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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-04 · 160 added, 78 removed, 274 unchanged (46% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to our company and its consolidated subsidiaries.

The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022.

Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to the Operating Partnership and our consolidated subsidiaries, or the Operating Partnership and ESRT, as the context requires.

This Management’s Discussion and Analysis

provides a comparison of our performance for the three and six month periods ended June 30, 2023 with the corresponding three and six

month periods ended June 30, 2022 and reviews our financial position as of June 30, 2023.

FORWARD-LOOKING STATEMENTS

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We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions.

You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or phrases.

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

You can identify forward-looking statements by the use of forward-looking terminology such as “aims," "anticipates," "approximately," "believes," "contemplates," "continues," "estimates," "expects," "forecasts," "hope," "intends," "may," "plans," "seeks," "should," "thinks," "will," "would" or the negative of these words and phrases or similar words or phrases with the intention of identifying statements about the future.

In particul ar, statements pertaining to ESRT's 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.

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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, 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;

(i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions;

(ii) a failure of conditions or performance regarding any event or transaction described herein, (iii) resolution of legal proceedings involving us and/or ESRT;

(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;

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(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 phasing out of LIBOR;

(ix) increases in the Company's borrowing costs as a result of changes in interest rates and other factors;

(x) declining real estate valuations and impairment charges;

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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” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

While forward-looking statements reflect the Company's good faith beliefs, they are not guarantees of future performance.

The Company disclaims any obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.

Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company.

Highlights for the three months ended March 31, 2023

For a further discussion of these and other factors that could impact the Operating Partnership’s future results, performance or transactions, see the section entitled “Risk Factors” in our Annual Report and other risks described in documents subsequently filed by us from time to time with the Securities and Exchange Commission.

While forward-looking statements reflect the Company's good faith beliefs, they do not guarantee of future performance.

Any forward-looking statement speaks only as of the date on which it was made, and we assume no obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.

Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-looking statements).

Highlights for the three months ended June 30, 2023

• Net income attributable to common unitholders of $35.9 million.

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• Signed a total of 336,314 rentable square feet of new, renewal, and expansion leases.

• Empire State Building Observatory generated $14.3 million of net operating income and visitor count increased 65% year over year.

• ESRT repurchased $11.6 million of its common stock in the first quarter of 2023 and through April 25, 2023.

• Empire State Building Observatory generated $24.8 million of net operating income.

• ESRT repurchased $7.4 million of its common stock in the second quarter of 2023 and through July 25, 2023.

Results of Operations

The discussion below relates to our financial condition and results of operations for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

The following table summarizes our historical results of operations for the three months ended March 31, 2023 and 2022 (amounts in thousands):

Three Months Ended March 31,

The discussion below relates to our results of operations for the three and six months ended June 30, 2023 and 2022, respectively.

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

The following table summarizes our historical results of operations for the three months ended June 30, 2023 and 2022, respectively (amounts in thousands):

Three Months Ended June 30,

2023 2022 Change %

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(25,405) — (25,405) (25,042) — (25,042) (363) (1.4)

Gain on sale of property

Gain on disposition of property

13,565 — 13,565 27,170 — 27,170 (13,605) —

Income (loss) before income taxes

Income before income taxes

33,847 3,841 37,688 46,620 2,438 49,058 (11,370) 23.2

Income tax (expense) benefit

Income tax expense

(197) (536) (733) (38) (325) (363) (370) (101.9)

Net income (loss)

33,650 3,305 36,955 46,582 2,113 48,695 (11,740) 24.1

Private perpetual preferred unit distributions (1,051) — (1,051) (1,051) — (1,051) — —

Net loss attributable to non-controlling interests in other partnerships 43 — 43 63 — 63 (20) (31.7)

Net income (loss) attributable to common unitholders

Net loss (income) attributable to non-controlling interests in other partnerships (1) — (1) 159 — 159 (160) (100.6)

Net income attributable to common unitholders

$ 32,598 $ 3,305 $ 35,903 $ 45,690 $ 2,113 $ 47,803 $ (11,900) 24.9 %

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Rental Revenue

The decrease in rental revenue was primarily attributable to reserves recorded on straight-line rent receivables related to a one-time reserve tied to Signature Bank entering receivership.

