Empire State Realty OP, L.P. 10-Q

ITEM 1. FINANCIAL STATEMENTS Empire State Realty OP, L.P. Condensed Consolidated Balance Sheets (amounts in thousands, except per unit amounts) September 30, 2023 December 31, 2022 ASSETS (unaudited) Commercial real estate properties, at cost: Land $ 366,364 $ 365,540 Development costs 8,178 8,166 Building and improvements 3,245,555 3,177,743 3,620,097 3,551,449 Less: accumulated depreciation ( 1,217,967 ) ( 1,137,267 ) Commercial real estate properties, net 2,402,130 2,414,182 Assets held for sale — 35,538 Cash and cash equivalents 353,999 264,434 Restricted cash 66,954 50,244 Tenant and other receivables 37,651 24,102 Deferred rent receivables 254,233 240,188 Prepaid expenses and other assets 82,918 98,114 Deferred costs, net 175,488 187,570 Acquired below-market ground leases, net 323,199 329,073 Right of use assets 28,496 28,670 Goodwill 491,479 491,479 Total assets $ 4,216,547 $ 4,163,594 LIABILITIES AND CAPITAL Liabilities: Mortgage notes payable, net $ 878,757 $ 883,705 Senior unsecured notes, net 973,819 973,659 Unsecured term loan facilities, net 389,158 388,773 Unsecured revolving credit facility — — Accounts payable and accrued expenses 83,299 80,729 Acquired below-market leases, net 14,703 17,849 Ground lease liabilities 28,496 28,670 Deferred revenue and other liabilities 75,688 76,091 Tenants’ security deposits 39,307 25,084 Liabilities related to assets held for sale — 5,943 Total liabilities 2,483,227 2,480,503 Commitments and contingencies Capital: Private perpetual preferred units: Private perpetual preferred units, $ 13.52 liquidation preference, 4,664 issued and outstanding in 2023 and 2022 21,936 21,936 Private perpetual preferred units, $ 16.62 liquidation preference, 1,560 issued and outstanding in 2023 and 2022 8,004 8,004 Series PR operating partnership units: ESRT partner's capital ( 2,710 and 2,710 general partner operating partnership units and 159,624 and 158,420 limited partner operating partnership units outstanding in 2023 and 2022, respectively) 987,083 954,375 Limited partners' interests ( 80,403 and 80,475 limited partner operating partnership units outstanding in 2023 and 2022, respectively) 693,627 681,827 Series ES operating partnership units ( 20,243 and 21,081 limited partner operating partnership units outstanding in 2023 and 2022, respectively) 5,007 1,391 Series 60 operating partnership units ( 5,325 and 5,558 limited partner operating partnership units outstanding in 2023 and 2023, respectively) 1,022 16 Series 250 operating partnership units ( 2,645 and 2,789 limited partner operating partnership units outstanding in 2023 and 2022, respectively) 535 76 Total Empire State Realty OP, L.P.'s capital 1,717,214 1,667,625 Non-controlling interest in other partnerships 16,106 15,466 Total capital 1,733,320 1,683,091 Total liabilities and capital $ 4,216,547 $ 4,163,594 The accompanying notes are an integral part of these consolidated financial statements 2 Empire State Realty OP, L.P. Condensed Consolidated Statements of Operations (unaudited) (amounts in thousands, except per unit amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Rental revenue $ 151,458 $ 148,290 $ 446,152 $ 445,143 Observatory revenue 37,562 33,051 93,149 73,660 Lease termination fees — — — 20,032 Third-party management and other fees 268 389 1,076 1,025 Other revenue and fees 2,238 1,982 6,313 5,908 Total revenues 191,526 183,712 546,690 545,768 Operating expenses: Property operating expenses 42,817 42,798 124,380 118,875 Ground rent expenses 2,331 2,331 6,994 6,994 General and administrative expenses 16,012 15,725 47,795 45,287 Observatory expenses 9,471 8,516 25,983 22,507 Real estate taxes 32,014 31,831 95,292 91,637 Depreciation and amortization 46,624 46,984 140,312 172,394 Total operating expenses 149,269 148,185 440,756 457,694 Total operating income 42,257 35,527 105,934 88,074 Other income (expense): Interest income 4,462 1,564 10,396 2,144 Interest expense ( 25,382 ) ( 25,516 ) ( 76,091 ) ( 75,572 ) Gain on disposition of property — — 29,261 27,170 Income before income taxes 21,337 11,575 69,500 41,816 Income tax benefit (expense) ( 1,409 ) ( 1,457 ) ( 923 ) ( 224 ) Net income 19,928 10,118 68,577 41,592 Private perpetual preferred unit distributions ( 1,050 ) ( 1,050 ) ( 3,151 ) ( 3,151 ) Net (income) loss attributable to non-controlling interest in other partnerships ( 111 ) 49 ( 69 ) 271 Net income attributable to common unitholders $ 18,767 $ 9,117 $ 65,357 $ 38,712 Total weighted average units: Basic 262,756 266,035 263,379 269,880 Diluted 266,073 267,121 265,269 270,966 Earnings per unit attributable to common unitholders: Basic $ 0.07 $ 0.03 $ 0.25 $ 0.14 Diluted $ 0.07 $ 0.03 $ 0.25 $ 0.14 Dividends per unit $ 0.035 $ 0.035 $ 0.105 $ 0.105 The accompanying notes are an integral part of these consolidated financial statements 3 Empire State Realty OP, L.P. Condensed Consolidated Statements of Comprehensive Income (unaudited) (amounts in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 19,928 $ 10,118 $ 68,577 $ 41,592 Other comprehensive income: Unrealized gain on valuation of interest rate swap agreements 9,525 19,588 16,058 39,407 Less: amount reclassified into interest expense ( 2,275 ) 1,392 ( 5,429 ) 7,428 Other comprehensive income 7,250 20,980 10,629 46,835 Comprehensive income 27,178 31,098 79,206 88,427 Net (income) loss attributable to non-controlling interest in other partnerships ( 111 ) 49 ( 69 ) 271 Other comprehensive income attributable to non-controlling interest in other partnerships ( 480 ) ( 670 ) ( 384 ) ( 2,297 ) Comprehensive income attributable to OP unitholders $ 26,587 $ 30,477 $ 78,753 $ 86,401 The accompanying notes are an integral part of these consolidated financial statements 4 Empire State Realty OP, L.P. Condensed Consolidated Statements of Capital For The Three Months Ended September 30, 2023 and 2022 (unaudited) (amounts in thousands) Series PR Operating Partnership Units Series ES Operating Partnership Units Limited Partners Series 60 Operating Partnership Units Limited Partners Series 250 Operating Partnership Units Limited Partners General Partner Limited Partners Private Perpetual Preferred Units Private Perpetual Preferred Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Non-controlling Interest in Other Partnerships Total Capital Balance at June 30, 2023 6,224 $ 29,940 160,830 $ 965,950 81,611 $ 695,416 20,426 $ 3,810 5,380 $ 681 2,669 $ 375 15,440 $ 1,711,612 Conversion of operating partnership units to ESRT Partner's Capital — — 1,506 10,663 ( 1,244 ) ( 10,616 ) ( 183 ) ( 36 ) ( 55 ) ( 8 ) ( 24 ) ( 3 ) — — Contributions from consolidated joint ventures — — — — — — — — — — — — 75 75 Repurchases of common shares — — — — — — — — — — — — — — Equity compensation — — ( 2 ) 449 36 4,540 — — — — — — — 4,989 Distributions — ( 1,050 ) — ( 5,683 ) — ( 2,814 ) — ( 708 ) — ( 187 ) — ( 92 ) — ( 10,534 ) Net income — 1,050 — 11,560 — 5,208 — 1,417 — 394 — 188 111 19,928 Other comprehensive income — — — 4,144 — 1,893 — 524 — 142 — 67 480 7,250 Balance at September 30, 2023 6,224 $ 29,940 162,334 $ 987,083 80,403 $ 693,627 20,243 $ 5,007 5,325 $ 1,022 2,645 $ 535 $ 16,106 $ 1,733,320 Series PR Operating Partnership Units Series ES Operating Partnership Units Limited Partners Series 60 Operating Partnership Units Limited Partners Series 250 Operating Partnership Units Limited Partners General Partner Limited Partners Private Perpetual Preferred Units Private Perpetual Preferred Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Non-controlling Interest in Other Partnerships Total Capital Balance at June 30, 2022 6,224 $ 29,940 163,684 $ 957,803 81,073 $ 665,520 21,746 $ ( 1,137 ) 5,738 $ ( 637 ) 2,862 $ ( 277 ) $ 14,881 $ 1,666,093 Conversion of operating partnership units to ESRT Partner's Capital — — 461 39 ( 39 ) ( 4 ) ( 324 ) ( 27 ) ( 60 ) ( 5 ) ( 38 ) ( 3 ) — — Repurchases of common shares — — ( 2,567 ) ( 18,105 ) — — — — — — — — — ( 18,105 ) Equity compensation — — ( 8 ) 317 — 5,057 — — — — — — — 5,374 Distributions — ( 1,050 ) — ( 5,694 ) — ( 2,837 ) — ( 751 ) — ( 199 ) — ( 100 ) — ( 10,631 ) Net income — 1,050 — 5,557 — 2,529 — 739 — 192 — 100 ( 49 ) 10,118 Other comprehensive income (loss) — — — 12,462 — 5,553 — 1,646 — 426 — 223 670 20,980 Balance at September 30, 2022 6,224 $ 29,940 161,570 $ 952,379 81,034 $ 675,818 21,422 $ 470 5,678 $ ( 223 ) 2,824 $ ( 57 ) $ 15,502 $ 1,673,829 5 Empire State Realty OP, L.P. Condensed Consolidated Statements of Capital For The Nine Months Ended September 30, 2023 and 2022 (unaudited) (amounts in thousands) Series PR Operating Partnership Units Series ES Operating Partnership Units Limited Partners Series 60 Operating Partnership Units Limited Partners Series 250 Operating Partnership Units Limited Partners General Partner Limited Partners Private Perpetual Preferred Units Private Perpetual Preferred Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Non-controlling Interest in Other Partnerships Total Capital Balance at December 31, 2022 6,224 $ 29,940 161,129 $ 954,375 80,475 $ 681,827 21,081 $ 1,391 5,558 $ 16 2,789 $ 76 $ 15,466 $ 1,683,091 Conversion of operating partnership units to ESRT Partner's Capital — — 3,038 15,682 ( 1,823 ) ( 15,523 ) ( 838 ) ( 131 ) ( 233 ) ( 12 ) ( 144 ) ( 16 ) — — Contributions from consolidated joint ventures — — — — — — — — — — — — 187 187 Repurchases of common units — — ( 2,151 ) ( 13,105 ) — — — — — — — — — ( 13,105 ) Equity compensation — — 318 918 1,751 13,814 — — — — — — — 14,732 Distributions — ( 3,151 ) — ( 16,980 ) — ( 7,660 ) — ( 2,150 ) — ( 569 ) — ( 281 ) — ( 30,791 ) Net income — 3,151 — 39,933 — 18,300 — 5,098 — 1,372 — 654 69 68,577 Other comprehensive income — — — 6,260 — 2,869 — 799 — 215 — 102 384 10,629 Balance at September 30, 2023 6,224 $ 29,940 162,334 $ 987,083 80,403 $ 693,627 20,243 $ 5,007 5,325 $ 1,022 2,645 $ 535 $ 16,106 $ 1,733,320 Series PR Operating Partnership Units Series ES Operating Partnership Units Limited Partners Series 60 Operating Partnership Units Limited Partners Series 250 Operating Partnership Units Limited Partners General Partner Limited Partners Private Perpetual Preferred Units Private Perpetual Preferred Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Operating Partnership Units Operating Partnership Unitholders Non-controlling Interest in Other Partnerships Total Capital Balance at December 31, 2021 6,224 $ 29,940 170,217 $ 998,128 79,820 $ 649,157 22,321 $ ( 4,058 ) 5,884 $ ( 1,395 ) 2,970 $ ( 692 ) 13,252 $ 1,684,332 Conversion of operating partnership units to ESRT Partner's Capital — — 1,599 2,384 ( 348 ) ( 2,503 ) ( 899 ) 69 ( 206 ) 28 ( 146 ) 22 — — Contributions from consolidated joint ventures — — — — — — — — — — — — 224 224 Repurchases of common units — — ( 10,433 ) ( 82,545 ) — — — — — — — — — ( 82,545 ) Equity compensation — — 187 574 1,562 15,025 — — — — — — — 15,599 Distributions — ( 3,151 ) — ( 17,444 ) — ( 8,421 ) — ( 2,285 ) — ( 604 ) — ( 303 ) — ( 32,208 ) Net income (loss) — 3,151 — 23,847 — 10,490 — 3,136 — 813 — 426 ( 271 ) 41,592 Other comprehensive income — — — 27,435 — 12,070 — 3,608 — 935 — 490 2,297 46,835 Balance at September 30, 2022 6,224 $ 29,940 161,570 $ 952,379 81,034 $ 675,818 21,422 $ 470 5,678 $ ( 223 ) 2,824 $ ( 57 ) $ 15,502 $ 1,673,829 The accompanying notes are an integral part of these consolidated financial statements 6 Empire State Realty OP, L.P. Condensed Consolidated Statements of Cash Flows (unaudited) (amounts in thousands) Nine Months Ended September 30, 2023 2022 Cash Flows From Operating Activities Net income $ 68,577 $ 41,592 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 140,312 172,394 Gain on disposition of property ( 29,261 ) ( 27,170 ) Amortization of non-cash items within interest expense 6,804 7,514 Amortization of acquired above- and below-market leases, net ( 1,932 ) ( 4,136 ) Amortization of acquired below-market ground leases 5,873 5,873 Straight-lining of rental revenue ( 17,430 ) ( 18,533 ) Equity based compensation 14,732 15,599 Increase (decrease) in cash flows due to changes in operating assets and liabilities: Security deposits 14,293 ( 1,198 ) Tenant and other receivables ( 13,459 ) ( 11,707 ) Deferred leasing costs ( 11,838 ) ( 31,983 ) Prepaid expenses and other assets 23,569 23,630 Accounts payable and accrued expenses ( 6,055 ) 2,511 Deferred revenue and other liabilities 1,863 ( 401 ) Net cash provided by operating activities 196,048 173,985 Cash Flows From Investing Activities Acquisition of real estate property ( 26,910 ) — Net proceeds from disposition of property 88,910 — Development costs — ( 31 ) Additions to building and improvements ( 101,379 ) ( 89,085 ) Net cash used in investing activities ( 39,379 ) ( 89,116 ) The accompanying notes are an integral part of these consolidated financial statements 7 Empire State Realty OP, L.P. Condensed Consolidated Statements of Cash Flows (continued) (unaudited) (amounts in thousands) Nine Months Ended September 30, 2023 2022 Cash Flows From Financing Activities Repayment of mortgage notes payable ( 6,685 ) ( 5,163 ) Contributions from consolidated joint ventures 187 224 Repurchases of common units ( 13,105 ) ( 82,545 ) Distributions ( 30,791 ) ( 32,208 ) Net cash used in financing activities ( 50,394 ) ( 119,692 ) Net increase (decrease) in cash and cash equivalents and restricted cash 106,275 ( 34,823 ) Cash and cash equivalents and restricted cash—beginning of period 314,678 474,638 Cash and cash equivalents and restricted cash—end of period $ 420,953 $ 439,815 Reconciliation of Cash and Cash Equivalents and Restricted Cash: Cash and cash equivalents at beginning of period $ 264,434 $ 423,695 Restricted cash at beginning of period 50,244 50,943 Cash and cash equivalents and restricted cash at beginning of period $ 314,678 $ 474,638 Cash and cash equivalents at end of period $ 353,999 $ 387,248 Restricted cash at end of period 66,954 52,567 Cash and cash equivalents and restricted cash at end of period $ 420,953 $ 439,815 Supplemental disclosures of cash flow information: Cash paid for interest $ 69,739 $ 67,673 Cash paid for income taxes $ 578 $ 188 Non-cash investing and financing activities: Building and improvements included in accounts payable and accrued expenses $ 44,099 $ 55,320 Write-off of fully depreciated assets 23,058 55,585 Derivative instruments at fair values included in prepaid expenses and other assets 25,578 18,457 Conversion of operating partnership units to ESRT partner's capital 15,682 2,384 Disposal of land in connection with foreclosure — 1,680 Extinguishment of debt in connection with property disposition — 30,000 The accompanying notes are an integral part of these consolidated financial statements 8 Empire State Realty OP, L.P. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Description of Business and Organization As used in these condensed consolidated financial statements, unless the context otherwise requires, “we,” “us,” “our,” and the “Company,” mean Empire State Realty OP, L.P. and its consolidated subsidiaries. Empire State Realty OP, L.P. (the "Operating Partnership") is the entity through which Empire State Realty Trust, Inc. (“ESRT”), a New York City-focused real estate investment trust ("REIT"), conducts all of its business and owns (either directly or through subsidiaries) substantially all of its assets. We have four revenue drivers: a portfolio of modernized, amenitized and well-located office, retail, and multifamily assets. ESRT’s flagship Empire State Building – the “World’s Most Famous Building” – also includes its Observatory Experience, Tripadvisor’s #1 United States destination attraction in its 2023 Travelers’ Choice Best of the Best Awards for two consecutive years. As of September 30, 2023, ESRT’s portfolio is comprised of approximately 8.6 million rentable square feet of office space, 0.7 million rentable square feet of retail space and 727 residential units. Our office portfolio included 11 properties (including three long-term ground leasehold interests) encompassing approximately 8.6 million rentable square feet. Nine of these office properties are located in midtown Manhattan and encompass approximately 7.6 million rentable square feet, including the Empire State Building. The remaining two office properties encompass approximately 1.1 million rentable square feet and are located in Stamford, Connecticut, with immediate access to mass transportation. Additionally, we have entitled land adjacent to one of the Stamford office properties, that can support the development of an approximately 0.4 million rentable square foot office building and garage. Our retail portfolio included approximately 0.7 million rentable square feet of retail space, predominantly located in Manhattan. Our multifamily portfolio included 727 residential units in New York City, 721 of which are located in Manhattan. We were organized as a Delaware limited partnership on November 28, 2011, and commenced operations upon completion of the initial public offering of ESRT’s Class A common stock and related formation transactions on October 7, 2013 (the "IPO"). ESRT's Class A common stock, par value $ 0.01 per share, is listed on the New York Stock Exchange under the symbol "ESRT." ESRT, as the sole general partner in our Company, has responsibility and discretion in the management and control of our Company, and our limited partners, in such capacity, have no authority to transact business for, or participate in the management activities, of our Company. As of September 30, 2023, ESRT owned approximately 59.9 % of our operating partnership units. 2. Summary of Significant Accounting Policies There have been no material changes to the summary of significant accounting policies included in the "Summary of Significant Accounting Policies" section in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). Basis of Quarterly Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), for interim financial information, and with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments and eliminations (including intercompany balances and transactions), consisting of normal recurring adjustments, considered necessary for the fair presentation of the financial statements have been included. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the corresponding full years. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the financial statements for the year ended December 31, 2022 contained in our Annual Report. Our observatory business is subject to seasonality based on tourism trends and the weather. Pre-pandemic, approximately 16.0 % to 18.0 % of our annual observatory revenue was realized in the first quarter, 26.0 % to 28.0 % was realized in the second quarter, 31.0 % to 33.0 % was realized in the third quarter, and 23.0 % to 25.0 % was realized in the fourth quarter. Our multifamily business experiences some seasonality based on general market trends in New York City – the winter months (November through January) are slower in terms of leasing activity. We seek to mitigate this by staggering lease terms such that 9 lease expirations are matched with seasonal demand. We do not consider the balance of our business to be subject to material seasonal fluctuations. We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members. For variable interest entities ("VIE"), we consolidate the entity if we are deemed to have a variable interest in the entity and through that interest we are deemed the primary beneficiary. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. The primary beneficiary is required to consolidate the VIE. At December 31, 2022, we were the primary beneficiary of a variable interest in the intermediary entity which held title to 298 Mulberry, the multifamily asset acquired in December 2022. The intermediary entity was utilized to execute a like-kind exchange and subsequent to March 31, 2023, the like-kind exchange was completed and we took title to 298 Mulberry. Therefore, we had no VIEs at September 30, 2023. We will assess the accounting treatment for each investment we may have in the future. This assessment will include a review of each entity’s organizational agreement to determine which party has what rights and whether those rights are protective or participating. For all VIEs, we will review such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity’s economic performance and benefit. In situations where we or our partner could approve, among other things, the annual budget, or leases that cover more than a nominal amount of space relative to the total rentable space at each property, we would not consolidate the investment as we consider these to be substantive participation rights that result in shared power of the activities that would most significantly impact the performance and benefit of such joint venture investment. A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate component of equity in the condensed consolidated balance sheets and in the condensed consolidated statements of operations by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interests. Accounting Estimates The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to use estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Significant items subject to such estimates and assumptions include allocation of the purchase price of acquired real estate properties among tangible and intangible assets, determination of the useful life of real estate properties and other long-lived assets, valuation and impairment analysis of commercial real estate properties, right of use assets and other long-lived and indefinite-lived assets, estimate of tenant expense reimbursements, valuation of the allowance for doubtful accounts, and valuation of derivative instruments, ground lease liabilities, senior unsecured notes, mortgage notes payable, unsecured term loan and revolving credit facilities, and equity-based compensation. These estimates are prepared using management’s best judgment, after considering past, current, and expected events and economic conditions. Actual results could differ from those estimates. 3. Acquisitions and Dispositions Property Acquisitions On September 14, 2023, we closed on the acquisition of a retail property in Williamsburg, Brooklyn, located on the corner of North 6 th Street and Wythe Avenue for a purchase price of $ 26.4 million. The property has three retail tenants and six residential units, and was fully leased as of September 30, 2023. The transaction was executed in accordance with a "1031 Exchange" under Section 1031 of the Internal Revenue Code of 1986, as amended. The purchase price is the fair value at the date of acquisition. 10 The following table summarizes properties acquired during the nine and twelve months ended September 30, 2023 and December 31, 2022, respectively (amounts in thousands): Intangibles Property Date Acquired Land Building and Improvements Assets Liabilities Total* Williamsburg Retail, Brooklyn 9/14/2023 $ 4,851 $ 20,936 $ 1,573 $ ( 300 ) $ 27,060 298 Mulberry Street, Manhattan 12/20/2022 $ 40,935 $ 69,508 $ 5,300 $ ( 150 ) $ 115,593 *Includes total capitalized transaction costs of $ 1.4 million. Property Dispositions The following table summarizes properties disposed of during the nine and twelve months ended September 30, 2023 and December 31, 2022, respectively (amounts in thousands): Property Date of Disposal Sales Price Gain on Disposition 500 Mamaroneck Avenue, Harrison, New York* 4/5/2023 $ 53,000 $ 13,572 69-97 and 103-107 Main Street, Westport, Connecticut 2/1/2023 $ 40,000 $ 15,689 10 Bank Street, White Plains, New York 12/7/2022 $ 42,000 $ 6,818 383 Main Avenue, Norwalk, Connecticut** 4/1/2022 $ 30,000 $ 27,170 *The gain is net of approximately $ 2.0 million of estimated post-closing obligations related to contaminated soil remediation costs and our commitment to reimburse the buyer for a delay in rent commencement from a tenant impacted by the soil remediation efforts. Should this rent commencement be delayed beyond our current estimate, our maximum exposure to reimburse the buyer for such a delay, as limited by amounts held in escrow, is an incremental post-closing obligation of $ 3.6 million. **We transferred the property, which was encumbered by a $ 30.0 million mortgage, back to the lender in a consensual foreclosure and recognized a non-cash gain upon the disposition. 4. Deferred Costs, Acquired Lease Intangibles and Goodwill Deferred costs, net, consisted of the following as of September 30, 2023 and December 31, 2022 (amounts in thousands): September 30, 2023 December 31, 2022 Leasing costs $ 222,272 $ 218,707 Acquired in-place lease value and deferred leasing costs 158,518 160,683 Acquired above-market leases 24,430 27,833 405,220 407,223 Less: accumulated amortization ( 233,132 ) ( 223,246 ) Total deferred costs, net, excluding net deferred financing costs $ 172,088 $ 183,977 At September 30, 2023 and December 31, 2022, $ 3.4 million and $ 5.0 million, respectively, of net deferred financing costs associated with the unsecured revolving credit facility was included in deferred costs, net on the condensed consolidated balance sheets. Amortization expense related to deferred leasing costs and acquired deferred leasing costs was $ 5.8 million and $ 17.7 million for the three and nine months ended September 30, 2023, respectively, and $ 5.6 million and $ 19.8 million for the three and nine months ended September 30, 2022, respectively. Amortization expense related to acquired lease intangibles was $ 1.5 million and $ 6.1 million for the three and nine months ended September 30, 2023, respectively, and $ 2.2 million and $ 10.6 million for the three and nine months ended September 30, 2022, respectively. Amortizing acquired intangible assets and liabilities consisted of the following as of September 30, 2023 and December 31, 2022 (amounts in thousands): 11 September 30, 2023 December 31, 2022 Acquired below-market ground leases $ 396,916 $ 396,916 Less: accumulated amortization ( 73,717 ) ( 67,843 ) Acquired below-market ground leases, net $ 323,199 $ 329,073 September 30, 2023 December 31, 2022 Acquired below-market leases $ ( 55,186 ) $ ( 64,656 ) Less: accumulated amortization 40,483 46,807 Acquired below-market leases, net $ ( 14,703 ) $ ( 17,849 ) Rental revenue related to the amortization of below-market leases, net of above-market leases, was $ 0.6 million and $ 1.9 million for the three and nine months ended September 30, 2023, respectively, and $ 0.7 million and $ 4.1 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023 and December 31, 2022, we had goodwill of $ 491.5 million. Goodwill was allocated $ 227.5 million to the observatory reportable segment and $ 264.0 million to the real estate reportable segment. From the quarter ended June 30, 2020 through our annual goodwill testing in October 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 temporary closure of our observatory due to the COVID-19 pandemic and subsequent slow increase in visitors due to continued pandemic-related restrictions impacting tourism and international travel. 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. Each quantitative analysis performed concluded the fair value of the reporting unit exceeds its carrying value. Subsequent to our last annual goodwill impairment test, we have performed quarterly qualitative assessments and have not identified any events which would indicate, on a more likely than not basis, that the goodwill allocated to the reporting unit was impaired. 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. 5. Debt Debt consisted of the following as of September 30, 2023 and December 31, 2022 (amounts in thousands): 12 Principal Balance As of September 30, 2023 September 30, 2023 December 31, 2022 Stated Rate Effective Rate (1) Maturity Date (2) Mortgage debt Metro Center $ 80,710 $ 82,596 3.59 % 3.67 % 11/5/2024 10 Union Square 50,000 50,000 3.70 % 3.97 % 4/1/2026 1542 Third Avenue 30,000 30,000 4.29 % 4.53 % 5/1/2027 First Stamford Place (3) 176,359 178,823 4.28 % 4.73 % 7/1/2027 1010 Third Avenue and 77 West 55th Street 35,179 35,831 4.01 % 4.21 % 1/5/2028 250 West 57th Street 180,000 180,000 2.83 % 3.21 % 12/1/2030 1333 Broadway 160,000 160,000 4.21 % 4.29 % 2/5/2033 345 East 94th Street - Series A 43,600 43,600 70.0 % of SOFR plus 0.95 % 3.56 % 11/1/2030 345 East 94th Street - Series B 7,378 7,865 SOFR plus 2.24 % 3.56 % 11/1/2030 561 10th Avenue - Series A 114,500 114,500 70.0 % of SOFR plus 1.07 % 3.85 % 11/1/2033 561 10th Avenue - Series B 16,219 17,415 SOFR plus 2.45 % 3.85 % 11/1/2033 Total mortgage debt 893,945 900,630 Senior unsecured notes: (4) Series A 100,000 100,000 3.93 % 3.96 % 3/27/2025 Series B 125,000 125,000 4.09 % 4.12 % 3/27/2027 Series C 125,000 125,000 4.18 % 4.21 % 3/27/2030 Series D 115,000 115,000 4.08 % 4.11 % 1/22/2028 Series E 160,000 160,000 4.26 % 4.27 % 3/22/2030 Series F 175,000 175,000 4.44 % 4.45 % 3/22/2033 Series G 100,000 100,000 3.61 % 4.89 % 3/17/2032 Series H 75,000 75,000 3.73 % 5.00 % 3/17/2035 Unsecured term loan facility (4) 215,000 215,000 SOFR plus 1.20 % 4.22 % 3/19/2025 Unsecured revolving credit facility (4) — — SOFR plus 1.30 % — 3/31/2025 Unsecured term loan facility (4) 175,000 175,000 SOFR plus 1.50 % 4.51 % 12/31/2026 Total principal 2,258,945 2,265,630 Deferred financing costs, net ( 10,052 ) ( 11,748 ) Unamortized debt discount ( 7,159 ) ( 7,745 ) Total $ 2,241,734 $ 2,246,137 ______________ (1) The effective rate is the yield as of September 30, 2023 and includes the stated interest rate, deferred financing cost amortization and interest associated with variable to fixed interest rate swap agreements. (2) Pre-payment is generally allowed for each loan upon payment of a customary pre-payment penalty. (3) Represents a $ 164 million mortgage loan bearing interest at 4.09 % and a $ 12.4 million loan bearing interest at 6.25 %. (4) At September 30, 2023, we were in compliance with all debt covenants. Principal Payments Aggregate required principal payments at September 30, 2023 are as follows (amounts in thousands): 13 Year Amortization Maturities Total 2023 $ 1,947 $ — $ 1,947 2024 8,861 77,675 86,536 2025 6,893 315,000 321,893 2026 7,330 225,000 232,330 2027 6,461 319,000 325,461 Thereafter 22,079 1,268,699 1,290,778 Total $ 53,571 $ 2,205,374 $ 2,258,945 Deferred Financing Costs Deferred financing costs, net, consisted of the following at September 30, 2023 and December 31, 2022 (amounts in thousands): September 30, 2023 December 31, 2022 Financing costs $ 43,473 $ 43,473 Less: accumulated amortization ( 30,020 ) ( 26,753 ) Total deferred financing costs, net $ 13,453 $ 16,720 Amortization expense related to deferred financing costs was $ 1.1 million and $ 3.3 million for the three and nine months ended September 30, 2023, respectively, and $ 1.2 million and $ 3.8 million for the three and nine months ended September 30, 2022, respectively. Unsecured Revolving Credit and Term Loan Facilities On August 29, 2022, we entered into a third amendment to our amended and restated credit agreement dated August 29, 2017 with Bank of America, N.A., as administrative agent and the other lenders party thereto, which governs our senior unsecured revolving credit facility and term loan facility (collectively, the “BofA Credit Facility”). The BofA Credit Facility is in the initial maximum principal amount of up to $ 1.065 billion, which consists of an $ 850.0 million revolving credit facility that matures on March 31, 2025, and a $ 215.0 million term loan facility that matures on March 19, 2025. The third amendment revised the terms of the BofA Credit Facility to (i) replace LIBOR with SOFR given the phase-out of LIBOR and (ii) permit the addition of multifamily assets as Unencumbered Eligible Property (as defined therein) and add a capitalization rate for such assets. As of September 30, 2023 , we had no borrowings under the revolving credit facility and $ 215.0 million under the term loan facility. On August 29, 2022, we entered into a second amendment to our credit agreement dated March 19, 2020 with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto, which governs a senior unsecured term loan facility (the “Wells Term Loan Facility”). The Wells Term Loan Facility is in the original principal amount of $ 175.0 million and matures on December 31, 2026. The second amendment revised the terms of the Wells Term Loan Facility to (i) replace LIBOR with SOFR given the phase-out of LIBOR and (ii) permit the addition of multifamily assets as Unencumbered Eligible Property (as defined therein) and add a capitalization rate for such assets. We may request the Wells 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 September 30, 2023 , our borrowings amounted to $ 175.0 million under the Wells Term Loan Facility. The terms of both the BofA Credit Facility and the Wells Term Loan Facility include customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. Both facilities also require compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. The agreements governing both facilities also contain customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control. As of September 30, 2023, we were in compliance with these covenants. 14 Senior Unsecured Notes 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 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 September 30, 2023, we were in compliance with these covenants. 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022 (amounts in thousands): September 30, 2023 December 31, 2022 Accrued capital expenditures $ 44,099 $ 44,293 Accounts payable and accrued expenses 36,249 32,927 Accrued interest payable 2,951 3,509 Total accounts payable and accrued expenses $ 83,299 $ 80,729 7. Financial Instruments and Fair Values Derivative Financial Instruments We use derivative financial instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and forward agreements, and the primary objective is to minimize interest rate risks associated with investing and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties; however, we currently do not anticipate that any of the counterparties will fail to meet their obligations. We have agreements with our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. As of September 30, 2023, we did not have derivatives in a net liability position. As of September 30, 2023 and December 31, 2022, we had interest rate swaps and caps with an aggregate notional value of $ 573.6 million and $ 574.8 million, respectively. The notional value does not represent exposure to credit, interest rate or market risks. As of September 30, 2023 and December 31, 2022, the fair value of our derivative instruments in an asset position amounted to $ 25.6 million and $ 17.9 million, respectively, which is included in prepaid expenses and other assets on the condensed consolidated balance sheets. These interest rate swaps have been designated as cash flow hedges and hedge the variability in future cash flows associated with our existing variable-rate term loan facilities. Interest rate caps not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements. As of September 30, 2023 and 2022, our cash flow hedges are deemed highly effective and a net unrealized gain of $ 7.3 million and $ 10.6 million for the three and nine months ended September 30, 2023, respectively, and a net unrealized gain of $ 21.0 million and $ 46.8 million for the three and nine months ended September 30, 2022, respectively, relating to both active and terminated hedges of interest rate risk, are reflected in the condensed consolidated statements of comprehensive income. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the debt. We estimate that $ 8.8 million net gain of the current balance held in accumulated other comprehensive income (loss) will be reclassified into interest expense within the next 12 months. 15 The table below summarizes the terms of agreements and the fair values of our derivative financial instruments as of September 30, 2023 and December 31, 2022 (amounts in thousands): September 30, 2023 December 31, 2022 Derivative Notional Amount Receive Rate Pay Rate Effective Date Expiration Date Asset Liability Asset Liability Interest rate swap $ 36,820 70 % of 1 Month SOFR 2.5000 % December 1, 2021 November 1, 2030 $ 1,281 $ — $ 256 $ — Interest rate swap 103,790 70 % of 1 Month SOFR 2.5000 % December 1, 2021 November 1, 2033 4,279 — 365 — Interest rate swap 10,710 70 % of 1 Month SOFR 1.7570 % December 1, 2021 November 1, 2033 941 — 643 — Interest rate swap 16,356 1 Month SOFR 2.2540 % December 1, 2021 November 1, 2030 1,261 — 1,070 — Interest rate cap 6,780 70 % of 1 Month SOFR 4.5000 % December 1, 2021 October 1, 2024 — — 8 — Interest rate cap 9,188 1 Month SOFR 5.5000 % December 1, 2021 October 1, 2024 22 — 26 — Interest rate swap 175,000 SOFR Compound 2.5620 % August 31, 2022 December 31, 2026 10,216 — 8,040 — Interest rate swap 107,500 SOFR Compound 2.6260 % August 19, 2022 March 19, 2025 3,799 — 3,766 — Interest rate swap 107,500 SOFR OIS Compound 2.6280 % August 19, 2022 March 19, 2025 3,801 — 3,762 — $ 25,600 $ — $ 17,936 $ — The table below shows the effect of our derivative financial instruments designated as cash flow hedges on accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022 (amounts in thousands): Three Months Ended Nine Months Ended Effects of Cash Flow Hedges September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Amount of gain recognized in other comprehensive income (loss) $ 9,525 $ 19,588 $ 16,058 $ 39,407 Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense 2,275 ( 1,392 ) 5,429 ( 7,428 ) The table below shows the effect of our derivative financial instruments designated as cash flow hedges on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 (amounts in thousands): Three Months Ended Nine Months Ended Effects of Cash Flow Hedges September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded $ ( 25,382 ) $ ( 25,516 ) $ ( 76,091 ) $ ( 75,572 ) Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense 2,275 ( 1,392 ) 5,429 ( 7,428 ) Fair Valuation The estimated fair values at September 30, 2023 and December 31, 2022 were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Although the majority of the inputs used to value 16 our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. The impact of such credit valuation adjustments, determined based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all our derivatives were classified as Level 2 of the fair value hierarchy. The fair values of our mortgage notes payable, senior unsecured notes (Series A, B, C, D, E, F, G and H), unsecured term loan facilities and unsecured revolving credit facility which are determined using Level 3 inputs are estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made by us. The following tables summarize the carrying and estimated fair values of our financial instruments as of September 30, 2023 and December 31, 2022 (amounts in thousands): September 30, 2023 Estimated Fair Value Carrying Value Total Level 1 Level 2 Level 3 Interest rate swaps included in prepaid expenses and other assets $ 25,578 $ 25,578 $ — $ 25,578 $ — Mortgage notes payable 878,757 752,874 — — 752,874 Senior unsecured notes - Series A, B, C, D, E, F, G and H 973,819 848,074 — — 848,074 Unsecured term loan facilities 389,158 390,000 — — 390,000 December 31, 2022 Estimated Fair Value Carrying Value Total Level 1 Level 2 Level 3 Interest rate swaps included in prepaid expenses and other assets $ 17,936 $ 17,936 $ — $ 17,936 $ — Mortgage notes payable 883,705 783,648 — — 783,648 Senior unsecured notes - Series A, B, C, D, E, F, G and H 973,659 865,292 — — 865,292 Unsecured term loan facilities 388,773 390,000 — — 390,000 Disclosure about the fair value of financial instruments is based on pertinent information available to us as of September 30, 2023 and December 31, 2022. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein. 8. Leases Lessor We lease various spaces to tenants over terms ranging from one to 22 years. Certain leases have renewal options for additional terms. The leases provide for base monthly rentals and reimbursements for real estate taxes, escalations linked to the consumer price index or common area maintenance known as operating expense escalation. Operating expense reimbursements are reflected in our September 30, 2023 and 2022 condensed consolidated statements of operations as rental revenue. Rental revenue includes fixed and variable payments. Fixed payments primarily relate to base rent and variable payments primarily relate to tenant expense reimbursements for certain property operating costs. The components of rental revenue for the three and nine months ended September 30, 2023 and 2022 are as follows (amounts in thousands): Three Months Ended Nine Months Ended Rental revenue September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Fixed payments $ 132,862 $ 131,800 $ 395,744 $ 399,995 Variable payments 18,596 16,490 50,408 45,148 Total rental revenue $ 151,458 $ 148,290 $ 446,152 $ 445,143 17 As of September 30, 2023, we were entitled to the following future contractual minimum lease payments (excluding operating expense reimbursements) on non-cancellable operating leases to be received which expire on various dates through 2040 (amounts in thousands): Remainder of 2023 $ 124,805 2024 510,232 2025 492,160 2026 446,677 2027 426,876 Thereafter 1,997,898 $ 3,998,648 The above future minimum lease payments exclude tenant recoveries and the net accretion of above and below-market lease intangibles. Some leases are subject to termination options generally upon payment of a termination fee. The preceding table is prepared assuming such options are not exercised. Refer to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 in the section "Financial Statements - Note 8. Leases" for prior disclosures related to the Signature Bank and First Republic Bank leases. Lessee We determine if an arrangement is a lease at inception. Our operating lease agreements relate to three ground lease assets and are reflected in right-of-use assets of $ 28.5 million and lease liabilities of $ 28.5 million in our condensed consolidated balance sheets as of September 30, 2023. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The ground leases are due to expire between the years 2050 and 2077, inclusive of extension options, and have no variable payments or residual value guarantees. As our leases do not provide an implicit rate, we determined our incremental borrowing rate based on information available at the date of adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), in determining the present value of lease payments. The weighted average incremental borrowing rate used to calculate the right-of-use assets and lease liabilities as of September 30, 2023 was 4.5 %. Rent expense for lease payments related to our operating leases is recognized on a straight-line basis over the non-cancellable term of the leases. The weighted average remaining lease term as of September 30, 2023 was 46.7 years. As of September 30, 2023, the following table summarizes our future minimum lease payments discounted by our incremental borrowing rates to calculate the lease liabilities of our leases (amounts in thousands): Remainder of 2023 $ 380 2024 1,518 2025 1,518 2026 1,503 2027 1,482 Thereafter 62,277 Total undiscounted cash flows 68,678 Present value discount ( 40,182 ) Ground lease liabilities $ 28,496 9. Commitments and Contingencies Legal Proceedings 18 Except as described below, as of September 30, 2023, we were not involved in any material litigation, nor, to our knowledge, was any material litigation threatened against us or our properties, other than routine litigation arising in the ordinary course of business such as disputes with tenants. We believe that the costs and related liabilities, if any, which may result from such actions will not materially affect our condensed consolidated financial position, operating results or liquidity. As previously disclosed, in October 2014, 12 former investors (the "Claimants") in Empire State Building Associates L.L.C. (“ESBA”), which, prior to the IPO, owned the fee title to the Empire State Building, filed an arbitration claim with the American Arbitration Association against Peter L. Malkin, Anthony E. Malkin, Thomas N. Keltner, Jr., and our subsidiary ESRT MH Holdings LLC, the former supervisor of ESBA (the "Respondent s "). The Statement of Claim (also filed later in federal court in New York for the expressed purpose of tolling the statute of limitations) alleged breach of fiduciary duty and related claims in connection with the IPO and formation transactions and sought monetary damages and declaratory relief. The Claimants had opted out of a prior class action bringing similar claims that were settled with court approval. The Respondents filed an answer and counterclaims. In March 2015, the federal court action was stayed on consent of all parties pending the arbitration. Arbitration hearings started in May 2016 and concluded in August 2018. On August 26, 2020, the arbitration panel issued an award that denied all Claimants’ claims with one exception, on which it awarded the Claimants approximately $ 1.2 million, inclusive of seven years of interest through October 2, 2020. This amount was recorded as an IPO litigation expense in the consolidated statements of operations for the year ended December 31, 2020. The Respondents believe that such award in favor of the Claimants is entirely without merit and, in an action filed in the United States District Court for the Southern District of New York, sought to vacate that portion of the award. On September 27, 2021, the court denied the Respondents' motion to vacate and entered judgement in the aforementioned amount, inclusive of accumulated interest. The Respondents appealed that ruling. On May 10, 2022, the Respondents moved to dismiss the appeal and judgment on the grounds that a recent decision of the United States Supreme Court held that the federal courts have no subject matter jurisdiction over the case. The Claimants opposed the motion. On April 20, 2023, the federal appeals court granted the motion and the federal court action challenging the award was dismissed. On April 21, 2023, the Respondents filed a petition to vacate in part and otherwise confirm in New York State court. On April 28, 2023, all but one of the Claimants filed a motion to confirm in that same court. On July 31, 2023, the New York State court denied the Respondents’ petition to vacate in part and confirmed the award. The Respondents believe that ruling is incorrect and have filed an appeal, which is pending. On August 4, 2023, one final Claimant who had not filed a petition to confirm in New York State court did so. On September 14, 2023, the Respondents filed an opposition to that petition, which is pending. In addition, certain of the Claimants in the federal court action sought to pursue claims in that case against the Respondents. The Respondents believe that any such claims are meritless. The magistrate judge assigned to the action has issued a Report and Recommendation rejecting the Claimants’ claims; the district judge will decide whether to adopt the Report and Recommendation. Pursuant to indemnification agreements which were made with our directors, executive officers and chairman emeritus as part of our formation transactions, Anthony E. Malkin, Peter L. Malkin and Thomas N. Keltner, Jr., our former general counsel, have defense and indemnity rights from us with respect to this arbitration. Unfunded Capital Expenditures At September 30, 2023, we estimate that we will incur approximately $ 139.3 million of capital expenditures (including tenant improvements and leasing commissions) on our properties pursuant to existing lease agreements. We expect to fund these capital expenditures with operating cash flow, additional property level mortgage financings, our unsecured credit facility, cash on hand and other borrowings. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements will be met in a similar fashion. Concentration of Credit Risk Financial instruments that subject us to credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments, tenant and other receivables and deferred rent receivables. At September 30, 2023, we held on deposit at various major financial institutions cash and cash equivalents and restricted cash balances in excess of amounts insured by the FDIC. Asset Retirement Obligations We are required to accrue costs that we are legally obligated to incur on retirement of our properties which result from acquisition, construction, development and/or normal operation of such properties. Retirement includes sale, abandonment or disposal of a property. Under that standard, a conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be within a company’s control and a liability for a conditional asset retirement obligation must be recorded if the fair value of the obligation can be reasonably estimated. Environmental site assessments and investigations have identified asbestos or asbestos-containing building materials in certain of our properties. As of September 30, 2023, management has no plans to remove or alter these properties in a manner that would trigger federal and other applicable regulations for asbestos removal, and 19 accordingly, the obligations to remove the asbestos or asbestos-containing building materials from these properties have indeterminable settlement dates. As such, we are unable to reasonably estimate the fair value of the associated conditional asset retirement obligation. However, ongoing asbestos abatement, maintenance programs and other required documentation are carried out as required and related costs are expensed as incurred. Other Environmental Matters Certain of our properties have been inspected for soil contamination due to pollutants, which may have occurred prior to our ownership of these properties or subsequently in connection with its development and/or its use. Required remediation to such properties has been completed, other than our post-closing obligations for remediation at our previously owned Westport retail assets, as discussed in more detail in our Annual Report, and at our previously owned 500 Mamaroneck property as discussed in “Financial Statements - Note 3. Acquisitions and Dispositions.” As of September 30, 2023, with the exception of these three assets, management believes that there are no obligations related to environmental remediation other than maintaining the affected sites in conformity with the relevant authority’s mandates and filing the required documents. All such maintenance costs are expensed as incurred. We expect that resolution of the environmental matters relating to the above will not have a material impact on our business, assets, consolidated financial condition, results of operations or liquidity. However, we cannot be certain that we have identified all environmental liabilities at our properties, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such environmental liabilities arise. Insurance Coverage We carry insurance coverage on our properties of types and in amounts with deductibles that we believe are in line with coverage customarily obtained by owners of similar properties. 10. Capital As of September 30, 2023, there were 161,346,829 shares of Class A common stock, 986,884 shares of Class B common stock and 108,617,764 operating partnership units outstanding. The controlling interest of 59.9 % is owned by ESRT. The other 40.1 % noncontrolling interest in the OP is diversified among various limited partners, some of whom include Company directors, senior management and employees. ESRT has two classes of common stock as a means to give its OP Unit holders voting rights in the public company that correspond to their economic interest in the combined entity. A one-time option was created at our formation transactions for any pre-IPO OP Unit holder to exchange one OP Unit out of every 50 OP Units they owned for one ESRT Class B share, and such ESRT Class B share carries 50 votes per share. On May 16, 2019, our shareholders approved the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan (the “2019 Plan”) and replaced the First Amended and Restated Empire State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan ("2013 Plan", and collectively with the 2019 Plan, the "Plans"). The 2019 Plan provides for grants to directors, employees and consultants of ESRT and the Operating Partnership, including options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalents and other equity-based awards. An aggregate of approximately 11.0 million shares of ESRT common stock are authorized for issuance under awards granted pursuant to the 2019 Plan. We will not issue any new equity awards under the 2013 Plan. The shares of ESRT Class A common stock underlying any awards under the Plans that are forfeited, canceled or otherwise terminated, other than by exercise, will be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. Shares tendered or held back upon exercise of a stock option or settlement of an award under the Plans to cover the exercise price or tax withholding and shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. In addition, shares of ESRT Class A common stock repurchased on the open market will not be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. Long-term incentive plan ("LTIP") units are a special class of partnership interests. Each LTIP unit awarded will be deemed equivalent to an award of one share of ESRT stock under the Plans, reducing the availability for other equity awards on a one -for-one basis. The vesting period for LTIP units, if any, will be determined at the time of issuance. Under the terms of the LTIP units, we will revalue for tax purposes its assets upon the occurrence of certain specified capital events, and any increase in valuation from the time of one such event to the next such event will be allocated first to the holders of LTIP units to equalize the capital accounts of such holders with the capital accounts of unitholders. Subject to any agreed upon exceptions, once vested and having achieved parity with unitholders, LTIP units are convertible into Series PR operating partnership units on a one -for-one basis. 20 LTIP units subject to time-based vesting, whether vested or not, receive per unit distributions as operating partnership units, which equal per share dividends (both regular and special) on our common stock. Market and performance-based LTIPs receive 10 % of such distributions currently, unless and until such LTIP units are earned based on performance, at which time they will receive the accrued and unpaid 90 % and will commence receiving 100 % of such distributions thereafter. Stock and Publicly Traded Operating Partnership Unit Repurchase Program ESRT's Board of Directors authorized the repurchase of up to $ 500 million of ESRT Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2022 through December 31, 2023. Under the program, ESRT may purchase ESRT Class A common stock and we may purchase our Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by ESRT and us and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate ESRT or us to acquire any particular amount of securities, and the program may be suspended or discontinued at ESRT and our discretion without prior notice. There were no purchases of equity securities in the three months ended September 30, 2023. Private Perpetual Preferred Units As of September 30, 2023, there were 4,664,038 Series 2019 Preferred Units ("Series 2019 Preferred Units") and 1,560,360 Series 2014 Private Perpetual Preferred Units ("Series 2014 Preferred Units") outstanding. The Series 2019 Preferred Units have a liquidation preference of $ 13.52 per unit and are entitled to receive cumulative preferential annual cash distributions of $ 0.70 per unit payable in arrears on a quarterly basis. The Series 2014 Preferred Units which have a liquidation preference of $ 16.62 per unit and are entitled to receive cumulative preferential annual cash distributions of $ 0.60 per unit payable in arrears on a quarterly basis. Both series are not redeemable at the option of the holders and are redeemable at our option only in the case of specific defined events. Distributions Total distributions paid to OP unitholders were $ 9.5 million and $ 27.6 million for the three and nine months ended September 30, 2023, respectively, and $ 9.6 million and $ 29.1 million for the three and nine months ended September 30, 2022, respectively. Total distributions paid to preferred unitholders were $ 1.1 million and $ 3.2 million for the three and nine months ended September 30, 2023, respectively, and $ 1.1 million and $ 3.2 million for the three and nine months ended September 30, 2022, respectively. Incentive and Share-Based Compensation The Plans provide for grants to directors, employees and consultants consisting of stock options, restricted stock, dividend equivalents, stock payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. An aggregate of 11.0 million shares of ESRT common stock is authorized for issuance under awards granted pursuant to the 2019 Plan, and as of September 30, 2023, 4.2 million shares of ESRT common stock remain available for future issuance. During July 2023, we granted our two new directors, Christina Van Tassell and Hannah Yang, a total of 27,000 LTIP units which are subject to time-based vesting with a combined fair market value of $ 0.2 million. One-fourth of the units will vest on May 12, 2024, and the remainder shall vest in substantially equal installments on each subsequent anniversary for a period of three years thereafter. 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. 21 For the market-based LTIP units, the fair value of the awards was estimated using a Monte Carlo Simulation model and discounted for the restriction period during which the LTIP units cannot be redeemed or transferred and the uncertainty regarding if, and when, the book capital account of the LTIP units will equal that of the common units. Our stock price, along with the prices of the comparative indexes, is assumed to follow the Geometric Brownian Motion Process. Geometric Brownian Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case the stock price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on our stock price and the comparative indexes were estimated based on implied volatilities and historical volatilities using an appropriate look-back period. The expected growth rate of the stock prices over the performance period is determined with consideration of the risk-free rate as of the grant date. For LTIP unit awards that are time or performance based, the fair value of the awards was estimated based on the fair value of our stock at the grant date discounted for the restriction period during which the LTIP units cannot be redeemed or transferred and the uncertainty regarding if, and when, the book capital account of the LTIP units will equal that of the common units. For restricted stock awards, the fair value of the awards is based on the market price of ESRT stock at the grant date. LTIP units and ESRT restricted stock issued during the nine months ended September 30, 2023 were valued at $ 21.7 million. The weighted average per unit or share fair value was $ 5.67 for grants issued for the nine months ended September 30, 2023. The fair value per unit or share granted in 2023 was estimated on the respective dates of grant using the following assumptions: an expected life from 2.0 to 5.3 years, a dividend rate of 1.7 %, a risk-free interest rate from 4.4 % to 5.0 %, and an expected price volatility from 35.0 % to 46.0 %. No other stock options, dividend equivalents, or stock appreciation rights were issued or outstanding as of September 30, 2023. The following is a summary of ESRT restricted stock and LTIP unit activity for the nine months ended September 30, 2023: Restricted Stock Time-based LTIPs Market-based LTIPs Performance-based LTIPs Weighted Average Grant Fair Value Unvested balance at December 31, 2022 359,293 2,713,522 4,070,537 510,989 $ 6.69 Vested ( 111,178 ) ( 1,148,987 ) ( 316,412 ) ( 2,011 ) 7.66 Granted 370,465 1,733,015 946,398 771,180 5.67 Forfeited or unearned ( 8,917 ) — ( 1,695,323 ) ( 3,795 ) 4.30 Unvested balance at September 30, 2023 609,663 3,297,550 3,005,200 1,276,363 $ 6.53 The time-based LTIPs and ESRT restricted stock awards are treated for accounting purposes as immediately vested upon the later of (i) the date the grantee attains the age of 60 or 65 , as applicable, and (ii) the date on which grantee has first completed the requisite years of continuous service with our Company or its affiliates. For award agreements that qualify, we recognize noncash compensation expense on the grant date for the time-based awards and ratably over the vesting period for the market-based and performance-based awards, and accordingly, we recognized $ 0.5 million and $ 2.2 million for the three and nine months ended September 30, 2023, respectively, and $ 0.4 million and $ 2.0 million for the three and nine months ended September 30, 2022, respectively. Unrecognized compensation expense was $ 3.5 million at September 30, 2023, which will be recognized over a weighted average period of 2.5 years. For the remainder of the LTIP unit and ESRT restricted stock awards, we recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized noncash compensation expense of $ 4.5 million and $ 12.6 million for the three and nine months ended September 30, 2023, respectively, and $ 4.8 million and $ 13.7 million for the three and nine months ended September 30, 2022, respectively. Unrecognized compensation expense was $ 28.1 million at September 30, 2023, which will be recognized over a weighted average period of 2.5 years. Earnings Per Unit Earnings per unit is calculated by dividing the net income attributable to common unitholders by the weighted average number of units outstanding during the respective period. Unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are accounted for as participating securities. Share-based payment awards are included in the calculation of diluted income using the treasury stock method if dilutive. 22 For the three and nine months ended September 30, 2023 and 2022, earnings per unit is computed as follows (amounts in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Numerator: Net income $ 19,928 $ 10,118 $ 68,577 $ 41,592 Private perpetual preferred unit distributions ( 1,050 ) ( 1,050 ) ( 3,151 ) ( 3,151 ) Net (income) loss attributable to non-controlling interests in other partnerships ( 111 ) 49 ( 69 ) 271 Earnings allocated to unvested units — — — — Net income attributable to common unitholders – basic and diluted $ 18,767 $ 9,117 $ 65,357 $ 38,712 Denominator: Weighted average units outstanding – basic 262,756 266,035 263,379 269,880 Effect of dilutive securities: Stock-based compensation plans 3,317 1,086 1,890 1,086 Weighted average units outstanding –- diluted 266,073 267,121 265,269 270,966 Earnings per unit: Basic $ 0.07 $ 0.03 $ 0.25 $ 0.14 Diluted $ 0.07 $ 0.03 $ 0.25 $ 0.14 There were zero antidilutive shares and LTIP units for the three and nine months ended September 30, 2023, respectively, and zero antidilutive shares and LTIP units for the three and nine months ended September 30, 2022, respectively. 11. Related Party Transactions Supervisory Fee Revenue Since we became a public company, we have earned supervisory fees from entities affiliated with Anthony E. Malkin, our Chairman, President and Chief Executive Officer. These fees were $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2023, respectively, and $ 0.2 million and $ 0.8 million for the three and nine months ended September 30, 2022, respectively. These fees are included within third-party management and other fees. Property Management Fee Revenue Since we became a public company, we have earned property management fees from entities affiliated with Anthony E. Malkin. These fees were $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2023, respectively, and $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2022, respectively. These fees are included within third-party management and other fees. Other We receive rent generally at the market rental rate for 5,447 square feet of leased space from an entity affiliated with Anthony E. Malkin at one of our properties. Under the lease, the tenant has the right to cancel such lease without special payment on 90 days’ notice. We also have a shared use agreement with such tenant, to occupy a portion of the leased premises as the office location for Peter L. Malkin, our chairman emeritus and employee, utilizing approximately 15 % of the space, for which we pay to such tenant an allocable pro rata share of the cost. We also have agreements with these entities and excluded properties and businesses to provide them with general computer-related support services. Total aggregate revenue was $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2023, respectively, and $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2022, respectively. 23 As disclosed in greater detail in our Annual Report, in connection with the sale of our Westport retail assets in February 2023, we advanced a loan to the buyer to facilitate closing with a principal amount of $ 0.6 million, which bears interest at SOFR plus 3.5 % and requires repayment of principal to the extent of available cash flow of the property. As of September 30, 2023, the loan has been fully paid. 12. Segment Reporting We have identified two reportable segments: (1) real estate and (2) observatory. Our real estate segment includes all activities related to the ownership, management, operation, acquisition, redevelopment, repositioning and disposition of our traditional real estate assets. Our observatory segment includes the operation of the 86th and 102nd floor observatories at the Empire State Building. These two lines of businesses are managed separately because each business requires different support infrastructures, provides different services and has dissimilar economic characteristics such as investments needed, stream of revenues and marketing strategies. We account for intersegment sales and rents as if the sales or rents were to third parties, that is, at current market prices. The following tables provide components of segment net income for each segment for the three and nine months ended September 30, 2023 and 2022 (amounts in thousands): Three Months Ended September 30, 2023 Real Estate Observatory Intersegment Elimination Total Revenues: Rental revenue $ 151,458 $ — $ — $ 151,458 Intercompany rental revenue 22,113 — ( 22,113 ) — Observatory revenue — 37,562 — 37,562 Third-party management and other fees 268 — — 268 Other revenue and fees 2,238 — — 2,238 Total revenues 176,077 37,562 ( 22,113 ) 191,526 Operating expenses: Property operating expenses 42,817 — — 42,817 Intercompany rent expense — 22,113 ( 22,113 ) — Ground rent expenses 2,331 — — 2,331 General and administrative expenses 16,012 — — 16,012 Observatory expenses — 9,471 — 9,471 Real estate taxes 32,014 — — 32,014 Depreciation and amortization 46,593 31 — 46,624 Total operating expenses 139,767 31,615 ( 22,113 ) 149,269 Total operating income 36,310 5,947 — 42,257 Other income (expense): Interest income 4,410 52 — 4,462 Interest expense ( 25,382 ) — — ( 25,382 ) Income before income taxes 15,338 5,999 — 21,337 Income tax expense ( 146 ) ( 1,263 ) — ( 1,409 ) Net income $ 15,192 $ 4,736 $ — $ 19,928 Segment assets $ 3,959,249 $ 257,298 $ — $ 4,216,547 Expenditures for segment assets $ 56,227 $ — $ — $ 56,227 24 Three Months Ended September 30, 2022 Real Estate Observatory Intersegment Elimination Total Revenues: Rental revenue $ 148,290 $ — $ — $ 148,290 Intercompany rental revenue 19,072 — ( 19,072 ) — Observatory revenue — 33,051 — 33,051 Third-party management and other fees 389 — — 389 Other revenue and fees 1,982 — — 1,982 Total revenues 169,733 33,051 ( 19,072 ) 183,712 Operating expenses: Property operating expenses 42,798 — — 42,798 Intercompany rent expense — 19,072 ( 19,072 ) — Ground rent expenses 2,331 — — 2,331 General and administrative expenses 15,725 — — 15,725 Observatory expenses — 8,516 — 8,516 Real estate taxes 31,831 — — 31,831 Depreciation and amortization 46,933 51 — 46,984 Total operating expenses 139,618 27,639 ( 19,072 ) 148,185 Total operating income 30,115 5,412 — 35,527 Other income (expense): Interest income 1,530 34 — 1,564 Interest expense ( 25,516 ) — — ( 25,516 ) Income before income taxes 6,129 5,446 — 11,575 Income tax expense ( 359 ) ( 1,098 ) — ( 1,457 ) Net income $ 5,770 $ 4,348 $ — $ 10,118 Segment assets $ 3,950,883 $ 250,257 $ — $ 4,201,140 Expenditures for segment assets $ 18,686 $ 24 $ — $ 18,710 25 Nine Months Ended September 30, 2023 Real Estate Observatory Intersegment Elimination Total Revenues: Rental revenue $ 446,152 $ — $ — $ 446,152 Intercompany rental revenue 58,969 — ( 58,969 ) — Observatory revenue — 93,149 — 93,149 Third-party management and other fees 1,076 — — 1,076 Other revenue and fees 6,313 — — 6,313 Total revenues 512,510 93,149 ( 58,969 ) 546,690 Operating expenses: Property operating expenses 124,380 — — 124,380 Intercompany rent expense — 58,969 ( 58,969 ) — Ground rent expenses 6,994 — — 6,994 General and administrative expenses 47,795 — — 47,795 Observatory expenses — 25,983 — 25,983 Real estate taxes 95,292 — — 95,292 Depreciation and amortization 140,194 118 — 140,312 Total operating expenses 414,655 85,070 ( 58,969 ) 440,756 Total operating income 97,855 8,079 — 105,934 Other income (expense): Interest income 10,257 139 — 10,396 Interest expense ( 76,091 ) — — ( 76,091 ) Gain on disposition of property 29,261 — — 29,261 Income before income taxes 61,282 8,218 — 69,500 Income tax expense ( 541 ) ( 382 ) — ( 923 ) Net income $ 60,741 $ 7,836 $ — $ 68,577 Expenditures for segment assets $ 123,671 $ 58 $ — $ 123,729 26 Nine Months Ended September 30, 2022 Real Estate Observatory Intersegment Elimination Total Revenues: Rental revenue $ 445,143 $ — $ — $ 445,143 Intercompany rental revenue 46,801 — ( 46,801 ) — Observatory revenue — 73,660 — 73,660 Lease termination fees 20,032 — — 20,032 Third-party management and other fees 1,025 — — 1,025 Other revenue and fees 5,908 — — 5,908 Total revenues 518,909 73,660 ( 46,801 ) 545,768 Operating expenses: Property operating expenses 118,875 — — 118,875 Intercompany rent expense — 46,801 ( 46,801 ) — Ground rent expenses 6,994 — — 6,994 General and administrative expenses 45,287 — — 45,287 Observatory expenses — 22,507 — 22,507 Real estate taxes 91,637 — — 91,637 Depreciation and amortization 172,258 136 — 172,394 Total operating expenses 435,051 69,444 ( 46,801 ) 457,694 Total operating income (loss) 83,858 4,216 — 88,074 Other income (expense): Interest income 2,105 39 — 2,144 Interest expense ( 75,572 ) — — ( 75,572 ) Gain on disposition of property 27,170 — — 27,170 Income (loss) before income taxes 37,561 4,255 — 41,816 Income tax (expense) benefit ( 541 ) 317 — ( 224 ) Net income $ 37,020 $ 4,572 $ — $ 41,592 Expenditures for segment assets $ 70,795 $ 315 $ — $ 71,110 13. Subsequent Events None. 27