2021 2020 Change %

Rental revenue

$ 281,028 $ 286,112 $ (5,084) (1.8) %

Observatory revenue 10,962 19,630 (8,668) (44.2) %

Lease termination fees 4,628 1,244 3,384 272.0 %

Third-party management and other fees

603 647 (44) (6.8) %

Other revenues and fees

1,491 3,621 (2,130) (58.8) %

Total revenues

298,712 311,254 (12,542) (4.0) %

Operating expenses:

Property operating expenses

59,072 71,218 12,146 17.1 %

Ground rent expenses

4,663 4,663 — — %

General and administrative expenses

27,942 34,100 6,158 18.1 %

Observatory expenses

9,856 12,156 2,300 18.9 %

Real estate taxes

62,801 58,833 (3,968) (6.7) %

Impairment charges

— 4,101 4,101 100.0 %

Depreciation and amortization

89,545 98,876 9,331 9.4 %

Total operating expenses

253,879 283,947 30,068 10.6 %

Operating income

44,833 27,307 17,526 64.2 %

Other income (expense):

Interest income

286 2,163 (1,877) (86.8) %

Interest expense

(46,976) (43,546) (3,430) (7.9) %

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

Income (loss) before income taxes

(2,071) (14,162) 12,091 85.4 %

Income tax benefit

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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.

The decrease in rental revenue was attributable to 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.

Observatory revenues were lower due to the COVID-19 pandemic as our results continue to be impacted the strong first quarter 2020, pre-COVID-19 performance and the rebuild of tourist travel and by international travel restrictions.

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.

Higher termination fees were earned in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Third-Party Management and Other Fees

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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.

The decrease in other revenues and fees was due to higher bad debt recovery income received in the six months ended June 30, 2020 and lower food and beverage sales and lower parking income due to the COVID-19 pandemic in the six months ended June 30, 2021.

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 decrease in property operating expenses was primarily due to lower payroll costs, lower cleaning costs, lower repair and maintenance costs, and other lower operating expenses.

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

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

Also contributing to the decrease were higher severance costs recorded in the six months ended June 30, 2020.

Observatory Expenses

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

The decrease in observatory expenses was driven by cost controls and reduced hours of operation instituted in response to reduced tourist demand during the six months ended June 30, 2021 due to COVID-19 reduced travel and international travel restrictions.

Real Estate Taxes

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

Impairment charge

Depreciation and Amortization

Depreciation and amortization expense were consistent with 2020.

The decrease in depreciation and amortization reflects tenant improvement write-offs due to the early termination of a tenant in 2020.

Interest Income

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

The decrease in interest income reflects higher cash investments in 2020 compared to 2021 and lower interest rates in 2021.

Interest Expense

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

Interest expense increased due to higher deferred financing cost amortization and higher interest associated with variable to fixed interest rate swap agreements.

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, as required, to our securityholders.

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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.

At June 30, 2021, we had $540.6 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.

As of June 30, 2021, we had approximately $2.1 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.9% and a weighted average maturity of 7.7 years.

As of June 30, 2021, excluding principal amortization, we have no outstanding debt maturing until November 2024.

Our consolidated net debt to total market capitalization was 31.4% as of June 30, 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

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.

As described more fully in our Form 10-Q for the quarterly period ended March 31, 2021 (the "Q1 2021 10-Q"), in Q1 2021, we entered into an amended senior unsecured credit facility (the "Credit Facility") with Bank of America, N.A., as administrative agent and the other lenders party thereto.

The Credit Facility is in the initial maximum principal amount of up to $1.065 billion, which consists of $850.0 million revolving credit facility that matures on March 31, 2025, and a $215.0 million term loan facility that matures on March 19, 2025.

As of June 30, 2021, we had no borrowings under the revolving credit facility and $215.0 million under the term loan facility.

Additionally, as described more fully in the Q1 2021 10-Q, we have outstanding a senior unsecured term loan facility (the "Term Loan Facility") that we entered into on March 19, 2020 with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto.

The Term loan Facility is in the original principal amount of $175.0 million and matures on December 31, 2026.

As of June 30, 2021, our borrowings amounted to $175.0 million under the Term Loan Facility.

The terms of both the Credit Facility and the Term Loan Facility include customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports.

Both facilities also require 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 agreements governing both facilities also 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 of June 30, 2021, we were in compliance with the covenants.

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.

The terms of the senior unsecured notes 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.

The agreements also 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, the occurrence of certain change of control transactions and loss of real estate investment trust qualification.

