What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 152 added, 398 removed, 398 unchanged (58% of the section changed)

11 unchanged sentences

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

(ii) resolution of legal proceedings involving the company;

(iii) reduced demand for office or retail space, including as a result of the COVID-19 pandemic;

(iv) changes in our business strategy;

(v) changes in technology and market competition that affect utilization of our office, retail, broadcast or other facilities;

(vi) changes in domestic or international tourism, including due to health crises such as the COVID-19 pandemic, geopolitical events and/or currency exchange rates, which may cause a decline in Observatory visitors;

(vii) defaults on, early terminations of, or non-renewal of, leases by tenants;

(viii) increases in the company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of LIBOR after 2021;

(ix) declining real estate valuations and impairment charges;

(x) termination or expiration of our ground leases;

(xi) changes in our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow additional funds in compliance with drawdown conditions and financial covenants;

(xii) decreased rental rates or increased vacancy rates;

(xiii) our failure to redevelop and reposition properties, or to execute any newly planned capital project successfully or on the anticipated timeline or at the anticipated costs;

(xiv) difficulties in identifying properties to acquire and completing acquisitions;

(xv) risks related to our development projects (including our Metro Tower development site) and capital projects, including the cost of construction delays and cost overruns;

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

(xvii) our failure to qualify as a REIT;

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

(ii) a failure of conditions or performance regarding any event or transaction described herein, (iii) resolution of legal proceedings involving the Company;

(iv) reduced demand for office, multifamily or retail space, including as a result of the COVID-19 pandemic;

(v) changes in our business strategy;

(vi) changes in technology and market competition that affect utilization of our office, retail, broadcast or other facilities;

(vii) changes in domestic or international tourism, including due to health crises such as the COVID-19 pandemic, geopolitical events and/or currency exchange rates, which may cause a decline in Observatory visitors;

(viii) defaults on, early terminations of, or non-renewal of, leases by tenants;

(ix) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of LIBOR after 2021;

(x) declining real estate valuations and impairment charges;

(xi) termination of our ground leases;

(xii) changes in our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow additional funds in compliance with drawdown conditions and financial covenants;

(xiii) decreased rental rates or increased vacancy rates;

(xiv) our failure to execute any newly planned capital project successfully or on the anticipated timeline or at the anticipated costs;

(xv) difficulties in identifying and completing acquisitions;

(xvi) risks related to our development projects (including our Metro Tower development site);

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

(xviii) our failure to qualify as a REIT;

(xix) environmental uncertainties and risks related to climate change, adverse weather conditions, rising sea levels and natural disasters;

and (xx) accuracy of our methodologies and estimates regarding ESG metrics and goals, tenant willingness and ability to collaborate in reporting ESG metrics and meeting ESG goals, and 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” of this Annual Report on Form 10-K.

4 unchanged sentences

and its consolidated subsidiaries.

The following discussion and analysis should be read in conjunction with "Selected Financial Data," and our consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 and the notes related thereto which are included in this Annual Report on Form 10-K.

The following discussion and analysis should be read in conjunction with our consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 and the notes related thereto which are included in this Annual Report on Form 10-K.

2021 Highlights

• Net loss attributable to the company was $22.9 million.

• Core FFO was $175.4 million.

• Net loss attributable to the company of $13.0 million.

• Core FFO of $194.9 million.

• Signed 129 leases, new, renewal, and expansion leases, representing 1,005,630 rentable square feet.

There were 28 new leases representing 540,643 rentable square feet for the Manhattan office portfolio.

This includes approximately 315,000 rentable square feet from deals with existing tenants within the portfolio.

• Reduced property operating expenses by $39 million compared to full year 2019, driven by reduced building utilization and the Company's cost reduction initiatives.

• Reopened the Empire State Building 86th floor observation deck on July 20, 2020 and the 102nd floor observation deck on August 24, 2020, as one of the earliest tourist attractions in New York City following earlier pandemic driven closure.

As of December 31, 2020, our total portfolio contained 10.1 million rentable square feet of office and retail space.

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

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

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

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

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

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

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

The Empire State Building is our flagship property.

The Empire State Building provides us with a diverse source of revenue through its office and retail leases, observatory operations, and broadcasting licenses and related leased space.

Our observatory operations are a separate reporting segment.

Our observatory operations are subject to regular patterns of tourist activity in Manhattan.