The increase in rental revenue was primarily attributable to the reversal in the three months ended June 30, 2023 of a one-time straight-line rent receivable reserve recorded in the three months ended March 31, 2023 tied to Signature Bank entering receivership.

See "Financial Statements - Note 8.

Leases" for more information.

Property Operating Expenses

The increase in property operating expenses reflects higher repairs and maintenance, cleaning, and payroll costs.

Real Estate Taxes

Higher real estate taxes were primarily attributable to higher assessed values for multiple properties and the inclusion of real estate taxes from our most recently acquired multifamily property net of real estate taxes from disposed properties.

Depreciation and Amortization

The decrease in depreciation and amortization reflects accelerated depreciation at one property recorded in the three months ended June 30, 2022 and depreciation expense in the three months ended June 30, 2022 on properties that were sold prior to June 30, 2023.

Interest Income

The increase in interest income in the three months ended June 30, 2023 reflects higher interest rates compared to the three months ended June 30, 2022.

Gain on Disposition of Property

Reflects the gain on disposition of 500 Mamaroneck in Westchester County, New York in April 2023.

Observatory Segment

Observatory Revenue

Observatory revenues were higher driven by increased visitation as compared to the three months ended June 30, 2022.

Observatory Expenses

The increase in observatory expenses was driven by increased operating hours, which increased variable costs such as marketing, labor and maintenance costs compared to the three months ended June 30, 2022.

The increase in income tax expense was attributable to higher taxable income for the observatory segment for the three months ended June 30, 2023.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

The following table summarizes our historical results of operations for the six months ended June 30, 2023 and 2022 (amounts in thousands):

Six Months Ended June 30,

2023 2022 Change %

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

Rental revenue

$ 294,694 $ — $ 294,694 $ 296,853 $ — $ 296,853 $ (2,159) (0.7) %

Observatory revenue — 55,587 55,587 — 40,609 40,609 14,978 36.9

Lease termination fees — — — 20,032 — 20,032 (20,032) (100.0)

Third-party management and other fees

808 — 808 636 — 636 172 27.0

Other revenues and fees

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

4,075 — 4,075 3,926 — 3,926 149 3.8

Total revenues

299,577 55,587 355,164 321,447 40,609 362,056 (6,892) (1.9)

Operating expenses:

Property operating expenses

The increase in property operating expenses reflects higher payroll and repairs and maintenance due to increased building utilization at our office properties.

81,563 — 81,563 76,077 — 76,077 (5,486) (7.2)

Ground rent expenses

4,663 — 4,663 4,663 — 4,663 — —

General and administrative expenses

The increase in general and administrative expenses primarily reflects higher payroll costs and equity compensation.

31,783 — 31,783 29,562 — 29,562 (2,221) (7.5)

Observatory expenses

— 16,512 16,512 — 13,991 13,991 (2,521) (18.0)

Real estate taxes

Higher real estate taxes primarily attributable to higher assessed values for multiple properties and the inclusion of real estate taxes from our recently acquired multifamily property.

63,278 — 63,278 59,806 — 59,806 (3,472) (5.8)

Depreciation and amortization

The decrease in depreciation and amortization reflects accelerated depreciation at one property recorded in the three months ended March 31, 2022.

93,601 87 93,688 125,325 85 125,410 31,722 25.3

Total operating expenses

274,888 16,599 291,487 295,433 14,076 309,509 18,022 5.8

Operating income

24,689 38,988 63,677 26,014 26,533 52,547 11,130 21.2

Intercompany rent revenue (expense) 36,856 (36,856) — 27,729 (27,729) —

Other income (expense):

Interest income

The increase reflects higher interest rates in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

5,847 87 5,934 575 5 580 5,354 923.1

Interest expense

Interest expense was consistent with prior year.

Gain on Sale of Property

Reflects the gain on sale of 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023.

