What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-05 · 122 added, 122 removed, 467 unchanged (34% of the section changed)

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

Highlights for the three months ended 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.

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

• Incurred net loss of $11.2 million and achieved Core Funds From Operations ("Core FFO") of $55.3 million.

• Same-Store Property Cash Net Operating Income, excluding lease termination fees, was down 5.7% from the third quarter of 2020 primarily driven by a reduction in revenues due to reduced occupancy, third quarter 2021 revenue from Global Brands Group treated partially as rental revenue and partially as lease termination income and write-offs taken over the one-year period.

• Empire State Building Observatory revenue for the third quarter 2021 increased to $12.8 million, from $8.4 million in the second quarter 2021 as visitation continued to ramp up.

Observatory net operating income was $6.4 million for the third quarter 2021, which is the second consecutive quarter of positive NOI since the onset of the COVID-19 pandemic and more than double second quarter earnings contribution.

• Realized lease termination fees were $11.3 million.

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• Signed 34 new, renewal, and expansion leases, representing a total of 268,055 rentable square feet.

• 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.

This includes 21 leases totaling 212,301 rentable square feet in the Manhattan office portfolio.

• Collected 95% of third quarter 2021 total billings, stable and in line with recent quarters.

• In the third quarter and through October 26, 2021, the Company repurchased $6.5 million of its common stock at a weighted average price of $10.41 per share.

This brings the cumulative total, since the stock repurchase program began on March 5, 2020 through October 26, 2021, to $153.8 million at a weighted average price of $8.41 per share.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Office leases $ 105,369 61.8 % $ 106,774 63.9 %

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

From 2002 through 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.

From 2002 through September 30, 2021, we have invested a total of approximately $959.7 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 $39.3 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 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.

As of September 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 7.4 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 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.

As of September 30, 2021, we had cash and cash equivalents of $582.2 million.

Our consolidated net debt to total market capitalization was 34.7% as of September 30, 2021.

Impact of COVID-19

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We believe many tenants have acknowledged the challenges, inequities, and worries about divided workplaces between home and office work, the challenges with onboarding new employees and miss the connectivity and productivity that an office environment provides.

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

As of 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.

In addition, potential work from home could negatively impact the office leasing market.

As of September 30, 2021, our portfolio was 86.5% leased, including signed leases not yet commenced, with 2.3% 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 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.

During the second quarter 2021, we experienced a sustained increase in leasing tour volume in our Manhattan office portfolio which led to our improved leasing performance in the third quarter 2021.

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.

In many instances, we have converted some of their fixed rent to a percentage rent structure.

We intend to support our food and service retailers so that they can service our office tenants as they continue to 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.

As with all landlords, we are working with some of our 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.

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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.

Subsequently, GBG USA filed to reject their leases and both lease rejections were approved by the bankruptcy court during the third quarter.

In the third quarter we recorded a $1.6 million non-cash write-off of the straight-line receivables related to GBG USA's 1333 Broadway lease.

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 was applied as follows:

• $5.2 million was applied against GBG USA's straight-line rent receivable balance related to their lease at the Empire State Building,

• $1.7 million was recognized as GAAP rental revenue for the partial period in the third quarter when their lease remained in place, and

• $10.1 million was recognized as lease termination income.

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.

The 86th floor observatory deck reopened on July 20, 2020 and the 102nd floor observation deck reopened on August 24, 2020.

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

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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 and second quarters of 2021 to choose to perform an impairment test related to goodwill.

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.

For the third quarter, visitor recapture versus 2019 was above our hypothetical admissions forecast in July and early August, but below our hypothetical admissions forecast for the balance of the third quarter.

This was primarily due to the resurgent COVID-19 Delta variant and the impact on travel as U.S borders remain closed to international tourism.

The government has announced that the borders will reopen to fully vaccinated international travelers in November 2021.

The closure and slow ramp-up of our observatory operations caused us during each quarter of 2020 and throughout each 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 15.0%.

Based upon the results of the most recent 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 15.0%.

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 June 30, 2021.

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

Results of Operations

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,

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

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

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

Three Months Ended September 30,

2021 2020 Change %

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29,566 31,196 1,630 5.2 %

Impairment charges

Impairment charge

— 2,103 2,103 100.0 %

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(23,577) (23,360) (217) (0.9) %

Loss on early extinguishment of debt — — — — %

Income (loss) before income taxes

IPO litigation expense

— (1,165) 1,165 100.0 %

Income tax benefit (expense)

Loss before income taxes

(10,163) (12,231) 2,068 16.9 %

Net income (loss)

Income tax expense

(20) (38) 18 47.4 %

(10,183) (12,269) 2,086 17.0 %

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

Net income (loss) attributable to common unitholders

Net loss attributable to common unitholders

$ (11,233) $ (13,319) $ 2,086 15.7 %

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.

Rental revenue was consistent with prior year.

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.

The increase in revenues reflects increased visitors due to the lifting of certain 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.

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

The decrease in other revenues and fees was due to a $0.8 million development project reimbursement received in the three months ended September 30, 2020.

Property Operating Expenses

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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.

General and administrative expenses were consistent with 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.

With the lifting of certain COVID-19 pandemic restrictions, the observatory operating hours were increased which increased variable costs such as labor, union, security, and cleaning costs.

Real Estate Taxes

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

The decrease in real estate taxes was primarily due to reduction in assessed value for the tax period July 1, 2021 to June 30, 2022.

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.

During the third quarter 2020, we wrote off $2.1 million of prior expenditures on a build-to-suit development project in our real estate segment that was halted due to reconsideration by the user driven by the COVID-19 pandemic.

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.

The increase in depreciation and amortization reflects write-offs primarily related to one tenant.

Interest Income

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

The decrease in interest income reflects higher weighted-average 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,

IPO Litigation Expense

The three months ended September 30, 2020 included an accrued expense which reflected an estimated liability associated with the Initial Public Offering-related litigation.

Income taxes were consistent with prior year.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

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

Nine Months Ended September 30,

2021 2020 Change %

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

Income (loss) before income taxes

IPO litigation expense

— (1,165) 1,165 100.0 %

Loss before income taxes

(12,234) (26,393) 14,159 53.6 %

Income tax benefit

3,271 2,794 477 17.1 %

Net income (loss)

(8,963) (23,599) 14,636 62.0 %

Private perpetual preferred unit distributions (3,151) (3,147) (4) (0.1) %

Net income (loss) attributable to common unitholders

Net loss attributable to common unitholders

$ (12,114) $ (26,746) $ 14,632 54.7 %

Rental Revenue

The decrease in rental revenue was attributable to lower tenant expense reimbursements, consistent with lower operating expenses.

The decrease in rental revenue was primarily driven by write-offs taken over the period.

Observatory Revenue

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.

Observatory revenues were slightly lower due to the COVID-19 pandemic, as the nine months to date September 30, 2020 results included the strong first quarter 2020, pre-COVID-19 performance.

For the nine months ended September, 30, 2021, revenues have been growing with increased visitors due to the lifting of certain COVID-19 pandemic restrictions in the second quarter 2021.

Lease Termination Fees

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

Higher termination fees, primarily from one tenant, were earned in the nine months ended September 30, 2021 compared to the nine months ended September 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 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.

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

The nine months ended September 30, 2020 also included a $0.8 million development project reimbursement.

Property Operating Expenses

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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.

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

Observatory Expenses

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.

The decrease in observatory expenses was driven by cost controls and reduced hours of operation instituted in response to reduced tourist demand due to COVID-19 reduced travel and international travel restrictions.

Real Estate Taxes

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Impairment charge

The nine months ended September 30, 2020 included a $4.1 million write-off of prior expenditures on a Combined Heat Power/ Redundancy onsite power generation project in our real estate segment that was rendered economically unviable due to New York City’s Local Law 97 and from its measurement of carbon from natural gas combustion generates fines, and a $2.1 million write-off of prior expenditures on a build-to-suit development project in our real estate segment that was halted due to reconsideration by the user driven by the COVID-19 pandemic.

Depreciation and Amortization

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

The increase in depreciation and amortization reflects tenant improvement write-offs primarily related to one tenant.

Interest Income

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Interest Expense

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

Interest expense increased due to higher deferred financing cost amortization reflecting higher deferred financing cost balances associated with new debt.

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

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

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 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.

At September 30, 2021, we had $582.2 million available in cash and cash equivalents, and $850 million available under our unsecured revolving credit facility.

As of September 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 7.4 years.

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

Our consolidated net debt to total market capitalization was 34.7% as of September 30, 2021.

Unsecured Revolving Credit and Term Loan Facilities

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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.

As of September 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.

As of September 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.

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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.

As of September 30, 2021, we were in compliance with the covenants.

Senior Unsecured Notes

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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.

As of September 30, 2021, we were in compliance with the covenants under the outstanding senior unsecured notes.

Financial Covenants

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

Financial covenant Required June 30, 2021 In Compliance

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

Financial covenant Required September 30, 2021 In Compliance

Maximum total leverage < 60% 35.7 % Yes

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Office Properties (1)

Six Months Ended June 30,

Nine Months Ended September 30,

Total New Leases, Expansions, and Renewals 2021 2020

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Retail Properties (4)

Six Months Ended June 30,

Nine Months Ended September 30,

Total New Leases, Expansions, and Renewals 2021 2020

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Excludes the Empire State Building broadcasting licenses and observatory operations.

Six Months Ended June 30,

Nine Months Ended September 30,

Total Portfolio

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(1) Excludes tenant improvements and leasing commission costs.

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.

As of September 30, 2021, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $85.2 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 six months ended June 30, 2021.

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

Off-Balance Sheet Arrangements

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

As of September 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 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.

We declared a dividend of $0.035 per share for the third 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 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.

As of September 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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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.

Distributions and dividends amounting to $22.6 million and $65.4 million have been made to securityholders for the nine months ended September 30, 2021 and 2020, respectively.

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.

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.

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.

re any particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice.

See "Financial Statements - Note 9- Capital" for a summary of ESRT's purchases of equity securities in each of the three months ended September 30, 2021.

Comparison of Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020

Cash and cash equivalents and restricted cash were $621.0 million and $428.0 million, respectively, as of September 30, 2021 and 2020.

The increase was primarily due to lower spending for capital expenditures, lower dividends paid and lower repurchases of common shares in 2021.

Operating activities .

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.

Net cash provided by operating activities increased by $3.4 million to $167.0 million for the nine months ended September 30, 2021 compared to $163.6 million for the nine months ended September 30, 2020, primarily due to changes in working capital.

Investing activities .

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.

Net cash used in investing activities decreased by $42.6 million to $70.8 million for the nine months ended September 30, 2021 compared to $113.4 million for the nine months ended September 30, 2020, due to lower capital expenditures.

Financing activities .

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 cash used in financing activities decreased by $149.4 million to $43.2 million used in financing activities for the nine months ended September 30, 2021 compared to $106.2 million provided by financing activities for the nine months ended September 30, 2020, primarily due to $300.0 million of net proceeds from issuance of debt, partially offset by higher repurchases of common shares of $111.9 million and higher dividends and distributions of $42.8 million which occurred in the nine months ended September 30, 2020.

Net Operating Income ("NOI")

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(unaudited) (unaudited)

Net income (loss)

$ (10,183) $ (12,269) $ (8,963) $ (23,599)

6 unchanged sentences

Loss on early extinguishment of debt

Income tax (benefit)

Income tax expense (benefit)

20 38 (3,271) (2,794)

1 unchanged sentence

— 1,259 — 5,360

IPO litigation expense

— 1,165 — 1,165

Third-party management and other fees

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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.

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.

3 unchanged sentences

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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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 Funds From Operations

Core FFO adds back to Modified FFO the following items:

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(unaudited) (unaudited)

Net income (loss)

$ (10,183) $ (12,269) $ (8,963) $ (23,599)

3 unchanged sentences

64,565 43,029 151,149 138,555

Impairment charge

Impairment charges

— 1,259 — 5,360

8 unchanged sentences

— 805 — 3,813

IPO litigation expense

— 1,165 — 1,165

Core FFO attributable to common stockholders

7 unchanged sentences

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

During the six months ended June 30, 2021, we signed 0.4 million rentable square feet of new leases, expansions and renewals.

During the nine months ended September 30, 2021, we signed 0.6 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 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.

As of September 30, 2021, there were approximately 1.4 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 13.5% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 2.3% and 5.5% of net rentable square footage of the properties in our portfolio will expire in 2021 and in 2022, respectively.

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

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.

The Observatory hosted approximately 255,000 visitors in the third quarter of 2021, compared to 162,000 visitors in the second quarter of 2021 and 30,000 visitors in the third quarter of 2020.

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 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