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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-08 · 123 added, 185 removed, 238 unchanged (56% of the section changed)

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

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

This Management’s Discussion and Analysis

provides a comparison of our performance for the three- and nine-month periods ended September 30, 2023 with the corresponding three- and nine-month periods ended September 30, 2022 and reviews our financial position as of September 30, 2023.

Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to the Empire State Realty OP, L.P.

and its consolidated subsidiaries.

This Management’s Discussion and Analysis provides a comparison of our performance for the three-month periods ended March 31, 2024 with the corresponding three-month periods ended March 31, 2023 and reviews our financial position as of March 31, 2024.

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

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

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

In particul ar, statements pertaining to ESRT's capital resources, portfolio performance, dividend policy and results of operations contain forward-looking statements.

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We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

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

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

Many important factors could cause actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in the forward-looking statements, including, among other things:

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

(ii) a failure of conditions or performance regarding any event or transaction described herein;

(iii) resolution of legal proceedings involving us and/or ESRT;

(iii) resolution of legal proceedings involving the Company;

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

(v) changes in our business strategy;

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

(vii) changes in domestic or international tourism, including due to health crises and pandemics, geopolitical events, including global hostilities, currency exchange rates, and/or competition from other observatories in New York City, any or all of which may cause a decline in Observatory visitors;

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

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

(x) declining real estate valuations and impairment charges;

(xi) termination of our ground leases;

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

(xiii) decreased rental rates or increased vacancy rates;

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

(xv) difficulties in identifying and completing acquisitions;

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

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

(xviii) our failure to qualify as a REIT;

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

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

and (xxi) accuracy of our methodologies and estimates regarding ESG metrics and goals, tenant willingness and ability to collaborate in reporting ESG metrics and meeting ESG goals, and impact of governmental regulation on our ESG efforts.

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

(vi) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from other observatories;

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

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

(ix) declining real estate valuations and impairment charges;

(x) termination of our ground leases;

(xi) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds;

(xii) decreased rental rates or increased vacancy rates;

(xiii) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget;

(xiv) difficulties in identifying and completing acquisitions;

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

(xvi) our failure to qualify as a REIT;

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

and (xviii) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental regulation on our sustainability efforts.

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

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

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

Highlights for the three months ended September 30, 2023

Highlights for the three months ended March 31, 2024

• Net income attributable to common unitholders of $9.2 million.

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Results of Operations

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

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

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

Three Months Ended September 30,

2023 2022 Change %

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

Rental revenue

$ 151,458 $ — $ 151,458 $ 148,290 $ — $ 148,290 $ 3,168 2.1 %

Observatory revenue — 37,562 37,562 — 33,051 33,051 4,511 13.6

Lease termination fees — — — — — — — —

Third-party management and other fees

268 — 268 389 — 389 (121) (31.1)

Other revenues and fees

2,238 — 2,238 1,982 — 1,982 256 12.9

Total revenues

153,964 37,562 191,526 150,661 33,051 183,712 7,814 4.3

Operating expenses:

Property operating expenses

42,817 — 42,817 42,798 — 42,798 (19) —

Ground rent expenses

2,331 — 2,331 2,331 — 2,331 — —

General and administrative expenses

16,012 — 16,012 15,725 — 15,725 (287) (1.8)

Observatory expenses

— 9,471 9,471 — 8,516 8,516 (955) (11.2)

Real estate taxes

32,014 — 32,014 31,831 — 31,831 (183) (0.6)

Depreciation and amortization

46,593 31 46,624 46,933 51 46,984 360 0.8

Total operating expenses

139,767 9,502 149,269 139,618 8,567 148,185 (1,084) (0.7)

Operating income

14,197 28,060 42,257 11,043 24,484 35,527 6,730 18.9

Intercompany rent revenue (expense) 22,113 (22,113) — 19,072 (19,072) —

Other income (expense):

Interest income

4,410 52 4,462 1,530 34 1,564 2,898 185.3

Interest expense

(25,382) — (25,382) (25,516) — (25,516) 134 0.5

Income before income taxes

15,338 5,999 21,337 6,129 5,446 11,575 9,762 84.3

Income tax expense

(146) (1,263) (1,409) (359) (1,098) (1,457) 48 3.3

15,192 4,736 19,928 5,770 4,348 10,118 9,810 97.0

Private perpetual preferred unit distributions (1,050) — (1,050) (1,050) — (1,050) — —