(50,709) — (50,709) (50,056) — (50,056) (653) (1.3)

Gain on disposition of property

29,261 — 29,261 27,170 — 27,170 2,091 —

Income (loss) before income taxes

45,944 2,219 48,163 31,432 (1,191) 30,241 17,922 (59.3)

Income tax (expense) benefit

(395) 881 486 (182) 1,415 1,233 (747) 60.6

45,549 3,100 48,649 31,250 224 31,474 17,175 (54.6)

Private perpetual preferred unit distributions (2,101) — (2,101) (2,101) — (2,101) — —

Net loss attributable to non-controlling interests in other partnerships 42 — 42 222 — 222 (180) (81.1)

Net income attributable to common unitholders

$ 43,490 $ 3,100 $ 46,590 $ 29,371 $ 224 $ 29,595 $ 16,995 (57.4) %

Real Estate Segment

Rental Revenue

The decrease in rental revenue was primarily attributable to our dispositions of 383 Main Avenue, 10 Bank Street, 69-97 and 103-107 Main Street, and 500 Mamaroneck in April 2022, December 2022, February 2023, and April 2023, respectively.

Property Operating Expenses

The increase in property operating expenses reflects higher repairs and maintenance, cleaning, and payroll costs.

General and Administrative Expenses

The increase in general and administrative expenses primarily reflects higher payroll and equity compensation costs.

Real Estate Taxes

Higher real estate taxes primarily attributable to higher assessed values for multiple properties and the inclusion of real estate taxes from our most recently acquired multifamily property net of real estate taxes from disposed properties.

Depreciation and Amortization

The decrease in depreciation and amortization reflects accelerated depreciation at one property recorded in the six months ended June 30, 2022 and depreciation expense in the six months ended June 30, 2022 on properties that were sold prior to June 30, 2023.

Interest Income

The increase reflects higher interest rates in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Gain on Disposition of Property

Reflects the gain on disposition of 500 Mamaroneck in Westchester County, New York in April 2023 and 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023.

Observatory Segment

Observatory Revenue

Observatory revenues were higher driven by increased visitation as compared to the three months ended March 31, 2022.

Observatory revenues were higher driven by increased visitation as compared to the six months ended June 30, 2022.

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 decrease in income tax benefit was attributable to lower taxable loss for the observatory segment for the three months ended March 31, 2023.

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

The decrease in income tax benefit was attributable to lower taxable loss for the observatory segment for the six months ended June 30, 2023.

Liquidity and Capital Resources

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

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

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

At March 31, 2023, we had $272.6 million available in cash and cash equivalents, and $850 million available under our unsecured revolving credit facility.

As of March 31, 2023, 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 6.2 years.

As of March 31, 2023, excluding principal amortization, we have no outstanding debt maturing until November 2024.

At June 30, 2023, we had $315.4 million available in cash and cash equivalents, and $850 million available under our unsecured revolving credit facility.

As of June 30, 2023, 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 5.9 years.

As of June 30, 2023, excluding principal amortization, we have no outstanding debt maturing until November 2024.

Portfolio Transaction Activity

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

Subsequent to March 31, 2023, the sale of this asset closed on April 5, 2023.

On April 5, 2023, we closed on the sale of 500 Mamaroneck Avenue in Harrison, NY at a gross asset valuation of $53.0 million.

Unsecured Revolving Credit and Term Loan Facilities

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Mortgage Debt

As of March 31, 2023, our consolidated mortgage notes payable amounted to $898.5 million.

As of June 30, 2023, our consolidated mortgage notes payable amounted to $896.4 million.

The first maturity is in November 2024.

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

It also requires compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio.

The terms also require compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio.

The agreements also contain customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, the occurrence of certain change of control transactions and loss of real estate investment trust qualification.

As of March 31, 2023, we were in compliance with the covenants under the outstanding senior unsecured notes.

As of June 30, 2023, we were in compliance with the covenants under the outstanding senior unsecured notes.