As of June 30, 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

As of June 30, 2021, we were in compliance with the following financial covenants:

Financial covenant Required June 30, 2021 In Compliance

Maximum total leverage < 60% 37.6 % Yes

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Office Properties (1)

Three Months Ended March 31,

Six Months Ended June 30,

Total New Leases, Expansions, and Renewals 2021 2020

5 unchanged sentences

Tenant improvement costs (3)

20,529 10,147

Total leasing commissions and tenant improvement costs (3)

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Retail Properties (4)

Three Months Ended March 31,

Six Months Ended June 30,

Total New Leases, Expansions, and Renewals 2021 2020

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Total square feet

12,459 45,864

Leasing commission costs (3)

$ 573 $ 1,997

Tenant improvement costs (3)

Total leasing commissions and tenant improvement costs (3)

$ 978 $ 9,342

Leasing commission costs per square foot (3)

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Excludes the Empire State Building broadcasting licenses and observatory operations.

Three Months Ended March 31,

Six Months Ended June 30,

Total Portfolio

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(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.

As of June 30, 2021, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $89.1 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 three months ended March 31, 2021.

There have been no material changes, outside the ordinary course of business, to these contractual obligations during the six months ended June 30, 2021.

Off-Balance Sheet Arrangements

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

As of June 30, 2021, we did not have any off-balance sheet arrangements.

Distribution Policy

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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.

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.

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

During May 2021, we announced our decision to reinstate the quarterly dividend, one quarter earlier than previously announced, driven by confidence in the New York City recovery and improvement in our results and liquidity.

We declared a dividend of $0.035 per share for the second quarter of 2021, which equates to an annualized rate of $0.14 per share.

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.

As of June 30, 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.

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

Distribution to Securityholders

Distributions and dividends amounting to $11.6 million and $64.3 million have been made to securityholders for the six months ended June 30, 2021 and 2020, respectively.

Stock and Publicly Traded Operating Partnership Unit Repurchase Program

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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 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.

There were no purchases of equity securities during the three months ended June 30, 2021.

Comparison of Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020

Cash and cash equivalents and restricted cash were $578.6 million and $931.8 million, respectively, as of June 30, 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.

Net cash provided by operating activities increased by $9.3 million to $83.7 million for the six months ended June 30, 2021 compared to $74.4 million for the six months ended June 30, 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.

Net cash used in investing activities decreased by $31.3 million to $48.4 million for the six months ended June 30, 2021 compared to $79.7 million for the six months ended June 30, 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 cash provided by financing activities decreased by $690.2 million to $24.7 million used in financing activities for the six months ended June 30, 2021 compared to $665.5 million provided by financing activities for the six months ended June 30, 2020, primarily due to $850.0 million of net proceeds from issuance of debt, partially offset by higher repurchases of common shares of $111.1 million and higher dividends and distributions of $52.8 million which occurred in the six months ended June 30, 2020.

Net Operating Income ("NOI")

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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.

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.

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.

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(unaudited) (unaudited)

Net income (loss)

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23,422 23,928 46,976 43,546

Loss on early extinguishment of debt

Income tax (benefit)

(1,185) (2,450) (3,291) (2,832)

Impairment charges

— 4,101 — 4,101

Third-party management and other fees

(327) (301) (603) (647)

Interest income

(164) (1,526) (286) (2,163)

Net operating income

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

$ 717 $ 1,366 $ 1,371 $ 2,274

Amortization of acquired below-market ground leases

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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.

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

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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 following our formation transactions 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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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,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(unaudited) (unaudited)

Net income (loss)

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43,480 51,096 86,584 95,526

Impairment charge

— 4,101 — 4,101

FFO attributable to common stockholders

1 unchanged sentence

Amortization of below-market ground leases

1,958 1,958 3,916 3,916

Modified FFO attributable to common stockholders

1 unchanged sentence

Loss on early extinguishment of debt

Severance expenses

— 3,008 — 3,008

Core FFO attributable to common stockholders

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

During the six months ended June 30, 2021, we signed 0.4 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 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.

As of June 30, 2021, there were approximately 1.2 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 11.8% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 4.9% and 5.6% of net rentable square footage of the properties in our portfolio will expire in 2021 and in 2022, respectively.

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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.

The Observatory hosted approximately 162,000 visitors in the second quarter of 2021, compared to 51,000 visitors in the first quarter of 2021 and no visitors in the second quarter of 2020.

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 for the three months ended June 30, 2021 were $8.4 million, driven by low visitation levels.

Observatory expenses were $5.3 million for the three months ended June 30, 2021.

Observatory revenues and admissions are dependent upon the following:

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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