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

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

Year Ended December 31,

Office leases $ 140,644 64.7 % $ 143,561 43.8 %

Retail leases 7,132 3.3 % 7,500 2.3 %

Tenant reimbursements, lease termination fees and other income 20,772 9.6 % 31,030 9.6 %

Observatory operations 29,057 13.4 % 128,769 39.2 %

Broadcasting licenses and leases 19,767 9.0 % 16,847 5.1 %

Total $ 217,372 100.0 % $ 327,707 100.0 %

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

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

These improvements include restored, renovated and upgraded or new lobbies, elevator modernization, renovated public areas and bathrooms, refurbished or new windows, upgrade and standardization of retail storefront and signage, façade restorations, modernization of building-wide systems, and enhanced tenant amenities.

We have also aggregated smaller spaces in order to offer larger blocks of office space, including multiple floors, that are attractive to

larger, higher credit-quality tenants as well as to offer new, pre-built suites with improved layouts.

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

We believe we will continue to enhance our tenant base and improve rents as our pre-redevelopment leases continue to expire and be re-leased.

From 2002 through December 31, 2020, we have invested a total of approximately $948.1 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties pursuant to this program.

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

During the second quarter 2017, we commenced a multi-year capital project at the Empire State Building, which we completed during the fourth quarter 2019, that we believe improves the convenience for office tenants and their visitors, increases the value of our 34th Street facing retail space, enhances the Observatory visitor experience, and increases Observatory revenue per capita.

In the first phase completed in August 2018, we relocated the Observatory entrance, previously located on Fifth Avenue, to a new, larger, dedicated entrance for Observatory visitors at the western side of the Empire State Building on 34th Street.

The new entrance eliminates Observatory visitor flow into the Fifth Avenue lobby and streamlines the visitor exit from that lobby, thereby reducing Observatory traffic in the lobby by 50% and improving Fifth Avenue access for our office tenants and their visitors.

During the third quarter 2019, we opened the second phase of the project, the new second floor galleries and in the fourth quarter 2019 we completed the final phase, the redevelopment of the 80th floor and opened the newly renovated 102nd floor observatory.

We have now completed all phases of this project.

Expenditures for the improvement project, which began during the second quarter 2017, were $157.9 million through December 31, 2020.

This investment is an example of continually looking at ways to innovate and enhance the office and retail tenant and visitor experience at the Empire State Building.

In the Greater New York metropolitan area office market, we compete with properties that have been redeveloped recently or have planned redevelopment.

We have spent approximately $36 million over 2018 through 2020 on our well-maintained and well-located properties’ common areas and amenities to ensure competitiveness and protect our market position.

As of December 31, 2020, we had total debt outstanding of approximately $2.2 billion, with a weighted average interest rate of 3.91% and a weighted average maturity of 8.2 years and 94.2% of which is fixed-rate indebtedness.

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

As of December 31, 2020, we had cash and cash equivalents of $526.7 million.

Our consolidated net debt to total market capitalization was approximately 37.2% as of December 31, 2020.

This included 87 leases representing 801,254 rentable square feet for the Manhattan office portfolio.

• On December 22, 2021, we completed the acquisition of 625 units in two Manhattan multifamily assets with a total transaction value of $307 million, inclusive of $186 million of assumed debt.

We now own a 90% interest, and a Fetner Properties affiliate retained a 10% interest.

Impact of COVID-19

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

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

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

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

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 $1.1 billion unsecured revolving facility and in September 2020, we repaid the $550.0 million draw.

We currently hold $526.7 million in cash on our balance sheet and have $1.1 billion undrawn capacity under our revolving credit facility.

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

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

The following sections discuss specific COVID-19 impacts on our business operations.

We currently hold $423.7 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.

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

These plans involve additional staffing, cleaning and maintenance, and changes to building operations for access by tenants and their guests.

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

Our spend on such capital improvement work in 2020 was significantly curtailed under the restrictions.

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.

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

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

We believe many tenants have now experienced the inefficiencies of working from home and miss the connectivity and productivity that an office environment provides.

That said, we believe the pandemic may cause some fundamental changes to how tenants use their office space in the future including less densification and smarter open floor plans with appropriate spacing.

We also believe current co-working build-outs are too dense and will be poorly positioned for tenant demand in the new paradigm.

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 December 31, 2020, our portfolio was 88.7% leased, including signed leases not yet commenced, including 6.4% 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.

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

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

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 and concerns over health and safety 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, increased concessions and potentially lower rental rates.

In addition, the potential for continued remote work or hybrid remote/in-person work arrangements could negatively impact the office leasing market.

As of December 31, 2021, our portfolio was 85.7% leased, including signed leases not yet commenced, with 5.7% subject to leases scheduled to expire in 2022 and 6.3% subject to leases scheduled to expire in 2023.

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 experienced a sustained increase in leasing tour volume in our Manhattan office portfolio which led to our improved leasing performance in the third and fourth quarters of 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 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 (the "GBG Bankruptcy").

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.

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.

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

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

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

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

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

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

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

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.

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 achieve until the broad resumption of international air travel some time in 2022.

The closure and gradual 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 5.0%.

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.

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 we would need to record a non-cash goodwill impairment charge 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 December 31, 2021.

Expense Reductions

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

• Named Executive Officer ("NEO") compensation:

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

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

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

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

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

• Other corporate overhead:

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

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

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

Malkin and $1.2 million reduction for Mr.

• Property operating expenses

▪ For the year ended December 31, 2020, we reduced property operating expenses by $39 million compared to the prior year period, driven by reduced tenant utilization and our cost reduction initiatives.

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

• Observatory expenses

▪ 2020 expenses totaled $24 million, reduced from 2019 pre-COVID level of $34 million.

Results of Operations

30 unchanged sentences

IPO litigation expense — (1,165) 1,165 100.0 %

Income (loss) before income taxes

Loss before income taxes

(14,771) (29,860) 15,089 (50.5) %

Income tax benefit (expense)

Income tax benefit

1,734 6,971 (5,237) (75.1) %

Net income (loss)

(13,037) (22,889) 9,852 (43.0) %

1 unchanged sentence

(4,201) (4,197) (4) (0.1) %

Net income (loss) attributable to common unit holders

Net loss attributable to non-controlling interests 17 — 17 — %

Net loss attributable to common unit holders

$ (17,221) $ (27,086) $ 9,865 (36.4) %

Rental Revenue and Tenant Expense Reimbursement

We adopted FASB Topic 842 using the modified retrospective approach as of January 1, 2019 and elected to apply the

transition provisions of the standard at adoption.

As such, the prior period amounts presented under ASC 840 were not restated

to conform with the 2020 and 2019 presentation.

We adopted the practical expedient in Topic 842, which allowed us to avoid separating lease and non-lease rental income.

Consequently, all rental income earned pursuant to tenant leases in 2020 and 2019 is reflected as one category, “Rental Revenue,” in the 2020 and 2019 consolidated statements of operations.

The following table reflects the components of 2020 and 2019 rental revenue:

Year Ended Year Ended

December 31, 2020 December 31, 2019

Rental revenue

Base rent $ 498,258 $ 511,136

Tenant expense reimbursement 64,813 75,278

Total rental revenue $ 563,071 $ 586,414

The preceding table of the components of rental revenue is not, and is not intended to be, a presentation in

accordance with GAAP.

It is provided here based on our understanding that such information is frequently used by management, investors, securities analysts and other interested parties to evaluate our performance.

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 property operating expenses.

The decrease in rental revenue was attributable to lower occupancy, straight-line rent write-offs and lower tenant expense reimbursements, consistent with lower property operating expenses.

Observatory Revenue

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

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

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

Observatory revenues were higher driven by increased visitation due to a reduction in COVID-19 restrictions in 2021.

Lease Termination Fees

Higher termination fees were earned in the year ended December 31, 2021 compared to the year ended December 31, 2020.

Third-Party Management and Other Fees

Management fee income was consistent with prior year.

Other Revenues and Fees

The decrease in other revenues and fees was due to lower food and beverage sales and lower parking income due to the COVID-19 pandemic.

Property Operating Expenses

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

Ground Rent Expenses

The ground rent expense was consistent with 2019.

General and Administrative Expenses

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

Observatory Expenses

Lower Observatory expenses were driven by the closure of the Observatory due to the COVID-19 pandemic, lower payroll costs and lower credit card fees and marketing expenses.

Real Estate Taxes

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

Impairment charges

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

Depreciation and Amortization

The increase in depreciation and amortization reflects tenant improvement write-offs due to the early termination of a tenant and depreciation expense on additional assets placed in service in 2020.

Interest Income

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

Interest Expense

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

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

Loss on Early Extinguishment of Debt

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

IPO Litigation Expense

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

Refer to “Financial Statements-Note 8-Commitments and Contingencies” in this Annual Report on Form 10-K for a description of relevant legal proceedings.

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

Private Perpetual Preferred Unit Distributions

Private perpetual preferred unit distributions increased due to dividends paid on a new series of private perpetual preferred units issued by the operating partnership in December 2019 in connection with the settlement of an exchange offer for outstanding traded OP units.

Holders of the new series of private perpetual preferred units are entitled to receive cumulative preferential annual cash distributions of $0.70 per units when, as and if declared by the board of the company.

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

The following table summarizes the historical results of operations for years ended December 31, 2019 and 2018(amounts in thousands):

Years Ended December 31,

2019 2018 Change %

Rental revenue

$ 586,414 $ 493,231 $ 93,183 18.9 %

Tenant expense reimbursement

— 72,372 (72,372) (100.0) %

Observatory revenue 128,769 131,227 (2,458) (1.9) %

Lease termination fees 4,352 20,847 (16,495) (79.1) %

Third-party management and other fees

1,254 1,440 (186) (12.9) %

Other revenues and fees

10,554 12,394 (1,840) (14.8) %

Total revenues

731,343 731,511 (168) — %

Operating expenses:

Property operating expenses

174,977 167,379 (7,598) (4.5) %

Ground rent expenses

9,326 9,326 — — %

General and administrative expenses

61,063 52,674 (8,389) (15.9) %

Observatory expenses

33,767 32,767 (1,000) (3.1) %

Real estate taxes

115,916 110,000 (5,916) (5.4) %

Depreciation and amortization

181,588 168,508 (13,080) (7.8) %

Total operating expenses

576,637 540,654 (35,983) (6.7) %

Operating income

154,706 190,857 (36,151) (18.9) %

Other income (expense):

Interest income

11,259 10,661 598 5.6 %

Interest expense

(79,246) (79,623) 377 0.5 %

Loss on early extinguishment of debt — — — — %

Loss from derivative financial instruments — — — — %

Income before income taxes

86,719 121,895 (35,176) (28.9) %

Income tax expense

(2,429) (4,642) 2,213 47.7 %

84,290 117,253 (32,963) (28.1) %

Private perpetual preferred unit distributions (1,743) (936) (807) 86.2 %

Net income attributable to common unitholders $ 82,547 $ 116,317 $ (33,770) (29.0) %

Rental Revenue and Tenant Expense Reimbursement

We adopted FASB Topic 842 using the modified retrospective approach as of January 1, 2019 and elected to apply the

transition provisions of the standard at adoption.

As such, the prior period amounts presented under ASC 840 were not restated

to conform with the 2019 presentation.

We adopted the practical expedient in Topic 842, which allowed us to avoid separating

lease and non-lease rental income.

Consequently, all rental income earned pursuant to tenant leases in 2019 is reflected as one

category, “Rental Revenue,” in the 2019 consolidated statement of income.

The following table reflects the components of

2019 rental revenue:

December 31, 2019

Rental revenue

Base rent $ 511,136

Tenant expense reimbursement 75,278

Total rental revenue $ 586,414

We believe the preceding table of the components of rental revenue is not, and is not intended to be, a presentation in

accordance with GAAP.

It is provided here based on our understanding that such information is frequently used by management, investors, securities analysts and other interested parties to evaluate our performance.

The increase in base rent revenue was attributable to increased rental rates, partially offset by decreased broadcasting licenses and holdover rent.

The increase in billed tenant expense reimbursement was primarily due to reimbursements related to higher property

operating expenses.

Observatory Revenue

Observatory revenues were lower primarily driven by the closure of the 102nd floor observation deck for approximately nine months in 2019 as part of the Observatory upgrade program and visitor decline, partially offset by improved pricing.

Lease Termination Fees

The year ended December 31, 2018 included significantly higher lease termination fees, from a combination of broadcast and office tenants, compared to the year ended December 31, 2019.

Third-Party Management and Other Fees

The decrease reflects lower management fee income due to fewer assets under management.

Other Revenues and Fees

The decrease in other revenues and fees is primarily due to a $2.8 million settlement with a former broadcast tenant recognized in the year ended December 31, 2018 partially offset by a property tax refund received in the year ended December 31, 2019.

Property Operating Expenses

The increase in property operating expenses was primarily due to higher repair and labor costs partially offset by lower utility costs.

Ground Rent Expenses

The ground rent expense was consistent with 2018.

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

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

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to increased equity compensation expenses as well as higher leasing costs which were previously capitalized prior to our adoption of Topic 842, Lease Accounting on January 1, 2019, which requires that non-contingent leasing costs be expensed as incurred.

Also contributing to the increase were costs associated with the 2019 private perpetual preferred units exchange offer.

The decrease in general and administrative expenses was primarily due to lower equity compensation expense, lower severance costs and lower legal costs than the year ended December 31, 2020.

Observatory Expenses

Observatory expenses increased primarily due to higher information technology consulting fees and higher marketing costs.

