What changed in this filing

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Item 1. Business

2024-02-28 compared with 2023-02-28 · 89 added, 124 removed, 146 unchanged (59% of the section changed)

Empire State Realty OP, L.P.

is the entity through which Empire State Realty Trust, Inc.

("ESRT"), a self-administered and self-managed real estate investment trust ("REIT") conducts all of its business and owns (either directly or through subsidiaries) substantially all of its assets.

We own and manage a well-positioned property portfolio of office, retail and multifamily assets in Manhattan and the greater New York metropolitan area.

ESRT owns the Empire State Building, the "World’s Most Famous Building", and the newly reimagined Empire State Building Observatory Experience.

Empire State Realty Trust, Inc.'s Class A common stock, par value $0.01 per share, is listed on the New York Stock Exchange under the symbol "ESRT."

As of December 31, 2022, our office and retail portfolio contained 9.7 million rentable square feet of office and retail space, and was 85.2% occupied.

Including signed leases not yet commenced, our total office and retail portfolio was 88.6% leased.

As of December 31, 2022, we owned 12 office properties (including three long-term ground leasehold interests) encompassing approximately 8.9 million rentable square feet of office space, which were approximately 85.1% occupied or 88.3% leased including signed leases not yet commenced.

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

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

Three office properties are located in Fairfield County, Connecticut and Westchester County, New York, encompassing approximately 1.3 million rentable square feet.

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

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

As of December 31, 2022, our commercial portfolio also included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing 0.2 million rentable square feet in the aggregate.

Subsequent to year-end, on February 1, 2023, the two retail properties in Westport, Connecticut were sold.

Properties for more information.

As of December 31, 2022, our standalone retail properties were 97.6% leased.

Additionally, as of December 31, 2022, our portfolio included three multifamily properties located in Manhattan totaling 721 units of which 96.3% were leased.

We were organized as a Delaware limited partnership on November 28, 2011.

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.

Empire State Realty Trust, Inc.

ESRT) is a NYC-focused REIT that owns and operates a portfolio of modernized, amenitized, and well-located office, retail, and multifamily assets.

ESRT is a recognized leader in energy efficiency and indoor environmental quality.

ESRT’s flagship Empire State Building – the “World’s Most Famous Building” – includes its Observatory, the #1 attraction in the U.S.

in Tripadvisor’s Travelers’ Choice Awards:

Best of the Best for two consecutive years .

As of December 31, 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 either office or residential per local zoning.

Our multifamily portfolio included 727 residential units in New York City.

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 December 31, 2023, ESRT owned approximately 60.2% of our operating partnership units.

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Our primary business objectives are to maximize cash flow and total returns to our shareholders and to increase the value of our properties through the pursuit of the following strategies:

We have a brand that we believe tenants associate with a consistently high level of quality of services, healthy buildings, amenities, maintenance, and tenant installations, with high performance design guidelines for energy efficiency and indoor environmental quality, and long-term financial stability.

Through our commitment to brokers, we have developed long- term relationships with a focus to attract high quality potential tenants to our properties.

We proactively manage and cultivate our industry relationships and make the most senior members of our management team available to our constituencies.

We believe that our consistent, open dialogue with our tenants and brokers enables us to maximize our results.

Our focus on performance and long-term perspective allows us to concentrate on the ongoing management of our portfolio, while we concurrently seek opportunities for growth in the future.

We believe we benefit from the tenant flight to quality trend.

Tenants seek a compelling value proposition, and we offer a high-quality experience in high- quality assets at our attractive price point.

Tenants seek a compelling value proposition from landlords with a strong balance sheet and low leverage that continue to invest in the improvement of their buildings, and we offer a high-quality experience in high-quality assets at our attractive price point.

Our buildings are fully modernized, well-located near mass transit, well-amenitized, and feature industry leadership in energy efficiency and indoor environmental quality, which helps us to draw consistent leasing volumes through cycles.

They also have character.

The quality of our commercial portfolio contributed to a solid leasing year in 2022 – we leased over one million square feet of space and made meaningful absorption progress with a 210 basis point increase in Manhattan office occupancy throughout the year.

The quality of our commercial portfolio contributed to a strong leasing year in 2023;

we leased 951,000 square feet of space and made meaningful absorption progress with a 130 basis point increase in Manhattan office occupancy and a 250 basis point increase in Manhattan leased rate throughout the year.

Additionally, we believe our proactive, service-intensive approach to asset and property management helps increase occupancy and rental rates.

Through our commitment to brokers, we have developed long-term relationships with a focus to attract high quality tenants to our properties.

We proactively manage and cultivate our industry relationships and make the most senior members of our management team available to our constituencies.

We believe that our consistent, open dialogue with our tenants and brokers enables us to maximize our results.

Our focus on performance and long-term perspective allows us to concentrate on the ongoing management of our portfolio, while we concurrently seek opportunities for growth in the future.

We do extensive diligence on our tenants' financial prospects, businesses and business models to determine if we think there is potential to establish long-term relationships in which they will both renew with us and expand over time.

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Our comprehensive building management services and our strong commitment to tenant and broker relationships and satisfaction enable us to negotiate attractive leasing deals, which attracts and retains high credit-quality tenants.

We proactively manage our rent roll, foster strong tenant relationships, maintain continuous communication with our tenants, and are responsive to tenant needs.

We proactively manage our rent roll, foster strong tenant relationships, maintain continuous communication with our tenants, and are responsive to tenant

We believe the success of our long-term tenant relationships improves our operating results over time by reducing leasing, marketing and tenant improvement costs, as well as tenant turnover.

We regularly monitor our properties, perform routine preventive maintenance, and implement capital improvement programs in connection with property redevelopment and life cycle replacement of equipment and systems to protect our investments.

We presently self-manage all of our office and retail properties, and we use a third-party property manager to manage our multifamily properties.

We proactively manage our office properties and rent rolls to (i) aggregate smaller demised spaces to create large blocks of vacant space in order to attract high credit-quality tenants at higher rental rates, and (ii) create efficient, modern, pre-built offices that can be rented through several lease cycles and attract high credit-quality tenants.

We aggressively manage and control operating expenses at all of our properties.

We self-manage all of our office and retail properties, and we use a third-party property manager to manage our multifamily properties.

We proactively manage our office properties and rent rolls to create efficient, modern, pre-built offices that can be rented through several lease cycles and attract high credit-quality tenants.

We manage and control operating expenses at all of our properties.

In addition, we have made energy efficiency retrofitting and sustainability a portfolio-wide initiative driven by economic return.

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The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th and 102nd floor observatories.

In December 2019, we completed the Observatory’s comprehensive, approximately $165 million multi-year reimagination and redevelopment.

Prior to the outbreak of COVID-19, the number of visitors to the observatories was approximately 3.8 million and 3.5 million for the years ended December 31, 2018 and 2019, respectively, approximately two-thirds of which were international visitors.

During the COVID-19 shutdown, we reprogrammed our Observatory business to operate by reservations only, created a new focus on customer experience and reduction of crowds and lines, with an emphasis on revenue per visitor, and match our hours of operation to the reservations demand.

In December 2019, we completed the Observatory’s comprehensive multi-year reimagination and redevelopment.

In 2020, we reprogrammed our Observatory business to operate by reservations only, created a new focus on customer experience and reduction of crowds and lines, with an emphasis on growing revenue per visitor, and matched our hours of operation to the reservations demand to manage expenses.

We enhanced health and safety protocols, improved marketing and cross-promotional activities to increase brand awareness, and managed expenses prudently.

Our efforts have resulted in consistent recovery in Observatory results and we achieved improved results in Observatory revenue and operating income throughout 2022.

We had approximately 2.2 million visitors in 2022 as compared to 0.5 million in 2020 and 0.8 million in 2021.

Additionally, the Empire State Building Observatory was ranked the # 1 attraction in the U.S.

and #3 in the world by Tripadvisor.

Our efforts have resulted in strong performance from our Observatory and we experienced continued improvement in Observatory revenue and operating income throughout 2023.

We had approximately 2.6 million visitors in 2023 as compared to 0.5 million in 2020, 0.8 million in 2021 and 2.2 million in 2022.

Additionally, the Empire State Building Observatory was ranked the # 1 attraction in the United States in Tripadvisor's Travelers’ Choice Awards:

Best of the Best for two consecutive years.

Enhance Shareholder Value

We enhance shareholder value primarily through the execution of our capital allocation goals, maintenance of our balance sheet flexibility and enhanced transparency and disclosure.

As it relates to capital allocation goals we (i) opportunistically recycle our capital, (ii) make selective, value-enhancing acquisitions and (iii) reinvest in our own shares through share repurchases.

We are diversified and we believe we will benefit from New York City’s recovery from our office, observatory, retail, and multifamily exposure in the city.

We have built a dedicated investment function which includes our Chief Investment Officer and a full acquisitions team and positions us to identify potential investment opportunities.

We believe our flexible balance sheet, access to capital, and expertise in redevelopment gives us significant flexibility to structure and consummate accretive acquisitions.

Since December 2021, we have completed acquisitions of three multifamily properties in Manhattan for a combined 721 units.

We have also completed the disposition (or otherwise entered into a contract for sale) of non-core assets in our greater New York metropolitan area portfolio, including office assets in Norwalk, CT, White Plains, NY and Harrison, NY, and retail assets in Westport, Connecticut.

We enhance shareholder value primarily through the execution of our capital allocation strategy, maintenance of our balance sheet flexibility and enhanced transparency and disclosure.

As it relates to capital allocation strategy, we (i) opportunistically recycle our capital, (ii) make selective, value-enhancing acquisitions and (iii) reinvest in our own shares through share repurchases.

We are diversified and we believe we benefit from New York City’s rebound from our office, Observatory, retail, and multifamily exposure in the city.

We have a dedicated investment function to identify potential investment opportunities, which includes our Chief Investment Officer and a full acquisitions team.

We believe our well-positioned balance sheet, access to capital, and expertise in redevelopment gives us significant flexibility to structure and pursue attractive investment opportunities.

Since December 2021, we have completed acquisitions of three multifamily properties in Manhattan and a retail asset in the Williamsburg neighborhood of Brooklyn, NY.

We have also completed the disposition of non-core assets in our greater New York metropolitan area portfolio, including office assets in Norwalk, CT, White Plains, NY and Harrison, NY, and retail assets in Westport, CT.

Properties for more information.

For the foreseeable future, we intend to focus our acquisition strategy primarily on NYC office, retail and multifamily properties where we can achieve attractive returns on invested capital.

Further, we have a development site, Metro Tower at the Stamford Transportation Center, which is adjacent to our Metro Center property, which we believe to be one of the premier office buildings in Connecticut.

All zoning approvals have been obtained to allow development of an approximately 0.4 million rentable square foot office tower and garage.

We intend to develop this site when we deem the appropriate combination of market and other conditions are in place.

In the current financial environment, we believe our well-positioned balance sheet differentiates us in our efforts to attract brokers and new tenants, who look to partner with financially stable landlords which will invest in their customers and maintain high-quality standards at their assets.

Our flexible balance sheet has also allowed us to be nimble and repurchase shares as well as recycle capital.

Lastly, we introduced guidance for the first time in 2022 to provide investors with enhanced transparency on the earnings trajectory and outlook for our company.

Our well-positioned balance sheet has also allowed us to be nimble and recycle capital as well as repurchase shares.

Achieve Sustainability Goals

We are recognized as leaders in the real estate industry in energy efficiency in the existing built environment, sustainability, indoor environmental quality, and healthy buildings.

We have pioneered certain practices in energy efficiency, beginning in 2007 at the Empire State Building where we partnered with the Clinton Climate Initiative, Johnson Controls Inc., Jones Lang LaSalle and the Rocky Mountain Institute to create and implement a groundbreaking, replicable process for integrating energy efficiency retrofits in the existing built environment.

We are recognized as a leader in the real estate industry in sustainability, and we focus on net zero emissions, energy efficiency, water use reduction, indoor environmental quality, and healthy buildings.

We have pioneered certain practices to achieve emissions reduction and energy efficiency, including those described in our Empire Building Playbook, a free guide that we published in partnership with the New York Energy Research Development Authority and the Clinton Global Initiative, for existing commercial buildings to follow our lead and develop a technical and economic pathway to achieve net zero carbon reduction with a proven payback.

The reduced energy consumption and emissions lower costs for us and our tenants, and we believe creates a competitive advantage for our properties.

Since 2009, we have reduced carbon emissions at the Empire State Building by over 54% and across our commercial portfolio by 43%.

Our commercial portfolio achieved carbon neutrality as of January 2022 through the purchase of renewable wind electricity for 100% of the commercial portfolio's electrical usage since January 2021 and our support of preservation of forests which offsets 100% of fossil fuel usage.

We believe that higher quality tenants in general prioritize sustainability, controlling costs and minimizing contributions to greenhouse gas emissions.

As a result of our efforts, as of December 31, 2022 approximately 92% of our commercial portfolio in NYC and 80% of our whole portfolio is ENERGY STAR certified, including the Empire State Building.

We have implemented other cost-justified energy efficiency retrofit projects in our Manhattan and greater New York metropolitan area office properties.

Based on our calculations, we believe we have no exposure to fines in 2024 through 2029 under New York City's Local Law 97.

We presently target net zero emissions for the Empire State Building by 2030 and for the balance of our commercial portfolio by 2035.

In 2022, we received the highest possible GRESB (formerly known as Global Real Estate Sustainability Benchmark) rating of 5 stars and were the global, regional, and regional publicly traded sector leader for office.

100% of our commercial portfolio is WELL Health Safety rated, enrolled in WELL at Scale and WELL Equity Rating.

89% of our NYC commercial portfolio is Fitwel certified.

In 2022, the Science Based Targets Initiative ("SBTi") Target Validation Team verified that ESRT’s emissions reduction targets are in line with a 1.5 degree trajectory, the most ambitious SBTi threshold available.

Our sustainability reporting, disclosure, and targets align with GRESB, TCFD, SASB, GRI, SBTi and United Nations Sustainable Development Goals and United Nations Global Compact.

We are actively involved in leadership roles in our industry with local, state, and federal government policymakers.

We believe that higher quality tenants prioritize sustainability, cost reduction, and lower contributions to greenhouse gas emissions.

Business Segments

Our reportable segments consist of a real estate segment and an Observatory segment.

Our real estate segment includes all activities related to the ownership, management, operation, acquisition, repositioning and disposition of our commercial and multifamily real estate assets, principally office properties, located in Manhattan and the greater New York metropolitan area.

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

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For more information about our segments, refer to “Financial Statements - Note 13 Segment Reporting” in this Annual Report on Form 10-K.

Rental Revenue

We derive revenues primarily from rents, rent escalations, expense reimbursements and other income received from tenants under existing leases at each of our properties.

“Escalations and expense reimbursements” consist of payments made by tenants to us under contractual lease obligations to reimburse a portion of the property operating expenses and real estate taxes incurred at each property.

We believe that the average rental rates for in-place leases at our properties are generally below the current market rates, although individual leases at particular properties presently may be leased above, at or below the current market rates within its particular submarket.

The properties in our portfolio are subject to various laws, ordinances and regulations, including regulations relating to common areas.

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Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.

Some of our properties are adjacent to or near other properties which are used for industrial or commercial purposes or have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

Releases from these properties could impact our properties.

In addition, some of our properties have previously been used by former owners or tenants for commercial or industrial activities, e.g., gas stations and dry cleaners, and a portion of the Metro Tower site is currently used for automobile parking and prior fueling facility, that may release petroleum products or other hazardous or toxic substances at such properties or to surrounding properties.

In addition, some of our properties have previously been used by former owners or tenants for commercial or industrial activities, e.g., gas stations and dry cleaners, and a portion of the Metro Tower site is currently used for automobile parking and was formerly leased to a fueling facility that may release petroleum products or other hazardous or toxic substances at such properties or to surrounding properties.

While certain properties contain or contained uses that could have or have impacted our properties, we are not aware of any liabilities related to environmental contamination that we believe will have a material adverse effect on our operations.

Soil contamination and prior presence of underground storage tanks (UST’s) were previously identified at 69-97 Main Street, Westport, Connecticut.

Presence of UST’s was previously identified at 103-107 Main Street in Westport, Connecticut.

A voluntary remediation program was entered into with the Connecticut Department of Environmental Protection (CT DEP) to address residual impacts at the 69-97 Main Street Property and an Environmental Land Use Restriction (ELUR) was imposed on the 69-97 Main Street property to ensure soil is not exposed, excavated or disturbed such that it could create a risk of migration of pollutants or a potential hazard to human health or the environment.

ESRT subsequently sought permission from, and permission was granted by, CT DEP to temporarily suspend the ELUR to allow for completion of work at the property including removal of UST’s subject to work safety rules.

The work was completed and the ELUR reinstated.

There exists a consent order issued by CT DEP to investigate soil conditions at the 103-107 Main Street Property.

The properties have since been sold and post-closing obligations remain to (i) close out the Voluntary Remediation Program at 69-97 Main Street and (ii) comply with the consent order at 103-107 Main Street.

We have post-closing obligations related to the 69-97 and 103-107 Main Street, Westport, Connecticut properties that we sold in February 2023 to (i) close out a voluntary remediation program at 69-97 Main Street to address residual impacts of prior presence of underground storage tanks and (ii) comply with a consent order issued by the Connecticut Department of Environmental Protection to investigate soil conditions at 103-107 Main Street.

We believe any expenses incurred to close out and comply with the remediation program and consent order, respectively, will be immaterial to the results of our operations.

The property situated at 500 Mamaroneck Avenue in Harrison, New York was the subject of a voluntary remedial action work cleanup plan performed by the former owner following its conveyance of title to the present owners under an agreement with the New York State Department of Environmental Conservation, or ("NYDEC").

As a condition to the issuance of a “no further action” letter, NYDEC required that certain restrictive and affirmative covenants be recorded against the subject property.

In substantial part, these include prohibition against construction that would disturb the soil cap isolating certain contaminated subsurface soil, limiting the use of such property to commercial uses, implementing engineering controls to assure that improvements be kept in good condition, not using ground water at the site for potable purposes without treatment, implementing safety procedures for workers to follow excavating at the site to protect their health and safety and

filing an annual certification that the controls implemented in accordance with the voluntary remedial action work cleanup plan remain in place.

Furthermore, a substantial portion of the site that had been substantially unimproved prior to acquisition may not be further developed.

Our property situated at 500 Mamaroneck Avenue in Harrison, New York was the subject of a voluntary remedial action work cleanup plan under an agreement with the New York State Department of Environmental Conservation, but we sold this property in April 2023 and the obligations have been transferred to the buyer.

In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations.

Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability.

Noncompliance with these laws and regulations could subject us or our tenants to liability.

These liabilities could affect a tenant’s ability to make rental payments to us.

Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance.

This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us.

This may result in significant unanticipated expenditures.

We sometimes require our tenants to comply with environmental and health and safety laws and regulations and to indemnify us for any related liabilities in our leases with them.

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As the owner or operator of real property, we may also incur liability based on various building conditions.

For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM.

For example, environmental site assessments and investigations have identified asbestos or asbestos-containing material ("ACM") in certain of our properties, and it is possible that other properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained ACM.

Refer to “Financial Statements - Note 9 Commitments and Contingencies - Asset Retirement Obligations” in this Annual Report on Form 10-K.

Environmental and health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.

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As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation.

In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.

In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our

tenants or others if property damage or personal injury occurs.

We are not presently aware of any material adverse indoor air quality issues at our properties.

Affordable Housing

Certain units in our multifamily properties are designated for lower income households and are therefore subject to supervision and regulation by state and federal governmental authorities regulate affordable housing rental activities.

See "Risk Factors - Government housing regulations may limit opportunities at the multifamily properties in which we invest, and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits" for more information.

We carry comprehensive liability, fire, extended coverage, earthquake, terrorism and rental loss insurance covering all of our Manhattan properties and our greater New York metropolitan area properties under a blanket policy.

We carry additional

all-risk property and business insurance, which includes terrorism insurance, on the Empire State Building through ESRT Captive Insurance Company L.L.C., or ESRT Captive Insurance, our wholly owned captive insurance company.

We carry comprehensive liability, fire, extended coverage, earthquake, terrorism and rental loss insurance covering all of our New York City properties and our greater New York metropolitan area properties under a blanket policy.

We carry additional all-risk property and business insurance, which includes terrorism insurance, on the Empire State Building through ESRT Captive Insurance Company L.L.C., or ESRT Captive Insurance, our wholly owned captive insurance company.

ESRT Captive Insurance covers terrorism insurance for $1.2 billion in losses in excess of $800 million per occurrence suffered by the Empire State Building, providing us with aggregate terrorism coverage of $2 billion at that property.

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We purchased a $50 million limit of Nuclear, Biological, Chemical and Radiological ("NBCR") insurance in excess of a $1.0 million deductible in the commercial insurance market.

ESRT Captive Insurance provides NBCR insurance with a limit of $1.95 billion in excess of the $50 million policy.

ESRT Captive Insurance provides NBCR insurance coverage under TRIPRA with a limit of $1.95 billion in excess of the $50 million policy.

As a result, we remain only liable for the 20% coinsurance under TRIPRA for NBCR exposures within ESRT Captive Insurance, as well as a deductible equal to 20% of ESRT Captive Insurance’s prior year’s premium.

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Furthermore, business interruption insurance due to pandemic level or other public health events may not be readily available at commercially acceptable rates.

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

The leasing of real estate is highly competitive in New York City and Stamford, Connecticut where we operate.

We compete with numerous acquirers, developers, owners and operators of commercial real estate, many of which own or may seek to acquire or develop properties similar to ours in the same markets in which our properties are located.

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In addition, we face competition from other real estate companies, including other REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others, that may have greater financial resources or access to capital than we do or that are willing to acquire properties in transactions which are more highly leveraged or are less attractive from a financial viewpoint than we are willing to pursue.

In addition, competition from new and existing observatories and/or broadcasting operations could have a negative impact on revenues from our observatory operations and/or broadcasting revenues.

In addition, competition from new and existing observatories and/or broadcasting operations may have a negative impact on revenues from our Observatory operations and/or broadcasting revenues.

Adverse impacts on domestic and international travel and changes in foreign currency exchange rates may also decrease demand in the future, which could have a material adverse effect on our results of operations, financial condition and ability to make distributions to our securityholders.

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So long as ESRT qualifies as a REIT, it generally will not be subject to U.S.

federal income tax on its net taxable income that ESRT distributes to its security holders.

federal income tax on its net taxable income that ESRT distributes to its securityholders.

If ESRT fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, ESRT will be subject to U.S.

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Income from admissions to the Empire State Building Observatory, and certain other income generated by the Observatory, would not likely be qualifying income for purposes of the REIT gross income tests.

We jointly elected with Observatory TRS, which is the current lessee and operator of the observatory and which is wholly owned by our operating partnership, for observatory TRS to be treated as a TRS of ours for U.S.

ESRT jointly elected with Observatory TRS, which is the current lessee and operator of the Observatory and which is wholly owned by our Company, for

Observatory TRS to be treated as a TRS of ESRT's for U.S.

federal income tax purposes.

Observatory TRS leases the Empire State Building observatory from the operating partnership pursuant to a lease that provides for fixed base rental payments and variable rental payments equal to certain percentages of Observatory TRS’s gross receipts from the operation of the observatory.

Observatory TRS leases the Empire State Building Observatory from our Company pursuant to a lease that provides for fixed base rental payments and variable rental payments equal to certain percentages of Observatory TRS’s gross receipts from the operation of the Observatory.

Given the unique nature of the real estate comprising the Observatory, as of the date of such lease, we did not believe that there is any space in the Empire State Building or in the same geographic area as the Empire State Building that is likely to be considered sufficiently comparable to the Observatory for the purpose of applying the exception to related party rent described above.

We have received from the IRS a private letter ruling that the rent that our operating partnership receives from Observatory TRS pursuant to the lease of the Empire State Building observatory is qualifying income for purposes of the REIT gross income tests so long as such rent reflects the fair market rental value of the Empire State Building observatory as determined by an appraisal rendered by a qualified third party appraiser.

In addition, we have acquired various license agreements (i) granting certain third party broadcasters the right to use space on the tower on the top of the Empire State Building for certain broadcasting and other communication purposes and (ii) granting certain third party vendors the right to operate concession stands in the observatory.

We have received from the IRS a private letter ruling that the license fees that our operating partnership receives under the license agreements described above constitute qualifying income for purposes of the REIT gross income tests.

ESRT has received from the IRS a private letter ruling that the rent that our Company receives from Observatory TRS pursuant to the lease of the Empire State Building Observatory is qualifying income for purposes of the REIT gross income tests so long as such rent reflects the fair market rental value of the Empire State Building Observatory as determined by an appraisal rendered by a qualified third-party appraiser.

In addition, our operating partnership has acquired various license agreements (i) granting certain third-party broadcasters the right to use space on the tower on the top of the Empire State Building for certain broadcasting and other communication purposes and (ii) granting certain third-party vendors the right to operate concession stands in the Observatory.

ESRT has received from the IRS a private letter ruling that the license fees that our Company receives under the license agreements described above constitute qualifying income for purposes of the REIT gross income tests.

Substantially all of our leases provide for separate real estate tax and operating expense escalations.

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We believe inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.

We do not believe inflation has had a material impact on our historical financial position or results of operations.

We do not believe inflation has had a material impact on our financial position or results of operations.

Our Observatory business is subject to tourism trends and weather, and therefore does experience some seasonality.

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.

For the year ended December 31, 2023, approximately 17% of our annual Observatory revenue was realized in the first quarter, 26% was realized in the second quarter, 29% was realized in the third quarter, and 28% 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 lease activity.

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We do not consider the balance of our business to be subject to material seasonal fluctuations.

Leasing Trend Fluctuations

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.

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.

Human Capital Management

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We generally have and expect to continue to maintain good relations with our employees and workforce, including those employees covered by collective bargaining agreements.

We believe that our success is realized through the attraction, retention, development, engagement and empowerment of the highly valued employees amongst our diverse pool of talent, and we endeavor to set our policies and practices accordingly.

Diversity and Inclusion

We execute several dynamic strategies and enlist the guidance of Diversity, Equity and Inclusion ("DE&I") industry leaders to foster a workplace community of diverse perspectives and experiences, which we believe enhances the effectiveness of our decision making and innovation.

We strive to develop an inclusive and diverse company where employees can bring their whole and authentic selves to their roles.

We have implemented training and development programs, policies and procedures and transparent public reporting of our progress.

We do this because we believe DE&I strengthens our workforce and promotes a dynamic, supportive, and productive work environment.

We also engage our staff in this effort with an employee-led Inclusion Committee, which strives to assist the company to advance and maintain an inclusive and equitable workplace through actionable strategies and measurable goals that ladder up to our overarching company targets.

With support from management, human resources, and DE&I consultants, the committee drives important communications, events, trainings, and other engagements in an effort to advance our DE&I strategy.

We were selected for inclusion in the Bloomberg Gender Equality Index in 2022 and 2023 and are the first commercial office REIT in the U.S.

to join the UN Global Compact as well as commit to the UN's Women's Empowerment Principles.

We are proud of the strides we have made in the past three years in terms of enhancing the gender and ethnic diversity of our board and management team through the appointment of new directors, and promotions to senior management roles.

Talent Acquisition and Retention

We believe that our success is realized through the attraction, retention, development, engagement and empowerment of our highly-valued and diverse employees, and we endeavor to set our policies and practices accordingly.

We offer what we believe to be generally competitive compensation and benefits.

To reward and reinforce participation in the Company’s outcomes, we also make equity grants to employees.

For senior management, we grant such equity annually, with vesting contingent upon (a) the individual’s continuing service at the company and/or (b) the company’s performance against corporate, ESG and total shareholder return metrics.

Other employees may receive shares of stock in the company on multi-year employment anniversaries.

We regularly review our compensation and benefits against our peers and the industry to remain competitive.

We strive to attract, hire and retain diverse candidates who meet our high standards.

Our retention strategy is based on the effective training and development of, and focus on the total wellness of, our employees as described below.

We believe open and honest two-way communication is paramount and we regularly collect employee feedback to understand and improve our employees’ experiences.

As of February 2023, we are Great Place to Work-Certified.

Training and Development

Our retention strategy is based on the effective training and development of, and focus on the total wellness of, our employees.

We believe continuous learning supports productivity, innovation and retention, as well as personal and professional growth for our employees.

We invest in employee training, including certain programs which are mandatory for all employees, and other programs which are voluntary and self-directed on platforms provided by the Company.

We provided classroom training for our employees in 2022 in addition to on-the-job training.

We also regularly review our succession plans for our diverse workforce and create robust developmental action plans to grow our employees.

Total Wellness (Physical, Mental and Financial)

We have been recognized for leadership in indoor environmental quality, healthy buildings, retrofit energy efficiency, and sustainability in the built environment.

We provide robust offerings of activities and seminars throughout the year focused on the total wellness of our employees, including physical health and athletics, mental health, financial acumen, volunteerism, and inter-departmental engagement and recognition.

Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120.We also have additional regional leasing and property management offices in Manhattan and the greater New York metropolitan area.

We also regularly assess the performance and potential of our diverse

workforce, review our succession plans and create robust developmental action plans to grow our employees and prepare them

for internal promotional opportunities.

We believe our public recognition demonstrates the strength of our program.

As of February 2023, we are Great Place to Work-Certified.

We were also selected for inclusion in the Bloomberg Gender Equality Index in 2022 and 2023.

Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120.

We also have additional regional leasing and property management offices in Manhattan and Stamford, Connecticut.

Our current facilities are adequate for our present and future operations, although we may add or eliminate regional offices, depending upon our future operations.

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

What changed 10-K

Item 1. Business