Financial Covenants

As of March 31, 2023, we were in compliance with the following financial covenants:

Financial covenant Required March 31, 2023 In Compliance

As of June 30, 2023, we were in compliance with the following financial covenants:

Financial covenant Required June 30, 2023 In Compliance

Maximum total leverage < 60% 33.8 % Yes

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Office Properties (1)

Three months ended March 31,

Six Months Ended June 30,

Total New Leases, Expansions, and Renewals 2023 2022

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Retail Properties (4)

Three months ended March 31,

Six Months Ended June 30,

Total New Leases, Expansions, and Renewals 2023 2022

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Leasing commission costs per square foot (3)

$ 25.95 $ 16.64

Tenant improvement costs per square foot (3)

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$ 52.02 $ 16.64

_______________

(1) Excludes an aggregate of 497,786 and 496,311 rentable square feet of retail space in our Manhattan office properties in 2023 and 2022, respectively.

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Excludes the Empire State Building broadcasting licenses and observatory operations.

Three months ended March 31,

Six Months Ended June 30,

Total Portfolio

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(1) Excludes tenant improvements and leasing commission costs.

As of March 31, 2023, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $107.9 million for tenant improvements and leasing commissions.

As of June 30, 2023, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $138.4 million for tenant improvements and leasing commissions.

We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand, additional property level mortgage financings and borrowings under the unsecured revolving credit facility.

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Off-Balance Sheet Arrangements

As of March 31, 2023, we did not have any off-balance sheet arrangements.

As of June 30, 2023, we did not have any off-balance sheet arrangements.

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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Distribution to Equity Holders

Distributions and dividends amounting to $9.7 million and $10.8 million have been made to equity holders for the three months ended March 31, 2023 and 2022, respectively.

Distributions and dividends amounting to $20.3 million and $21.6 million have been made to equity holders for the six months ended June 30, 2023 and 2022, respectively.

Stock and Publicly Traded Operating Partnership Unit Repurchase Program

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See "Financial Statements - Note 10.

Capital" for a summary of ESRT's purchases of equity securities in each of the three months ended March 31, 2023.

Comparison of Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Cash and cash equivalents and restricted cash were $380.8 million and $482.7 million, respectively, as of March 31, 2023 and 2022.

The decrease was primarily due to the acquisition of real estate property in December 2022 and higher spending for capital expenditures, partially offset by net proceeds from the sale of property in February 2023 and lower repurchases of common shares.

Capital" for a summary of ESRT's purchases of equity securities in each of the three months ended June 30, 2023.

Comparison of Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

Cash and cash equivalents and restricted cash were $395.8 million and $412.8 million, respectively, as of June 30, 2023 and 2022.

The decrease was primarily due to the acquisition of real estate property in December 2022 and higher spending for capital expenditures, partially offset by net proceeds from the disposition of properties in December 2022 and February and April 2023 and lower repurchases of common shares.

Operating activities .

Net cash provided by operating activities increased by $18.7 million to $86.4 million due to changes in working capital.

Net cash provided by operating activities increased by $22.2 million to $105.9 million due to increased observatory operating income and changes in working capital.

Investing activities .

Net cash used in investing activities decreased by $32.4 million to $2.6 million primarily due to net proceeds from the sale of 69-97 and 103-107 Main Street in Westport, Connecticut on February 1, 2023.

Net cash provided by investing activities increased by $69.3 million to $12.7 million primarily due to net proceeds from the disposition of 69-97 and 103-107 Main Street in Westport, Connecticut, and 500 Mamaroneck in Harrison, New York.

Financing activities .

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

Three Months Ended March 31,

Net income (loss)

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

2023 2022 2023 2022

(unaudited) (unaudited)

$ 36,955 $ 48,695 48,649 31,474

General and administrative expenses

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25,405 25,042 50,709 50,056

Income tax benefit

Income tax expense (benefit)

733 363 (486) (1,233)

Gain on sale of property (15,696) —

Gain on disposition of property (13,565) (27,170) (29,261) (27,710)

Third-party management and other fees

(381) (326) (808) (636)

Interest income

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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 another.