The modest decline in observatory expenses was driven by cost controls and reduced hours of operation instituted in response to reduced visitors due to COVID-19 travel restrictions for the vast majority of 2021.

Real Estate Taxes

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

Lower real estate taxes in the year ended December 31, 2021 were attributable to the overall reduction in property assessment values due to the impact of COVID-19.

Depreciation and Amortization

The increase in depreciation and amortization was attributable to additional depreciation on assets newly placed in service during the year as well as the acceleration of depreciation of $2.0 million in connection with a partial termination agreement.

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

Interest Income

The increase in interest income was primarily due to higher rates and the timing of short-term time deposits during the year ended December 31, 2019.

The decrease in interest income reflects higher cash investments in the year ended December 31, 2020 compared to the year ended December 31, 2021 and lower interest rates in the year ended December 31, 2021.

Interest Expense

Interest expense was consistent with 2018.

The decrease in income tax expense was attributable to lower revenues and higher operating expenses for the Observatory segment.

Private Perpetual Preferred Unit Distributions

outstanding traded OP units.

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

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

Liquidity and Capital Resources

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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 Code to distribute to its securityholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains.

We expect to make quarterly distributions to our securityholders.

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

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We expect to meet our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit and term loan facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset sales.

Our properties require periodic investments of capital for individual lease related tenant improvements allowances, general capital improvements and costs associated with capital expenditures.

Our properties require periodic investments of capital for individual lease related tenant

improvements allowances, general capital improvements and costs associated with capital expenditures.

Our overall leverage will depend on our mix of investments and the cost of leverage.

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

At December 31, 2020, we had approximately $526.7 million available in cash and cash equivalents and there was $1.1 billion available under our unsecured revolving credit facility.

Through August 2021, QIA will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected, at our discretion, to seek out a joint venture partner in real estate investment opportunities.

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

As of December 31, 2020, we had approximately $2.2 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.91% and a weighted average maturity of 8.2 years.

As of December 31, 2020, excluding principal amortization, we had no outstanding debt maturing until November 2024.

Our consolidated net debt to total market capitalization was 37.2% as of December 31, 2020.

At December 31, 2021, we had approximately $423.7 million available in cash and cash equivalents and there was $850 million available under our unsecured revolving credit facility.

At December 31, 2021, we had approximately $2.3 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.89% and a weighted average maturity of 7.5 years.

As of December 31, 2021, excluding debt amortization, we have no outstanding debt maturing until November 2024 when principal repayments would amount to $77.7 million in 2024, $315.0 million in 2025 and $1.8 billion thereafter.

As of December 31, 2021, interest expense obligations from 2022 through 2026 and thereafter amount to $612.9 million while debt amortization amount to $85.8 million.

Our net debt to total market capitalization was 42.4% as of December 31, 2021.

In connection with our three ground leases (i.e.

long-term leaseholds of the land and the improvements) at 1350 Broadway, 111 West 33rd Street and 1400 Broadway), we also have contractual rent obligations totaling $71.3 million as of December 31, 2021 of which $7.6 million is due within the next five years.

Investments in Real Estate

On December 22, 2021, we closed on the acquisition of two multifamily assets located in Manhattan, the Victory (561 10th Avenue) and 345 East 94th Street, previously owned by a joint venture of Fetner Properties and an institutional owner.

The total transaction value was $307 million, inclusive of $186 million of assumed debt.

Fetner Properties retained a 10% equity stake and continues to manage onsite operations.

We will asset manage the properties, make all decisions, and have the right to assume day-to-day management at any time and for any reason for no additional consideration.

Unsecured Revolving Credit and Term Loan Facilities

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

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

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

We borrowed the term loan facility in full at closing.

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

The amended unsecured revolving credit and term loan facility contains an accordion feature that would allow us to increase the maximum aggregate principal

amount to $1.75 billion under specified circumstances.

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

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

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

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

If we achieve investment-grade ratings, subject to the

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

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

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

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

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

On March 31, 2021, we entered into a second amendment to an existing credit agreement dated August 29, 2017 ("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 Credit Facility is in the initial maximum principal amount of up to $1.065 billion, which consists of a $850.0 million revolving credit facility and a $215.0 million term loan facility.

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

We may request the Credit Facility be increased through one or more increases in the revolving credit facility or one or more increases in the term loan facility or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount not to exceed $1.50 billion.

The Credit Facility will be used for our working capital needs and for other general corporate purposes.

As of December 31, 2021, we had no borrowings under the revolving credit facility and $215.0 million under the term loan facility.

The revolving credit facility matures on March 31, 2025.

We have the option to extend the initial term for up to two additional 6-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.

The term loan facility matures on March 19, 2025.

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

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

We may prepay the loans under the Credit Facility at any

time in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar Rate borrowings.

On March 19, 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

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.

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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 the Operating Partnership's 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.

As of December 31, 2021, our borrowings amounted to $175.0 million under the Term Loan Facility.

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 on or prior to December 31, 2020, the prepayment fee is equal to 2.0% of the principal amount

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

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

(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 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 defined in the respective Credit Facilities).

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.

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 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, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control.

As of December 31, 2021, we were in compliance with the covenants, as described below:

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Mortgage Debt

During November 2020, we closed on a $180.0 million mortgage loan for 250 West 57th Street.

This new interest-only loan bears a fixed rate of 2.83% and matures in December 2030.

As of December 31, 2020, total mortgage notes payable, net, amounted to $775.9 million.

On December 22, 2021, we acquired 90% of two multifamily assets, the Victory (561 10th Avenue) and 345 East 94th Street.

In connection with this acquisition, we assumed $134.0 million of principal balance of debt on the Victory, which matures in November 2033 and has an effective interest rate of 3.85%, and $52 million of principal balance of debt on 345 East 94th Street, which matures in November 2030 and has an effective interest rate of 3.56%.

As of December 31, 2021, mortgage notes payable, net, amounted to $948.8 million.

The first maturity is in 2024.

E xchangeable Senior Notes

During August 2019, we settled the $250.0 million principal amount of the 2.625% Exchangeable Senior Notes in cash.

Se e Note 4 to our consolidated financial statements.

See Note 5 - Debt for more information on mortgage debt.

Senior Unsecured Notes

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Although ESRT's board has not adopted a policy that limits the total amount of indebtedness that we may incur, we anticipate that ESRT's board will consider a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such indebtedness that will be either fixed or floating rate.

ESRT's charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken (including, but not limited to, recourse or non-recourse debt and cross-collateralized debt).

Our overall leverage will depend on

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

ESRT's charter and bylaws do not limit the amount

or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken (including, but not limited to, recourse or non-recourse debt and cross-collateralized debt).

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

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

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Excludes the Empire State Building broadcasting licenses and observatory operations.

(5) The tables above exclude two multifamily properties.

Years Ended December 31,

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As of December 31, 2021, we expect to incur additional costs relating to obligations under signed new leases of approximately $109.6 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, short term investments and borrowings under the unsecured revolving credit and term loan facilities.

We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand, short term investments and borrowings under the unsecured revolving credit and term loan facilities.

Capital expenditures are considered part of both our short-term and long-term liquidity requirements.

We intend to fund the capital improvements to complete the redevelopment and repositioning program through a combination of operating cash flow, cash on hand, short term investments and borrowings under the unsecured revolving credit and term loan facilities.

Contractual Obligations

The following table summarizes the amounts due in connection with our contractual obligations described below for the years ending December 31, 2021 through 2025 and thereafter (amounts in thousands).

Years Ending December 31,

2021 2022 2023 2024 2025 Thereafter Total

Mortgages and other debt (1)

Interest expense

$ 80,772 $ 78,559 $ 74,164 $ 73,595 $ 67,695 $ 282,248 $ 657,033

4,090 5,628 7,876 7,958 5,826 20,084 51,462

Principal repayment

— — — 77,675 315,000 1,707,747 2,100,422

1,518 1,518 1,518 1,518 1,518 65,262 72,852

Tenant improvement and leasing commission costs

77,569 19,641 8,263 5,477 5,477 5,476 121,903

$ 163,949 $ 105,346 $ 91,821 $ 166,223 $ 395,516 $ 2,080,817 $ 3,003,672

_______________

(1) Assumes no extension options are exercised.

(2) Does not include various standing or renewal service contracts with vendors related to our property management.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements.

Distribution Policy

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

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

federal income tax at regular corporate rates to the extent that it distributes less than 100% of its net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount, if any, by which its distributions in any calendar year are less than a minimum amount specified under U.S.

federal income tax laws.

We intend to distribute our net taxable income to our securityholders in a manner intended to allow ESRT to satisfy its REIT 90% distribution requirement and to allow ESRT to avoid U.S.

federal income tax liability on its income and the 4% nondeductible excise tax.

Before we pay any distribution, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any.

However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable in order to allow ESRT to satisfy its REIT 90% distribution requirement and to avoid U.S.

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

We intend to distribute our net taxable income to our security holders in a manner intended to satisfy REIT distribution requirements and to avoid U.S.

federal income tax liability on our income.

Before we pay any distribution, whether for U.S.

federal income tax purposes or otherwise, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any.

However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in order to satisfy REIT distribution requirements.

We and our board continue to prioritize balance sheet flexibility and the maximization of our operating runway amidst an uncertain environment.

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

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

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, third and fourth quarters 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.

Distribution to Equity Holders

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Stock and Publicly Traded Operating Partnership Unit Repurchase Program

ESRT's board reauthorized the repurchase of up to $500 million of its Class A common stock and our Series ES, Series 250 and Series 60 operating partnership units through December 31, 2021.

ESRT's Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2021 through December 31, 2021 and reauthorized a new $500 million from January 1, 2022 through December 31, 2023.

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

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Cash and cash equivalents and restricted cash were $474.6 million and $567.9 million as of December 31, 2021 and 2020, respectively.

The increase was primarily due to the issuance of financings, partially offset by the repurchase of common stock during the year ended December 31, 2020.

Operating activities .

Net cash provided by operating activities decreased by $50.3 million to $182.3 million for the year ended December 31, 2020 compared to $232.6 million for the year ended December 31, 2019 primarily due to lower observatory revenues and the settlement of a derivative contract, offset by lower operating expenses.

Investing activities .

Net cash from investing activities decreased by $292.8 million to $143.1 million used in investing activities for the year ended December 31, 2020 compared to $149.7 million net cash provided by investing activities for the year ended December 31, 2019 due to proceeds from maturing short-term time deposits in the year ended December 31, 2019 and lower spending on building and improvements due to COVID-19.

Financing activities .

Net cash from financing activities increased by $638.7 million to $257.2 million provided by financing activities for the year ended December 31, 2020 compared to $381.5 million used in financing activities for the year ended December 31, 2019, primarily due to the net proceeds from issuance of debt in the year ended December 31, 2020 compared to the payment of debt in the year ended December 31, 2019.

Comparison of Year Ended December 31, 2019 to the Year Ended December 31, 2018

Cash and cash equivalents and restricted cash were $271.6 million and $270.8 million as of December 31, 2019 and 2018, respectively.

During the year ended December 31, 2019, the maturity of investments in short-term time deposits was largely offset by capital improvements and expenditures and the repayment of our exchangeable unsecured senior notes resulting in approximately the same balances for cash and cash equivalents and restricted cash at the end of 2019 when compared to 2018.

The decrease was primarily due to the acquisition of real estate property, partially offset by lower spending for capital expenditures, lower dividends paid and lower repurchases of common shares in 2021.

Operating activities .

Net cash provided by operating activities decreased by $46.5 million to $232.6 million for the year ended December 31, 2019 compared to $279.0 million for the year ended December 31, 2018 primarily attributable to the return of security deposits to various tenants and to the settlement of a derivative contract.

Net cash provided by operating activities increased by $30.2 million to $212.5 million primarily due to the settlement of a derivative contract in the year ended December 31, 2020.

Investing activities .

Net cash provided by investing activities increased by $792.7 million to $149.7 million provided by investing activities for the year ended December 31, 2019 compared to $643.0 million net cash used in investing activities

for the year ended December 31, 2018 due to proceeds from maturing short-term time deposits, partially offset by increased expenditures for additions to building and improvements in the year ended December 31, 2019.

Net cash from investing activities increased by $69.6 million to $212.7 million used in investing activities due to the acquisition of real estate property in the year ended December 31, 2021 and lower spending on building and improvements due to COVID-19.

Financing activities .

Net cash provided by financing activities decreased by $486.1 million to $381.5 million used in financing activities for the year ended December 31, 2019 compared to $104.6 million provided by financing activities for the year ended December 31, 2018 due to the repayment of our exchangeable unsecured senior notes in 2019.

Additionally, the net proceeds from issuance of debt was higher in 2018 compared to 2019.

Net cash from financing activities decreased by $350.2 million to $93.0 million used in financing activities primarily due to the net proceeds from issuance of debt in the year ended December 31, 2020.

Net Operating Income

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This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding the components of net income that are eliminated in the calculation of NOI.

Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other companies that do not define the measure exactly as we do.

Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other

companies that do not define the measure exactly as we do.

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

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

Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to

Modified Funds From Operations ("Modified FFO")

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

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

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

We believe that despite the short-term lower occupancy levels we may experience, we will continue to experience increased rental revenues as a result of the increased rents which we expect to obtain following the redevelopment and repositioning of our properties.