Net (income) loss attributable to non-controlling interests in other partnerships (111) — (111) 49 — 49 160 326.5

Net income attributable to common unitholders

$ 14,031 $ 4,736 $ 18,767 $ 4,769 $ 4,348 $ 9,117 $ 9,650 105.8 %

Real Estate Segment

Rental Revenue

The increase in rental revenue was primarily attributable to a $5.5 million increase in base rent from new or renewed tenants and higher rents and higher tenant escalations and a net $2.3 million decrease in revenue from our recent transaction activity as disclosed in "Financial Statements - Note 3.

Acquisitions and Dispositions."

Interest Income

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

Observatory Segment

Observatory Revenue

Observatory revenues were higher driven by increased visitation and revenue per visitor during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Observatory Expenses

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

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

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

Nine Months Ended September 30,

The discussion below relates to our results of operations for the three months ended March 31, 2024 and 2023, respectively.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

The following table summarizes our historical results of operations for the three months ended March 31, 2024 and 2023, respectively (amounts in thousands):

Three Months Ended March 31,

2024 2023 Change %

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Observatory revenue — 24,596 24,596 — 22,154 22,154 2,442 11.0 %

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

Third-party management and other fees

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(25,128) — (25,128) (25,304) — (25,304) 176 0.7 %

Loss on early extinguishment of debt (553) — (553) — — — (553) N/A

Gain on disposition of property

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(113) 768 655 (198) 1,417 1,219 (564) (46.3) %

Net income (loss)

9,348 867 10,215 11,899 (205) 11,694 (1,479) (12.6) %

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Net (income) loss attributable to non-controlling interests in other partnerships (4) — (4) 43 — 43 (47) (109.3) %

Net income attributable to common unitholders

Net income (loss) attributable to common unitholders

$ 8,294 $ 867 $ 9,161 $ 10,892 $ (205) $ 10,687 $ (1,526) (14.3) %

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Rental Revenue

The increase in rental revenue was primarily attributable to a $7.1 million increase in base rent from new or renewed tenants and higher rents and higher tenant escalations, and a net $6.1 million decrease in revenue from our recent transaction activity as disclosed in "Financial Statements - Note 3.

Acquisitions and Dispositions."

The increase in rental revenue was primarily attributable to higher write-offs of straight-line receivables and uncollectible tenant receivables and higher rent concessions during the three months period March 31, 2023 compared to the three months period March 31, 2024.

Higher tenant escalations and real estate tax escalations during the period March 31, 2024 also contributed to the increase.

Property Operating Expenses

The increase in property operating expenses is primarily due to higher repair and maintenance costs, higher cleaning costs, and higher payroll costs in 2023 relating to increased building utilization.

General and Administrative Expenses

The increase in general and administrative expenses primarily reflects higher payroll due to year-over-year wage growth.

Real Estate Taxes

The increase in real estate taxes was primarily attributable to a $4.1 million increase in real estate tax expense due to higher assessed values for multiple properties, partially offset by a net $0.4 million decrease from our recent transaction activity as disclosed in "Financial Statements - Note 3.

Acquisitions and Dispositions."

Depreciation and Amortization

The decrease in depreciation and amortization reflects accelerated depreciation during the nine months ended September 30, 2022 relating to the transfer of 383 Main Avenue back to the lender in a consensual foreclosure and depreciation expense in the nine months ended September 30, 2022 on properties that were sold prior to September 30, 2023.

The increase in property operating expenses was primarily due to higher repair and maintenance costs, higher utilities costs, and higher payroll costs during the three months period March 31, 2024 compared to the three months period March 31, 2023.

Interest Income

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

Gain on Disposition of Property

The gain for the nine months ended September 30, 2023 reflects the gain on disposition of 500 Mamaroneck in Harrison, New York in April 2023 and 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023 while the gain for the nine months ended September 30, 2022 represents a gain on the disposition of 383 Main Avenue in Norwalk, Connecticut in April 2022.

The increase in interest income in the three months ended March 31, 2024 reflects higher interest rates and cash balances compared to the three months ended March 31, 2023.