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

Modified Funds From Operations ("Modified FFO")

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

Three Months Ended March 31,

Net income (loss)

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

2023 2022 2023 2022

(unaudited) (unaudited)

$ 36,955 $ 48,695 $ 48,649 $ 31,474

Noncontrolling interests in other partnerships (1) 159 42 222

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44,887 56,571 90,911 121,985

Gain on sale of property

Gain on disposition of property

(13,565) (27,170) (29,261) (27,170)

FFO attributable to common unitholders

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Amortization of below-market ground leases

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

Modified FFO attributable to common unitholders

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Due to the relatively small number of leases that are signed in any particular quarter, one or more larger leases may have a disproportionately positive or negative impact on average rent, tenant improvement and leasing commission costs for that period.

we believe it is more appropriate when analyzing trends in average rent and tenant improvement and leasing commission costs to review activity over multiple quarters or years.

Tenant improvement costs include expenditures for general improvements occurring concurrently with, but that are not directly related to, the cost of installing a new tenant.

As a result, we believe it is more appropriate when analyzing trends in average rent and tenant improvement and leasing commission costs to review activity over multiple quarters or years.

Tenant improvement costs include expenditures for general improvements occurring concurrently

with, but that are not directly related to, the cost of installing a new tenant.

Leasing commission costs are similarly subject to significant fluctuations depending upon the length of leases being signed and the mix of tenants from quarter to quarter.

As of March 31, 2023, there were approximately 1.0 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 10.6% of the net rentable square footage of the properties in our portfolio.

As of June 30, 2023, there were approximately 0.9 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 9.7% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 3.4% and 5.4% of net rentable square footage of the properties in our portfolio will expire in 2023 and in 2024, respectively.

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Observatory Operations

For the three months ended March 31, 2023, the observatory hosted 443,000 visitors, compared to 269,000 visitors for the same period in 2022.

For the three months ended June 30, 2023, the observatory hosted 666,000 visitors, compared to 573,000 visitors for the three months ended June 30, 2022.

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 three months ended March 31, 2023 was $22.2 million, compared to $13.2 million for the three months ended March 31, 2022.

Observatory revenue for the three months ended June 30, 2023 was $33.4 million, compared to $27.4 million for the three months ended June 30, 2022.

The observatory revenue increase was driven by higher visitation levels in 2023.

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and (v) weather trends.

The first half of 2023 saw sustained demand for our properties, marked by solid leasing activity and observatory performance.

The global economy, including the real estate sector, currently navigates an environment of uncertainty around inflation, rising interest rates, weakness in real estate loans from institutional lenders, questions on the direction of capital markets, risk of recession and geopolitical unrest.

In particular, there have been concerns about the softening of the commercial real estate market, and particularly the office, amidst refinancing challenges of existing low interest rate loans and associated reduced new loan availability and increased costs of loans and related increased expectations of equity returns, coupled with the gradual pace of return-to-office and its impact on the physical utilization of space and asset valuations.

Additionally, the risk of a global economic recession could impact the number of visitors to the Empire State Building Observatory, as well as our pricing power.

Despite this global economic backdrop, we believe that our modernized, amenitized, energy efficient New York City-focused portfolio with indoor environmental quality initiatives, characterized by its competitive rental rates, strong leased percentage, sustainability leadership and diversified drivers of income across office, retail, multifamily and the Empire State Building Observatory, is in a good competitive position.

Our business is further fortified by the continued performance of our Observatory, which was ranked the #1 attraction in the U.S.

by Tripadvisor’s 2023 Travelers’ Choice Best of the Best Awards for a second consecutive year.

In addition to our diversified portfolio, our business is supported by leading balance sheet strength, modest leverage and access to liquidity as set forth herein.

The absence of near term debt maturities or floating rate debt exposure gives us an added degree of security in a rising rate environment.

We have been able to execute on capital recycling, acquisitions, and buybacks.

As we navigate these uncertain times, we continue to be prepared for various challenges and economic scenarios.

Critical Accounting Estimates

Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting estimates.

There were no material changes to our critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Refer to our Annual Report for a discussion of our critical accounting estimates.

There were no material changes to our critical accounting estimates disclosed in our Annual Report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis