What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-25 · 114 added, 190 removed, 360 unchanged (46% of the section changed)

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In particular, statements pertaining to our capital resources, portfolio performance, dividend policy and results of operations contain forward-looking statements.

Likewise, all of our statements regarding anticipated growth in our portfolio from operations, acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements.

Likewise, all of our statements regarding anticipated growth in our commercial portfolio from operations, acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements.

Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control, and you should not rely on them as predictions of future events.

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

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

(i) economic, market, political and social impact of, and uncertainty relating to, any pandemic;

(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;

(iv) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work;

(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;

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

(vii) changes in domestic or international tourism, including due to health crises and pandemics, geopolitical events, including global hostilities, currency exchange rates, and/or competition from recently opened observatories in New York City, any or all of 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;

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

(x) declining real estate valuations and impairment charges;

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(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;

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

(xv) difficulties in identifying and completing acquisitions;

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

(xvi) risks related to any development project (including our Metro Tower potential development site);

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

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(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.

(xx) incurrence of taxable capital gain on disposition of an asset due to failure of use or compliance with a 1031 exchange program;

and (xxi) 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.

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2022 Highlights

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

• Net income attributable to the company of $59.3 million.

• Core FFO of $243.6 million.

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

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 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.

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.

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 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.

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.

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 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.

• Signed a total of 1,118,579 rentable square feet of new, renewal and expansion leases.

• Completed the acquisition of a multifamily asset located at 298 Mulberry Street in Manhattan in the fourth quarter.

• Completed the dispositions of an office asset located at 10 Bank Street in White Plains, NY in the fourth quarter, and retail assets located in Westport, Connecticut subsequent to year-end in a tax-efficient manner through transactions that qualify as like-kind exchanges.

Results of Operations

The discussion below relates to the financial condition and results of operations for the years ended December 31, 2022 and 2021.

For a discussion of our 2020 financial results as compared to our 2021 financial results, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

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2022 2021 Change %

Real Estate Segment Observatory Segment Total Real Estate Segment Observatory Segment Total

Rental revenue $ 591,048 $ — $ 591,048 $ 559,690 $ — $ 559,690 $ 31,358 5.6 %

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Real estate taxes 123,057 — 123,057 119,967 — 119,967 (3,090) (2.6) %

Impairment charges 7,723 6,204 (1,519) (24.5) %

Impairment charge — — — 7,723 — 7,723 7,723 100.0 %

Depreciation and amortization 216,707 187 216,894 201,676 130 201,806 (15,088) (7.5) %

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52,273 74,755 127,028 60,857 18,276 79,133 47,895 60.5 %

Intercompany rent income (expense) 65,005 (65,005) — 23,413 (23,413) — — — %

Other income (expense):

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(101,206) — (101,206) (94,292) (102) (94,394) (6,812) (7.2) %

Gain on sale/disposition of properties 33,988 — 33,988 — — — 33,988 — %

Loss on early extinguishment of debt — — — (214) — (214) 214 100.0 %

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

Loss before income taxes

Income (loss) before income taxes

54,961 9,797 64,758 (9,535) (5,236) (14,771) 79,529 (538.4) %

Income tax benefit

Income tax (expense) benefit

(584) (962) (1,546) (613) 2,347 1,734 (3,280) (189.2) %

Net income (loss)

54,377 8,835 63,212 (10,148) (2,889) (13,037) 76,249 (584.9) %

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$ 50,419 $ 8,835 $ 59,254 $ (14,332) $ (2,889) $ (17,221) $ 76,475 (447.1) %

Rental Revenue and Tenant Expense Reimbursement

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 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.

Real Estate Segment

Rental Revenue

The increase in rental revenue reflects the inclusion of revenues from our multifamily properties which were acquired on December 22, 2021.

Other Revenues and Fees

The increase in other revenues and fees was due to higher food and beverage sales, insurance claim income, parking income and bad debt recovery income.

Property Operating Expenses

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.

The increase in property operating expenses reflects higher payroll, utilities, repairs and maintenance costs, cleaning and other operating expenses due to increased building utilization at our office properties and the inclusion of operating expenses from our multifamily properties which were acquired on December 22, 2021.

General and Administrative Expenses

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

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.

The increase in general and administrative expenses reflects higher equity compensation and payroll costs, information technology costs and professional fees.

Real Estate Taxes

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.

Higher real estate taxes were primarily attributable to the inclusion of real estate taxes from our multifamily properties which were acquired on December 22, 2021.

Impairment Charge

The impairment charge in 2021 related to 383 Main Avenue, Norwalk CT, which was disposed in April 2022.

Depreciation and Amortization

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

The increase in depreciation and amortization reflects accelerated depreciation at one property due to an impairment charge in the fourth quarter of 2021 and additional depreciation from our multifamily properties which were acquired on December 22, 2021.

Interest Income

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.

The increase in interest income was due to higher interest rates compared to the prior year.

Interest Expense

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.

The increase in interest expense was primarily attributable to interest expense from our multifamily properties which were acquired on December 22, 2021, partially offset by the cancellation of debt from 383 Main Avenue, Norwalk CT.

Gain on Sale/Disposition of Properties

Represents a gain on the sale of 10 Bank Street, White Plains NY, and a gain on the disposition of 383 Main Avenue, Norwalk CT.

Observatory Segment

Observatory Revenue

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

Observatory Expenses

The increase in observatory expenses was driven by increased operating hours, which increased variable costs such as labor, union, security, cleaning and maintenance costs.

The increase in income tax expense was attributable to higher taxable income for the observatory segment.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make distributions to our securityholders and other general business needs.

distributions to our securityholders and other general business needs.

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

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Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed.

Our primary sources of liquidity will generally consist of cash on hand, short term investments, cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit and term loan facility.

We expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital expenditures from cash flows from operations, cash on hand, debt issuances, and available borrowing capacity under our unsecured revolving credit and term loan facility.

The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements.

We expect to meet our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit 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.

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 facilities, mortgage financings, debt issuances, common and/or preferred equity issuances and asset sales.

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

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

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

Risk Factors - Risks Relating to Our Indebtedness and Liquidity in this Annual Report on Form 10-K for more information.

At December 31, 2022, we had approximately $264.4 million available in cash and cash equivalents and there was $850.0 million available under our unsecured revolving credit facility.

At December 31, 2022, we had approximately $2.3 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.9% and a weighted average maturity of 6.4 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, 2022, excluding debt amortization, we have no debt maturity until November 2024 when principal repayments would amount to $77.7 million in 2024, $315.0 million in 2025 $225.0 million in 2026, $319.0 million in 2027 and $1.3 billion thereafter.

As of December 31, 2022, interest expense obligations from 2023 through 2027 and thereafter amount to $593.7 million while debt amortization amount to $60.3 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 $69.8 million as of December 31, 2022 of which $7.5 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.

Portfolio Transaction Activity

On December 7, 2022, we closed on the sale of 10 Bank Street, White Plains, NY, which was encumbered by a $30.0 million mortgage, at a gross asset valuation of $42.0 million.

On December 20, 2022, we closed on the acquisition of a 100% free-market, full service multifamily asset located at 298 Mulberry Street in Manhattan for a purchase price of $114.9 million.

Subsequent to the year ended December 31, 2022, on February 1, 2023 we closed on the sale of 69-97 and 103-107 Main Street in Westport, Connecticut at a gross asset valuation of $40.0 million.

In December 2022, we also entered into a purchase and sale agreement for 500 Mamaroneck Avenue in Harrison, NY at a gross asset valuation of $53.0 million.

This transaction is expected to close in the first quarter of 2023, subject to customary closing conditions.

Unsecured Revolving Credit and Term Loan Facilities

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 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 agent, U.S.

Bank National Association and Truist Bank, as documentation agents, and the lenders party thereto.

The Term Loan Facility is in the original principal amount of $175 million which we borrowed in full at closing.

We may request the Term Loan Facility be increased through one or more increases or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount not to exceed $225 million.

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.

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:

See "Financial Statements - Note 5 Debt" for a summary of our unsecured revolving credit and term loan facilities.

Financial Covenants

As of December 31, 2022, we were in compliance with the following financial covenants:

Financial Covenant Required December 31, 2022 In Compliance

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Mortgage Debt

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, 2022, mortgage notes payable, net, amounted to $883.7 million.

The first maturity is in 2024.

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

The first maturity is in November 2024.

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

Senior Unsecured Notes

Series A, B, C, D, E, F, G and H Senior Notes (collectively, "Senior Unsecured Notes") are senior unsecured obligations with an aggregate principal amount of $975.0 million maturing on various dates from 2025 to 2035.

These Senior Unsecured Notes are unconditionally guaranteed by each of our subsidiaries that guarantees indebtedness under the unsecured revolving credit and term loan facility.

Interest on the Senior Unsecured Notes is payable quarterly.

The terms of the senior unsecured notes include customary covenants, including limitations on liens, investment, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports.

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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).

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.

Risk Factors - Risks Relating to Our Indebtedness and Liquidity in this Annual Report on Form 10-K for more information.

Capital Expenditures

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1,071,426 983,182 854,068

Leasing commission costs (3)

$ 19,802 $ 9,969 $ 21,227

Tenant improvement costs (3)

65,133 32,896 70,643

Total leasing commissions and tenant improvement costs (3)

$ 84,935 $ 42,865 $ 91,870

Leasing commission costs per square foot (3)

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47,153 22,448 69,311

Leasing commission costs (3)

$ 1,286 $ 2,239 $ 3,557

Tenant improvement costs (3)

1,386 7,575 3,337

Total leasing commissions and tenant improvement costs (3)

$ 2,672 $ 9,814 $ 6,894

Leasing commission costs per square foot (3)

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Excludes the Empire State Building broadcasting licenses and observatory operations.

(5) The tables above exclude two multifamily properties.

(5) The tables above exclude three multifamily properties.

Years Ended December 31,

2022 2021 2020

Total Portfolio

Total Commercial Portfolio

Capital expenditures (1)

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_______________

(1) Includes all capital expenditures, excluding tenant improvements and leasing commission costs, which are primarily attributable to the redevelopment and repositioning program conducted at our Manhattan office properties.

(1) Includes all capital expenditures, excluding tenant improvements and leasing commission costs.

As of December 31, 2022, we expect to incur additional costs relating to obligations under signed new leases of approximately $118.3 million for tenant improvements and leasing commissions.

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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.

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

Distribution Policy

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.

federal income tax liability.

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

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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 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.

We declared dividends of $0.035 per share for each quarter of 2022, 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.

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Stock and Publicly Traded Operating Partnership Unit Repurchase Program

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 $314.7 million and $474.6 million as of December 31, 2022 and 2021, respectively.

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.

The decrease was primarily due to the acquisition of 298 Mulberry Street in December 2022, higher repurchases of common shares in 2022, higher spending for capital expenditures and higher distributions paid in 2022.

Operating activities .

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.

Net cash provided by operating activities decreased by $1.3 million to $211.2 million.

Investing activities .

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.

Net cash used in investing activities increased by $18.2 million to $230.9 million due to higher capital expenditures, partially offset by net proceeds from the disposition of real estate.

Net cash used in the acquisition of multifamily assets during the years ended December 31, 2022 and 2021 was $115.6 million and $117.5 million, respectively.

Financing activities .

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 cash used in financing activities increased by $47.2 million to $140.2 million primarily due to higher repurchases of common shares and higher dividends and distributions paid.

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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IPO litigation expense — — 1,165

Gain on sale/disposition of properties (33,988) — —

Interest income

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

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

FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income

(loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP.

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

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$ 63,212 $ (13,037) $ (22,889)

Non-controlling interests in other partnerships 243 — —

Private perpetual preferred unit distributions

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Impairment charges — 7,723 5,360

Gain on sale/disposition of properties (33,988) — —

Funds from operations attributable to common stockholders and non-controlled interests

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$ 243,619 $ 194,890 $ 175,414

Weighted average Operating Partnership units

Weighted average shares and Operating Partnership units

268,337 277,420 283,826

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Factors That May Influence Future Results of Operations

Impact of COVID-19

See "Overview" section.

Rental Revenue

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Future economic or regional downturns affecting our submarkets, or downturns in our tenants’ industries, could impair our ability to lease vacant space and renew or re-lease space as well as the ability of our tenants to fulfill their lease commitments, and could adversely affect our ability to maintain or increase the occupancy at our properties.

Risk Factors - Risks Relating to the Real Estate Market in this Annual Report on Form 10-K for more information on factors that that may influence future rental revenue.

Tenant Credit Risk

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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 December 31, 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 14.3% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 5.7% and 6.3% of net rentable square footage of the properties in our portfolio will expire in 2022 and in 2023, respectively.

As of December 31, 2022, there were approximately 1.1 million rentable square feet of space in our commercial portfolio available to lease (excluding leases signed but not yet commenced) representing 11.4% of the net rentable square footage of the properties in our commercial portfolio.

In addition, leases representing 5.1% and 6.6% of net rentable square footage of the properties in our commercial portfolio will expire in 2023 and in 2024, respectively.

These leases are expected to represent approximately 5.7% and 7.2%, respectively, of our annualized rent for such periods.

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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.

Risk Factors - Risks Relating to the Real Estate Market in this Annual Report on Form 10-K for additional factors for more information.

Market Conditions

The properties in our portfolio are located in Manhattan and the greater New York metropolitan area, which includes Fairfield County, Connecticut and Westchester County, New York.

The properties in our commercial portfolio are located in Manhattan and the greater New York metropolitan area, which includes Fairfield County, Connecticut and Westchester County, New York.

Positive or negative changes in conditions in these markets, such as business hirings or layoffs or downsizing, industry growth or slowdowns, relocations of businesses, increases or decreases in real estate and other taxes, costs of complying with governmental regulations or changed regulation, can impact our overall performance.

Observatory and Broadcasting Operations

Risk Factors - Risks Relating to our Portfolio Concentration in this Annual Report on Form 10-K for additional factors that that may influence market conditions.

Observatory Operations

For the year ended December 31, 2022, the observatory hosted 2,189,000 visitors, compared to 827,000 visitors for the same period in 2021, an increase of 164.7%.

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.

Our return of attendance to pre-pandemic levels is closely tied to national and international travel trends, our new reservations-only model of operation, and our desire to provide a better experience with fewer crowds to visitors from whom we receive higher revenues per person.

Observatory revenue for the year ended December 31, 2022 was $106.0 million, a 155.4% increase from $41.5 million for the year ended December 31, 2021.

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

The observatory revenue increase was driven by higher visitation levels in 2022.

Observatory revenue and admissions are dependent upon the following:

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and (v) weather trends.

We license the use of the Empire State Building mast to third party television and radio broadcasters and providers of data communications.

We also lease space in the upper floors of the building to such licensees to house their transmission equipment and related facilities.

During the year ended December 31, 2021, we derived $13.5 million of revenue and $5.6 million of expense reimbursements from the Empire State Building’s broadcasting licenses and related leases.

Risk Factors - Risks Related to Our Non-Real Estate Operations in this Annual Report on Form 10-K for additional factors that may influence our observatory operations.

Operating Expenses

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If similar economic conditions exist in the future, we may experience future losses.

Risk Factors - Risks Related to Our Properties in this Annual Report on Form 10-K for additional factors that may influence our operating expenses.

Cost of Funds and Interest Rates

As of December 31, 2021, our variable rate debt was $125.0 million which represented 5.4% of our total indebtedness and 2.5% of our total enterprise value.

Our variable rate debt may increase to the extent we use available borrowing capacity from our unsecured credit facility to fund capital improvements.

As of December 31, 2022, 100% of our debt was fixed rate debt with the inclusion of existing interest rate swap agreements.

We may incur variable rate debt to the extent we use available borrowing capacity from our unsecured credit facility.

The leasing of real estate is highly competitive in Manhattan and the greater New York metropolitan market in which we operate.

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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.

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The primary beneficiary is required to consolidate the VIE.

We had no VIEs as of December 31, 2021 and 2020.

We will assess the accounting treatment for each investment we may have in the future.

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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.

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.

The analysis used a combination of the discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach).

From the quarter ended June 30, 2020 and for each subsequent quarter through our annual goodwill testing on October 1, 2022, we bypassed the optional qualitative goodwill impairment assessment and proceeded directly to a quantitative assessment of the observatory reportable segment and engaged a third-party valuation consulting firm to perform the valuation process.

This was done in response to the closure of the observatory on March 16, 2020, due to the COVID-19 pandemic, which was subsequently fully reopened on August 24, 2020.

The quantitative analysis used a combination of the discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach).

Significant assumptions under the former included revenue and cost projections, weighted average cost of capital, long-term growth rate and income tax considerations while the latter included guideline company enterprise values, revenue multiples and control premium rates.

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 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.

Each quantitative analysis performed concluded the fair value of the standalone observatory reporting unit exceeds its carrying value.

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.

We will continue to assess the impairment of the observatory reporting unit goodwill going forward.

We are generally not subject to federal and state income taxes as our taxable income or loss is reportable by our partners.

Accordingly, no provision has been made for federal and state income taxes.

ESRT elected, together with ESRT observatory TRS, L.L.C., our subsidiary which holds our observatory operations, to treat ESRT observatory TRS, L.L.C.

as a taxable REIT subsidiary ("TRS"), and ESRT has elected, together with ESRT Holdings TRS, L.L.C., our subsidiary that holds our third party management, construction (through cessation of our construction business in the first quarter of 2015), restaurant, cafeteria, health clubs and certain cleaning operations, to treat ESRT Holdings TRS, L.L.C.

ESRT elected, together with ESRT Observatory TRS, L.L.C., our subsidiary that holds our observatory operations, to treat ESRT Observatory TRS, L.L.C.

as a taxable REIT subsidiary ("TRS"), and ESRT has elected, together with ESRT Holdings TRS, L.L.C., our subsidiary that holds our third party management, restaurant, cafeteria, health clubs and certain cleaning operations, to treat ESRT Holdings TRS, L.L.C.

TRSs may participate in non-real estate activities and/or perform non-customary services for tenants and their operations are generally subject to regular corporate income taxes.

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The calculation of the TRSs tax provisions may require interpreting tax laws and regulations and could result in the use of judgments or estimates which could cause its recorded tax liability to differ from the actual amount due.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income

tax purposes.

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, 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.

As of December 31, 2022, our parent and general partner, Empire State Realty Trust, Inc., had $99.8 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.

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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 Observatory TRS has $10.2 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.

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Share-Based Compensation

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, 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.

An employee is retirement eligible when the employee attains the (i) age of 65 for awards granted in 2020 and after and age of 60 for awards granted before 2020 and (ii) the date on which the employee has first completed ten years of continuous service with us or our affiliates.

Share-based compensation for market-based equity awards and performance-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 three or four years.

Additionally, for the performance-based equity awards, we assess, at each reporting period, whether it is probable that the performance conditions will be satisfied.

We recognize expense respective to the number of awards we expect to vest at the conclusion of the measurement period.

Changes in estimate are accounted for in the period of change through a cumulative catch-up adjustment.

Any forfeitures of share-based compensation awards are recognized as they occur.

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.

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Accounting Standards Update

Reference is made to Note 2 in the accompanying consolidated financial statements for information about recently issued and recently adopted accounting standards.

See "Financial Statements - Note 2 Summary of Significant Accounting Policies" for information about recently issued and recently adopted accounting standards.

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