Market Conditions

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Observatory and Broadcasting Operations

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

The Observatory was closed for the entirety of the second quarter 2020 and reopened the 86th floor observation deck on July 20, 2020 with new protocols and processes under New York State's Phase 4's Low-Risk Outdoor Arts and Entertainment guidelines.

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

Observatory revenue for the first two months of 2020 increased by 13.2%, after adjusting for the 102nd floor observation deck, which was closed for redevelopment in first quarter 2019 and re-opened in the fourth quarter 2019.

For the year ended December 31, 2020, the Observatory hosted 507,000 visitors, compared to 3,505,000 visitors for the same period in 2019, a decrease of 85.6%.

Against the backdrop of international, national and local travel restrictions, quarantines and a nationwide pandemic surge, the Observatory has seen steady, weekly increases in visitors.

For the year ended December 31, 2021, the observatory hosted 827,000 visitors, compared to 507,000 visitors for the same period in 2020, an increase of 63.1%.

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 revenue for the year ended December 31, 2020 was $29.1 million, a 77.4% decrease from $128.8 million for the year ended December 31, 2019.

The Observatory revenue decline was driven by low visitation levels and less days of operation during the year due to COVID-19.

Observatory revenue for the year ended December 31, 2021 was $41.5 million, a 42.6% increase from $29.1 million for the year ended December 31, 2020.

The observatory revenue increase was driven by higher visitation levels in 2021 given the closing of the observatory during 2020 due to COVID-19.

Observatory revenue and admissions are dependent upon the following:

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

Reference is made to ITEM 1A.

Risk Factors in this Annual Report on Form 10-K for additional factors that that may influence future results of operations.

Critical Accounting Estimates

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Non-amortizing intangible assets, such as trade names and trademarks, are subject to an annual impairment test based on fair value and amortizing intangible assets are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

In compliance with the requirements of authorities, we closed the Empire State Building Observatory on March 16, 2020 due to the COVID-19 pandemic and it remained closed until the 86th floor observation deck was reopened on July 20, 2020.

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

The closure of our Observatory and subsequent

reopening under international, national, and local travel restrictions and quarantines caused us during the quarter to choose to perform an impairment test related to goodwill.

The closure of our observatory and subsequent reopening under international, national, and local travel restrictions and quarantines caused us during the second quarter of 2020 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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Our methodology to review goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis to determine whether impairment had occurred.

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 5.0%.

Based upon the results of the goodwill impairment test of the standalone 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% at December 31, 2021.

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.

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The TRSs periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, or federal tax audits or estimates and judgments used.

As of December 31, 2020, our parent and general partner, Empire State Realty Trust, Inc., had $67.9 million of 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.

As of December 31, 2021, our parent and general partner, Empire State Realty Trust, Inc., had $73.0 million of NOL carryforwards that may be used in the future to reduce the amount otherwise required to be distributed by ESRT to meet REIT requirements.

The federal NOL may be carried forward indefinitely.

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

As of December 31, 2020, the Observatory TRS had a federal, state, and local income tax receivable of $8.1 million due to a NOL for the year ended December 31, 2020.

Under special provisions of the CARES Act, the NOL can be carried back five years for federal income tax purposes.

Due to limitations on the use of net operating loss carrybacks for state and local tax, the Observatory TRS will carry forward $3.8 million of NOL to offset future taxable income, if any.

The state and local NOL can be carried forward for up to 20 years.

As of December 31, 2021, the observatory TRS had a federal income tax receivable of $5.5 million.

This receivable reflects an anticipated refund resulting from the carryback of 2020 NOL to previous tax years.

The observatory TRS had $3.1 million NOL carryforwards that may be used to offset future taxable income, if any.

The federal NOL may be carried forward indefinitely and the state and local NOL can be carried forward for up to 20 years.

We apply provisions for measuring and recognizing tax benefits associated with uncertain income tax positions.

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Share-based compensation for market based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the stated vesting period, which is generally three or four years, depending on retirement eligibility.

Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three or four years, or (ii) the period from the date of grant to the date the employee becomes retirement eligible, which may occur upon grant.

assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three, four or five years, or (ii) the period from the date of grant to the date the employee becomes retirement eligible, which may occur upon grant.

The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of ESRT stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the time of grant.

Segment Reporting

We have identified two reportable segments:

(1) real estate and (2) observatory.

Our real estate segment includes all activities related to the ownership, management, operation, acquisition, repositioning and disposition of our real estate assets.

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

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

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

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

Accounting Standards Update

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

What changed 10-K

Item 7. Management’s Discussion and Analysis