Gain on Sale/Disposition of Property

The gain on disposition activity for the three months ended March 31, 2023 relates to the disposition of 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023.

Observatory Segment

Observatory Revenue

Observatory revenues were higher driven by increased visitation and revenue per visitor during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Observatory Expenses

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

The increase in income tax expense was attributable to a $3.9 million increase in income before taxes for the observatory segment for the nine months ended September 30, 2023.

Observatory revenues were higher driven by increased visitation and revenue per visitor during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, and helped by the shift in the timing of the Easter holiday that fell in March during 2024 as compared to April in 2023.

Liquidity and Capital Resources

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

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

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

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

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

At September 30, 2023, we had $354.0 million available in cash and cash equivalents, and $850 million available under our unsecured revolving credit facility.

As of September 30, 2023, we had approximately $2.2 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.9% and a weighted average maturity of 5.7 years.

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

At March 31, 2024, we had $333.6 million available in cash and cash equivalents, and $500.0 million available under our unsecured revolving credit facility.

As of March 31, 2024, we had approximately $2.2 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.97% and a weighted average maturity of 5.4 years.

Portfolio Transaction Activity

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On September 14, 2023, we closed on the acquisition of a Williamsburg retail property located on the corner of North 6 th Street and Wythe Avenue in Brooklyn, New York, for a purchase price of $26.4 million.

On March 28, 2024, we executed a buyout of our partner's 10% interest in two of our multifamily properties located at 561 10 th Avenue and 345 East 94 th Street in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place debt and now own 100% of the ownership interests in these assets.

Unsecured Revolving Credit and Term Loan Facilities

See "Financial Statements - Note 5.

Debt" for a summary of our unsecured revolving credit and term loan facilities.

Mortgage Debt

As of September 30, 2023, our consolidated mortgage notes payable amounted to $893.9 million.

We have no debt maturity until November 2024.

See "Financial Statements - Note 5.

Debt" for more information on mortgage debt.

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.

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

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

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

During March 2024, we closed on the BofA Credit Facilities, a $715 million, five-year unsecured credit agreement which consists of the $620.0 million Revolving Credit Facility and the $95.0 million BofA Term Loan Facility.

The Revolving Credit Facility matures on March 8, 2029, inclusive of two six-month extension periods and replaced the existing revolving credit facility that was due to mature in March 2025.

The BofA Term Loan Facility matures on March 8, 2029, inclusive of two twelve-month extension periods and replaced the existing term loan facility that matures in March 2025.

Initial interest rates on the new facility, which may change based on our leverage levels, are adjusted SOFR plus 130 basis points for any drawn portion of the Revolving Credit Facility and adjusted SOFR plus 150 basis points for the BofA Term Loan Facility.

In addition, the BofA Credit Facilities have a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved each year.

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

Financial Covenants

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

Financial covenant Required September 30, 2023 In Compliance

As of March 31, 2024, we were in compliance with the following financial covenants:

Financial Covenant Required March 31, 2024 In Compliance

Maximum total leverage < 60% 34.7% Yes

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Maximum unsecured leverage < 60% 24.3% Yes

Mortgage Debt

As of March 31, 2024, mortgage notes payable, net, amounted to $876.5 million.

The next mortgage debt maturity is November 2024.

In April 2024, we worked with the First Stamford P lace mortgage lender to structure a cooperative consensual foreclosure, which is anticipated to be completed by June 30, 2024.

Upon completion, this transaction is expected to eliminate a $175.9 million liability that matures in July 2027 from the balance sheet.

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

Senior Unsecured Notes

As of March 31, 2024, we were in compliance with these covenants.

On April 10, 2024, we entered into the Purchase Agreement in connection with a private placement of the Notes.

Under the Purchase Agreement, we will issue and sell an aggregate $225 million principal amount of its Notes, consisting of (a) $155 million aggregate principal amount of 7.20% Series I Green Guaranteed Senior Notes due June 17, 2029, (b) $45 million aggregate principal amount of 7.32% Series J Green Guaranteed Senior Notes due June 17, 2031 and (c) $25 million aggregate principal amount of 7.41% Series K Green Guaranteed Senior Notes due June 17, 2034.

The sale and purchase of the Notes is scheduled to be held on June 17, 2024, subject to customary closing conditions.

The issue price for the Notes is 100% of the aggregate principal amount thereof.

Pursuant to the terms of the Purchase Agreement, we may prepay all or a portion of the Notes upon notice to the holders at a price equal to 100% of the principal amount so prepaid plus a make-whole premium as set forth in the Purchase Agreement.

The Purchase Agreement contains customary covenants and customary events of default similar to those in our Series A-H senior unsecured notes.

See "Financial Statements - Note 5 Debt" for more information on senior unsecured notes.

Leverage Policies

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Capital Expenditures

The following tables summarize our leasing commission costs, tenant improvement costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts).

The following tables summarize our tenant improvement costs, leasing commission costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts).

Office Properties (1)(5)

Nine Months Ended September 30,

Three Months Ended March 31,

Total New Leases, Expansions, and Renewals 2024 2023

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Retail Properties (4)(5)

Nine Months Ended September 30,

Three Months Ended March 31,

Total New Leases, Expansions, and Renewals 2024 2023

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Total square feet

14,263 45,655

Leasing commission costs per square foot (3)

$ 47.80 $ 59.85

Tenant improvement costs per square foot (3)

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_______________

(1) Excludes an aggregate of 488,569 and 498,196 rentable square feet of retail space in our Manhattan office in 2024 and 2023, respectively.

Includes the Empire State Building broadcasting licenses and Observatory operations.

(2) Presents a renewed and expansion lease as one lease signed.

(3) Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid.

Nine Months Ended September 30,

Total Portfolio

(4) Includes an aggregate of 488,569 and 498,196 rentable square feet of retail space in our Manhattan office in 2024 and 2023, respectively.

Excludes the Empire State Building broadcasting licenses and Observatory operations.

(5) The tables above exclude our multifamily properties.

Three Months Ended March 31,

Total Commercial Portfolio

Capital expenditures (1)

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_______________

(1) Excludes tenant improvements and leasing commission costs.

As of September 30, 2023, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $139.3 million for tenant improvements and leasing commissions.

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

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

As of March 31, 2024, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $125.2 million for tenant improvements and leasing commissions.

We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand and borrowings.

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

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

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

Off-Balance Sheet Arrangements

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

As of March 31, 2024, we did not have any off-balance sheet arrangements.

Distribution Policy

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

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

federal income tax liability.

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

However, under some circumstances, we may be required to

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

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

Distribution to Equity Holders

Distributions and dividends amounting to $30.8 million and $32.2 million have been made to equity holders for the nine months ended September 30, 2023 and 2022, respectively.

Distributions and dividends amounting to $10.6 million and $9.7 million have been made to equity holders for the three months ended March 31, 2024 and 2023, respectively.

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.

ESRT's Board of Directors authorized the repurchase of up to $500 million of ESRT Class A common stock and our Series ES, Series 250 and Series 60 operating partnership units from January 1, 2024 through December 31, 2025.

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 at our discretion 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.

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's and our discretion without prior notice.

As of March 31, 2024, we had $500 million remaining of the authorized repurchase amount.

There were no repurchases of equity securities during the three months ended March 31, 2024.

See "Financial Statements - Note 10.

Comparison of Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Cash and cash equivalents and restricted cash were $421.0 million and $439.8 million, respectively, as of September 30, 2023 and 2022.

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

Comparison of Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Cash and cash equivalents and restricted cash were $385.3 million and $380.8 million, respectively, as of March 31, 2024 and 2023.

The increase was primarily the result of the following changes in cash flows:

Operating activities .

Net cash provided by operating activities increased by $22.0 million to $196.0 million due to increased observatory operating income and changes in working capital.

Net cash provided by operating activities decreased by $15.5 million to $70.9 million due to changes in working capital, particularly a reduction in security deposits as more tenants replaced cash deposits with letters of credit in the current period.

Investing activities .

Net cash used in investing activities decreased by $49.7 million to $39.4 million primarily due to net proceeds from the disposition of 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023, and 500 Mamaroneck in Harrison, New York in April 2023.

Net cash used in investing activities increased by $68.7 million to $71.3 million primarily due to the acquisition of non-controlling interests in other partnerships (see "Financial Statements - Note 3.

Acquisitions and Dispositions") as well as there being no proceeds from the disposition of property in the current period.

Also during the current period, we paid post-closing costs on a prior period sale of property and spent more on capital expenditures.

Financing activities .

Net cash used in financing activities decreased by $69.3 million to $50.4 million primarily due to lower repurchases of common shares.

Net Operating Income ("NOI")

Our financial reports include a discussion of property net operating income, or NOI.

NOI is a non-GAAP financial measure of performance.

Net cash used in financing activities increased by $3.7 million to $21.3 million primarily due to financing costs in connection with the recast of our revolving credit and term loan facilities in the current period.

Net Operating Income

Net operating income ("NOI") is a non-GAAP financial measure of performance.

NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by:

(i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner.

The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner and because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future.

Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions.

(i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt, impairment charges and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner.

The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner.

The cost of funds is eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future.

changes in market conditions.

While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time.

9 unchanged sentences

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

(unaudited) (unaudited)

Three Months Ended March 31,

$ 10,215 $ 11,694

5 unchanged sentences

25,128 25,304

Income tax expense (benefit)

Loss on early extinguishment of debt

Income tax benefit

(655) (1,219)

Gain on disposition of property — — (29,261) (27,170)

Gain on sale/disposition of property — (15,696)

Third-party management and other fees

(268) (389) (1,076) (1,025)

Interest income

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Net increase in rental revenue from the amortization of above-and below-market lease assets and liabilities

$ 554 $ 677 $ 1,932 $ 4,136

Amortization of acquired below-market ground leases

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FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs.

In addition, we believe FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets.

much greater extent than do other depreciable assets.

Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT’s operating performance.

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

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

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

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

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

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Core Funds From Operations

Core FFO adds back to Modified FFO the following items:

IPO litigation expense, severance expenses and loss on early extinguishment of debt.

The Company believes Core FFO is an important supplemental measure of its operating performance because it excludes items associated with its IPO and formation transactions and other non-recurring items.

Core FFO adds back to Modified FFO the following item:

loss on early extinguishment of debt.

The Company believes Core FFO is an important supplemental measure of its operating performance because it excludes non-recurring items.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

(unaudited) (unaudited)

Three Months Ended March 31,

$ 10,215 $ 11,694

Noncontrolling interests in other partnerships (111) 49 (69) 271

Non-controlling interests in other partnerships (4) 43

Private perpetual preferred unit distributions

3 unchanged sentences

Gain on disposition of property

— — (29,261) (27,170)

FFO attributable to common unitholders

1 unchanged sentence

Amortization of below-market ground leases

1,957 1,957 5,873 5,873

Modified FFO attributable to common unitholders

55,976 42,973

Loss on early extinguishment of debt

Core FFO attributable to common unitholders

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

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.

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

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

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

As of September 30, 2023, there were approximately 0.9 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 9.5% of the net rentable square footage of the properties in our portfolio.

In addition, leases representing 2.9% and 5.3% of net rentable square footage of the properties in our portfolio will expire in 2023 and in 2024, respectively.

As of March 31, 2024, there were approximately 0.8 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 8.9% of the net rentable square footage of the properties in our commercial portfolio.

In addition, leases representing 6.2% and 6.5% of net rentable square footage of the properties in our commercial portfolio will expire in 2024 and in 2025, respectively.

These leases are expected to represent approximately 6.0% and 7.5%, respectively, of our annualized rent for such periods.

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Observatory Operations

For the three months ended September 30, 2023, the observatory hosted 743,000 visitors, compared to 687,000 visitors for the three months ended September 30, 2022.

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

Observatory revenue for the three months ended September 30, 2023 was $37.6 million, compared to $33.1 million for the three months ended September 30, 2022.

For the three months ended March 31, 2024, the Observatory hosted 485,000 visitors, compared to 443,000 visitors for the three months ended March 31, 2023, an increase of 9%.

Observatory revenue for the three months ended March 31, 2024 was $24.6 million, an 11% increase from $22.2 million for the three months ended March 31, 2023.

The Observatory revenue increase was driven by higher visitation levels in 2024.

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ESRT’s New York City-focused portfolio is modernized, amenitized, well-located and energy efficient, with indoor environmental quality, competitive rental rates and strong leased percentages.

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

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

In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and access to liquidity as set forth herein.

We believe our business is further fortified by the continued performance of our Observatory attraction.

In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and good access to liquidity as set forth herein.

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

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis