[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%201.%20FINANCIAL%20INFORMATION) [Financial Statements](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The company's financial statements for the period ended September 30, 2023, show total assets of $4.22 billion, a slight increase from $4.16 billion at year-end 2022. For the nine months ended September 30, 2023, net income attributable to common stockholders was $39.9 million, a significant increase from $23.8 million in the prior-year period, driven by higher observatory revenue and gains on property dispositions. Cash flow from operations also increased to $196.0 million from $174.0 million year-over-year [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets were $4.217 billion, a slight increase from $4.164 billion at December 31, 2022. The increase was primarily driven by a rise in cash and cash equivalents. Total liabilities remained stable at approximately $2.48 billion, while total equity increased to $1.733 billion from $1.683 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Commercial real estate properties, net | $2,402,130 | $2,414,182 | | Cash and cash equivalents | $353,999 | $264,434 | | Total assets | $4,216,547 | $4,163,594 | | **Liabilities & Equity** | | | | Mortgage notes payable, net | $878,757 | $883,705 | | Senior unsecured notes, net | $973,819 | $973,659 | | Total liabilities | $2,483,227 | $2,480,503 | | Total equity | $1,733,320 | $1,683,091 | | Total liabilities and equity | $4,216,547 | $4,163,594 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the third quarter of 2023, total revenues increased to $191.5 million from $183.7 million year-over-year, primarily due to a 13.6% rise in Observatory revenue. Net income attributable to common stockholders more than doubled to $11.6 million, or $0.07 per diluted share, compared to $5.6 million, or $0.03 per diluted share, in Q3 2022. For the nine-month period, net income attributable to common stockholders rose to $39.9 million from $23.8 million Q3 2023 vs Q3 2022 Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total revenues | $191,526 | $183,712 | | Rental revenue | $151,458 | $148,290 | | Observatory revenue | $37,562 | $33,051 | | Total operating income | $42,257 | $35,527 | | Net income attributable to common stockholders | $11,560 | $5,557 | | Diluted EPS | $0.07 | $0.03 | Nine Months Ended Sep 30, 2023 vs 2022 Performance (in thousands, except per share) | Metric | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Total revenues | $546,690 | $545,768 | | Observatory revenue | $93,149 | $73,660 | | Gain on disposition of property | $29,261 | $27,170 | | Net income attributable to common stockholders | $39,933 | $23,847 | | Diluted EPS | $0.25 | $0.14 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash provided by operating activities increased to $196.0 million from $174.0 million in the prior-year period. Net cash used in investing activities decreased significantly to $39.4 million from $89.1 million, mainly due to proceeds from property dispositions. Net cash used in financing activities also decreased to $50.4 million from $119.7 million, primarily due to lower share repurchases Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $196,048 | $173,985 | | Net cash used in investing activities | ($39,379) | ($89,116) | | Net cash used in financing activities | ($50,394) | ($119,692) | | **Net increase (decrease) in cash** | **$106,275** | **($34,823)** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business as a New York City-focused REIT with a portfolio of office, retail, and multifamily assets, including the Empire State Building Observatory. Key notes cover acquisitions and dispositions, debt structure, lease information, segment performance, and equity compensation. In Q3 2023, the company acquired a retail property in Brooklyn for $26.4 million. Total debt stood at $2.26 billion, with no significant maturities until November 2024. The company remains in compliance with all debt covenants - As of September 30, 2023, ESRT's portfolio comprised approximately **8.6 million rentable sq. ft. of office space**, **0.7 million rentable sq. ft. of retail space**, and **727 residential units**, primarily in New York City[26](index=26&type=chunk) - On September 14, 2023, the company acquired a retail property in Williamsburg, Brooklyn for **$26.4 million**. In early 2023, it disposed of properties in Harrison, NY, and Westport, CT, for a total of **$93.0 million**, generating a combined gain of **$29.3 million**[37](index=37&type=chunk)[40](index=40&type=chunk) - Total principal debt as of September 30, 2023, was approximately **$2.26 billion**, consisting of mortgage debt, senior unsecured notes, and unsecured term loan facilities. The company was in compliance with all debt covenants[48](index=48&type=chunk)[49](index=49&type=chunk) - The company has two reportable segments: Real Estate and Observatory. For Q3 2023, the Real Estate segment generated **$15.2 million in net income**, while the Observatory segment generated **$4.7 million**[113](index=113&type=chunk)[115](index=115&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management reports strong Q3 2023 results, with net income attributable to common stockholders of $11.6 million and Core FFO of $65.9 million. The performance was driven by a 13.6% year-over-year increase in Observatory revenue and stable rental revenue. The company maintains a strong liquidity position with $354.0 million in cash and $850 million available on its credit facility, with no significant debt maturities until late 2024. While acknowledging macroeconomic uncertainties, management believes its diversified, modernized New York City-focused portfolio and strong balance sheet position it well competitively - Highlights for Q3 2023 include net income of **$11.6 million**, Core FFO of **$65.9 million**, and signing **248,479 rentable square feet of leases**. The Empire State Building Observatory generated **$28.1 million of net operating income**[126](index=126&type=chunk) - The company maintains a strong liquidity position with **$354.0 million in cash and cash equivalents** and **$850 million available** under its unsecured revolving credit facility as of September 30, 2023[146](index=146&type=chunk) - Management acknowledges global economic uncertainty but believes ESRT is well-positioned due to its diversified income drivers (office, retail, multifamily, observatory), modernized NYC-focused portfolio, and a strong balance sheet with no near-term debt maturities[188](index=188&type=chunk)[189](index=189&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) For Q3 2023, total revenues grew 4.3% YoY to $191.5 million, driven by a $4.5 million (13.6%) increase in Observatory revenue. Real Estate rental revenue saw a modest 2.1% increase. For the nine-month period, Observatory revenue grew 26.5% YoY, while a $20 million lease termination fee in 2022 kept total revenue growth nearly flat at 0.2%. The decrease in nine-month depreciation and amortization was due to accelerated depreciation on a disposed property in 2022 - Q3 2023 vs. Q3 2022: Observatory revenue increased by **$4.5 million (13.6%)** due to higher visitation and revenue per visitor. Rental revenue increased by **$3.2 million (2.1%)** from new leases and higher rents[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - YTD 2023 vs. YTD 2022: Observatory revenue increased by **$19.5 million (26.5%)**. Total revenue growth was muted by the absence of a **$20.0 million lease termination fee** that was recognized in 2022[133](index=133&type=chunk) - YTD 2023 vs. YTD 2022: Depreciation and amortization decreased by **$32.1 million**, primarily reflecting accelerated depreciation in 2022 related to the consensual foreclosure of the 383 Main Avenue property[133](index=133&type=chunk)[138](index=138&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) The company has a strong liquidity position with $354.0 million in cash and $850 million available under its credit facility. Total debt is approximately $2.2 billion with a weighted average interest rate of 3.9% and no maturities until November 2024. The company is in compliance with all financial covenants, maintaining a total leverage ratio of 33.2% against a required maximum of 60%. Capital expenditure commitments for existing leases are estimated at $139.3 million Financial Covenant Compliance (as of Sep 30, 2023) | Financial covenant | Required | Actual | In Compliance | | :--- | :--- | :--- | :--- | | Maximum total leverage | < 60% | 33.2 % | Yes | | Maximum secured leverage | < 40% | 13.0 % | Yes | | Minimum fixed charge coverage | > 1.50x | 3.0x | Yes | | Minimum unencumbered interest coverage | > 1.75x | 5.3x | Yes | | Maximum unsecured leverage | < 60% | 24.8 % | Yes | - As of September 30, 2023, the company had approximately **$2.2 billion of total consolidated debt** with a weighted average interest rate of **3.9%** and a weighted average maturity of **5.7 years**[146](index=146&type=chunk) - The company expects to incur approximately **$139.3 million** for future tenant improvements and leasing commissions related to existing lease agreements[159](index=159&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like NOI, FFO, and Core FFO to evaluate performance. For Q3 2023, Net Operating Income (NOI) was $104.6 million, up from $97.8 million in Q3 2022. Core Funds From Operations (Core FFO) for Q3 2023 was $65.9 million, an increase from $56.5 million in the prior-year quarter Reconciliation of Net Income to NOI (in thousands) | | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net income | $19,928 | $10,118 | | Adjustments... | ... | ... | | **Net operating income** | **$104,625** | **$97,847** | Reconciliation of Net Income to Core FFO (in thousands) | | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net income | $19,928 | $10,118 | | Real estate depreciation and amortization | $45,174 | $45,461 | | Other adjustments... | ... | ... | | **FFO** | **$63,941** | **$54,578** | | Amortization of below-market ground leases | $1,957 | $1,957 | | **Modified FFO** | **$65,898** | **$56,535** | | **Core FFO** | **$65,898** | **$56,535** | [Quantitative and Qualitative Disclosure About Market Risk](index=44&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company is primarily exposed to interest rate risk on its variable-rate debt and future refinancings. To mitigate this, ESRT uses fixed-rate debt and derivative instruments like interest rate swaps. As of September 30, 2023, the company had interest rate swap and cap agreements with a notional value of $573.6 million. The weighted average interest rate on its $2.2 billion of fixed-rate debt was 3.9% per annum - The company uses derivative financial instruments, such as interest rate swaps and caps, to manage interest rate risk on floating-rate debt[192](index=192&type=chunk) - As of September 30, 2023, the company had interest rate swap and cap agreements with an aggregate notional value of **$573.6 million**[193](index=193&type=chunk) - The weighted average interest rate on the company's **$2.2 billion of fixed-rate debt** was **3.9%** per annum as of September 30, 2023[194](index=194&type=chunk) [Controls and Procedures](index=44&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2023. They concluded that these controls were effective. There were no material changes to the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[197](index=197&type=chunk) - No material changes to internal control over financial reporting occurred during the third quarter of 2023[198](index=198&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=44&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in an ongoing arbitration dispute with former investors of Empire State Building Associates L.L.C. related to the IPO. An initial award of approximately $1.2 million to the claimants was confirmed by a New York State court in July 2023. The company has appealed this ruling and believes it is incorrect. Other than this, the company is not involved in any material litigation outside the ordinary course of business - The company is appealing a New York State court ruling that confirmed a **~$1.2 million** arbitration award in favor of former investors related to the IPO[78](index=78&type=chunk) - The company believes the ruling is incorrect and the appeal is pending. Other than routine litigation, no other material legal proceedings are reported[77](index=77&type=chunk)[78](index=78&type=chunk) [Risk Factors](index=45&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - As of September 30, 2023, there were no material changes to the company's risk factors[200](index=200&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECUIRITIES%20AND%20USE%20OF%20PROCEEDS) The company did not have any unregistered sales of equity securities. Under its stock repurchase program, authorized through December 31, 2023, no equity securities were repurchased during the three-month period ended September 30, 2023. Approximately $396.7 million remains available under the $500 million authorization - No equity securities were repurchased in the three months ended September 30, 2023[203](index=203&type=chunk) - The company has a **$500 million** stock repurchase program authorized through December 31, 2023, with approximately **$396.7 million** remaining available as of September 30, 2023[202](index=202&type=chunk) [Exhibits](index=46&type=section&id=ITEM%206.%20EXHIBITS) The report includes several exhibits filed herewith, including CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and XBRL data files - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files (101 series)[208](index=208&type=chunk)

Empire State Realty Trust Inc. (NYSE:ESRT) Q3 2023 Results Conference Call October 26, 2023 12:00 PM ET Company Participants Katy Malonoski - VP and Head of Investor Relations Anthony Malkin - Chairman, President and CEO Tom Durels - Executive Vice President of Real Estate Christina Chiu - Executive VP, COO and CFO Financial & Investment Officer Conference Call Participants Steve Sakwa - Evercore Michael Griffin - Citi John Kim - BMO Capital Markets Camille Bonnel - Bank of America Blaine Heck - Wells Fargo ...

[FORM 10-Q Header](index=1&type=section&id=FORM%2010-Q%20Header) [TABLE OF CONTENTS](index=2&type=section&id=TABLE%20OF%20CONTENTS) [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes, along with management's discussion and analysis of financial condition and results of operations [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements of Empire State Realty Trust, Inc. for the quarter and six months ended June 30, 2023, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, acquisitions, debt, equity, and segment performance - The financial statements are unaudited and prepared in conformity with GAAP for interim financial information[29](index=29&type=chunk) - The observatory business is subject to seasonality based on tourism trends and weather, with the second quarter typically realizing **26-28%** of annual observatory revenue[30](index=30&type=chunk)[32](index=32&type=chunk) - The multifamily business also experiences some seasonality, with slower leasing activity in winter months[32](index=32&type=chunk) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show the financial position of Empire State Realty Trust, Inc. as of June 30, 2023, compared to December 31, 2022, detailing assets, liabilities, and equity Balance Sheet Data | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total assets | $4,184,768 | $4,163,594 | $21,174 | | Total liabilities | $2,473,156 | $2,480,503 | $(7,347) | | Total equity | $1,711,612 | $1,683,091 | $28,521 | | Cash and cash equivalents | $315,357 | $264,434 | $50,923 | | Commercial real estate properties, net | $2,385,324 | $2,414,182 | $(28,858) | | Assets held for sale | $— | $35,538 | $(35,538) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The condensed consolidated statements of operations provide a comparative view of revenues, operating expenses, and net income for the three and six months ended June 30, 2023, and 2022 Operations Data | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Total revenues | $190,542 | $198,022 | $(7,480) | (3.8)% | | Total operating expenses | $144,353 | $151,523 | $(7,170) | (4.7)% | | Total operating income | $46,189 | $46,499 | $(310) | (0.7)% | | Net income | $36,955 | $48,695 | $(11,740) | (24.1)% | | Net income attributable to common stockholders | $21,854 | $29,579 | $(7,725) | (26.1)% | | Basic EPS | $0.14 | $0.18 | $(0.04) | (22.2)% | | Diluted EPS | $0.14 | $0.18 | $(0.04) | (22.2)% | | Dividends per share | $0.035 | $0.035 | $0.000 | 0.0% | | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Total revenues | $355,164 | $362,056 | $(6,892) | (1.9)% | | Total operating expenses | $291,487 | $309,509 | $(18,022) | (5.8)% | | Total operating income | $63,677 | $52,547 | $11,130 | 21.2% | | Net income | $48,649 | $31,474 | $17,175 | 54.6% | | Net income attributable to common stockholders | $28,373 | $18,290 | $10,083 | 55.1% | | Basic EPS | $0.18 | $0.11 | $0.07 | 63.6% | | Diluted EPS | $0.18 | $0.11 | $0.07 | 63.6% | | Dividends per share | $0.070 | $0.070 | $0.000 | 0.0% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) The condensed consolidated statements of comprehensive income show net income and other comprehensive income components, primarily unrealized gains on interest rate swap agreements, for the three and six months ended June 30, 2023, and 2022 Comprehensive Income Data | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Net income | $36,955 | $48,695 | $(11,740) | (24.1)% | | Other comprehensive income | $10,053 | $12,798 | $(2,745) | (21.4)% | | Comprehensive income | $47,008 | $61,493 | $(14,485) | (23.6)% | | Comprehensive income attributable to common stockholders | $27,809 | $36,457 | $(8,648) | (23.7)% | | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Net income | $48,649 | $31,474 | $17,175 | 54.6% | | Other comprehensive income | $3,379 | $25,855 | $(22,476) | (87.0)% | | Comprehensive income | $52,028 | $57,329 | $(5,301) | (9.2)% | | Comprehensive income attributable to common stockholders | $30,489 | $33,263 | $(2,774) | (8.3)% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) The condensed consolidated statements of stockholders' equity detail changes in equity for the three and six months ended June 30, 2023, and 2022 Stockholders' Equity Data | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | Total Empire State Realty Trust, Inc. stockholders' equity | $965,950 | $954,375 | $11,575 | | Non-controlling interests in the Operating Partnership | $700,282 | $683,310 | $16,972 | | Total equity | $1,711,612 | $1,683,091 | $28,521 | - Repurchases of common shares amounted to **$7.4 million** for the three months ended June 30, 2023, and **$13.1 million** for the six months ended June 30, 2023[14](index=14&type=chunk)[16](index=16&type=chunk) - Net income attributable to common stockholders was **$21.9 million** for the three months ended June 30, 2023, and **$28.4 million** for the six months ended June 30, 2023[14](index=14&type=chunk)[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The condensed consolidated statements of cash flows present the cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 Cash Flow Data | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | | Net cash provided by operating activities | $105,906 | $83,678 | $22,228 | | Net cash provided by (used in) investing activities | $12,744 | $(56,645) | $69,389 | | Net cash used in financing activities | $(37,520) | $(88,912) | $51,392 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $81,130 | $(61,879) | $143,009 | | Cash and cash equivalents and restricted cash—end of period | $395,808 | $412,759 | $(16,951) | - Cash paid for interest increased to **$46.1 million** for the six months ended June 30, 2023, from **$40.2 million** in the prior year[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes to the condensed consolidated financial statements, covering the company's business, accounting policies, recent acquisitions and dispositions, debt structure, equity, and segment performance [Note 1. Description of Business and Organization](index=10&type=section&id=Note%201.%20Description%20of%20Business%20and%20Organization) Empire State Realty Trust, Inc. (ESRT) is a self-administered and self-managed REIT focused on owning, managing, operating, acquiring, and repositioning office, retail, and multifamily properties in Manhattan and the greater New York metropolitan area, including the iconic Empire State Building and its Observatory Experience - ESRT is a REIT that owns and operates office, retail, and multifamily properties in Manhattan and the greater New York metropolitan area[25](index=25&type=chunk) - As of June 30, 2023, the portfolio included **9.4 million** rentable square feet of office and retail space, with **11** office properties (**8.6 million** sq ft), **4** standalone retail properties (**0.2 million** sq ft), and **3** multifamily properties (**721** units)[26](index=26&type=chunk) - ESRT owns approximately **59.4%** of the aggregate operating partnership units in its Operating Partnership, which holds substantially all assets and conducts business[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies used in preparing the unaudited condensed consolidated financial statements, emphasizing conformity with GAAP and SEC rules for interim reporting - Financial statements are prepared in conformity with GAAP for interim information and SEC rules, with certain disclosures condensed or omitted[29](index=29&type=chunk) - The observatory business is seasonal, with **26-28%** of annual revenue typically realized in Q2, while the multifamily business also experiences seasonality[30](index=30&type=chunk)[32](index=32&type=chunk) - The company consolidates entities where it has a controlling financial interest, including its Operating Partnership, which is identified as a Variable Interest Entity (VIE)[33](index=33&type=chunk) [Note 3. Acquisitions and Dispositions](index=11&type=section&id=Note%203.%20Acquisitions%20and%20Dispositions) This note details the company's property disposition activities during the reporting period - Sold **500** Mamaroneck Avenue in Harrison, NY, on April 5, 2023, for a gross asset valuation of **$53.0 million**, recording a gain of **$13.6 million**[37](index=37&type=chunk) - Sold **69-97** and **103-107** Main Street in Westport, CT, on February 1, 2023, for a gross asset valuation of **$40.0 million**, recording a gain of **$15.7 million**[39](index=39&type=chunk) [Note 4. Deferred Costs, Acquired Lease Intangibles and Goodwill](index=12&type=section&id=Note%204.%20Deferred%20Costs%2C%20Acquired%20Lease%20Intangibles%20and%20Goodwill) This note provides a breakdown of deferred costs, acquired lease intangibles, and goodwill Deferred Costs, Acquired Lease Intangibles and Goodwill Table | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Total deferred costs, net (excluding net deferred financing costs) | $172,754 | $183,977 | | Acquired below-market ground leases, net | $325,157 | $329,073 | | Acquired below-market leases, net | $(15,280) | $(17,849) | | Goodwill | $491,479 | $491,479 | - Amortization expense for deferred leasing costs was **$11.9 million** for the six months ended June 30, 2023, and **$4.6 million** for acquired lease intangibles[41](index=41&type=chunk) - Goodwill of **$491.5 million** is allocated **$227.5 million** to the observatory segment and **$264.0 million** to the real estate segment[43](index=43&type=chunk) - A qualitative assessment for the quarter ended June 30, 2023, indicated no impairment of goodwill for the observatory reportable segment[44](index=44&type=chunk)[46](index=46&type=chunk) [Note 5. Debt](index=13&type=section&id=Note%205.%20Debt) This note details the company's debt structure, including mortgage notes payable, senior unsecured notes, and unsecured term loan facilities Debt Summary | Debt Type (in thousands) | Principal Balance as of June 30, 2023 | Principal Balance as of December 31, 2022 | | :------------------------------------ | :------------------------------------ | :---------------------------------------- | | Total mortgage debt | $896,361 | $900,630 | | Senior unsecured notes | $875,000 | $875,000 | | Unsecured term loan facility (BofA) | $215,000 | $215,000 | | Unsecured term loan facility (Wells Fargo) | $175,000 | $175,000 | | Total principal | $2,261,361 | $2,265,630 | - Weighted average interest rate on total consolidated indebtedness was **3.9%** with a weighted average maturity of **5.9 years** as of June 30, 2023[155](index=155&type=chunk) - The company was in compliance with all debt covenants as of June 30, 2023[47](index=47&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - Aggregate required principal payments for 2024 are **$86.5 million**, and for 2025 are **$321.9 million**[49](index=49&type=chunk) [Note 6. Accounts Payable and Accrued Expenses](index=15&type=section&id=Note%206.%20Accounts%20Payable%20and%20Accrued%20Expenses) This note provides a breakdown of accounts payable and accrued expenses, which totaled $71.7 million as of June 30, 2023, a decrease from $80.7 million at December 31, 2022 Accounts Payable and Accrued Expenses Summary | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Accrued capital expenditures | $38,677 | $44,293 | | Accounts payable and accrued expenses | $29,468 | $32,927 | | Accrued interest payable | $3,564 | $3,509 | | Total accounts payable and accrued expenses | $71,709 | $80,729 | [Note 7. Financial Instruments and Fair Values](index=15&type=section&id=Note%207.%20Financial%20Instruments%20and%20Fair%20Values) This note discusses the company's use of derivative financial instruments, primarily interest rate swaps and caps, to manage interest rate risk - The company uses derivative financial instruments (interest rate swaps and caps) to manage interest rate risk, not for speculative purposes[57](index=57&type=chunk) Financial Instruments and Fair Values Summary | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Notional value of interest rate swaps and caps | $574,000 | $574,800 | | Fair value of derivative instruments (asset position) | $19,361 | $17,936 | | Fair value of outstanding debt | $2,025,794 | $2,038,940 | | Book value of outstanding debt | $2,243,388 | $2,246,137 | - An estimated **$8.5 million** net gain from accumulated other comprehensive income related to derivatives is expected to be reclassified into interest expense within the next **12 months**[60](index=60&type=chunk) [Note 8. Leases](index=17&type=section&id=Note%208.%20Leases) This note covers the company's role as both a lessor and a lessee Lease Revenue Summary | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Fixed payments (rental revenue) | $138,318 | $134,794 | $262,882 | $268,195 | | Variable payments (rental revenue) | $16,285 | $14,545 | $31,812 | $28,658 | | Total rental revenue | $154,603 | $149,339 | $294,694 | $296,853 | - Future contractual minimum lease payments on non-cancellable operating leases total **$4.06 billion**, expiring through **2040**[68](index=68&type=chunk) - As a lessee, right-of-use assets and ground lease liabilities were **$28.6 million** as of June 30, 2023, with a weighted average remaining lease term of **46.9 years**[72](index=72&type=chunk)[73](index=73&type=chunk) - The company reversed **$5.8 million** of a **$6.4 million** reserve for Signature Bank's straight-line rent receivable after Flagstar Bank assumed the lease at 1400 Broadway[70](index=70&type=chunk) [Note 9. Commitments and Contingencies](index=19&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note addresses legal proceedings, unfunded capital expenditures, concentration of credit risk, asset retirement obligations, and other environmental matters - An arbitration award of approximately **$1.2 million** (inclusive of interest) was confirmed against the Respondents in litigation related to the IPO and Empire State Building Associates[77](index=77&type=chunk) - The company estimates approximately **$138.4 million** in unfunded capital expenditures (tenant improvements and leasing commissions) for existing lease agreements[79](index=79&type=chunk) - The company holds cash and cash equivalents and restricted cash balances in excess of FDIC insured amounts at major financial institutions, posing a concentration of credit risk[81](index=81&type=chunk) - The company has identified asbestos in certain properties but has no current plans for removal that would trigger federal regulations, thus the fair value of the associated asset retirement obligation is indeterminable[82](index=82&type=chunk) [Note 10. Equity](index=20&type=section&id=Note%2010.%20Equity) This note details the company's equity structure, including common stock, operating partnership units (OP Units), and private perpetual preferred units Equity Structure | Metric | June 30, 2023 | | :------------------------------------ | :------------ | | Class A common stock shares outstanding | 159,842,614 | | Class B common stock shares outstanding | 988,180 | | Operating Partnership Units (OP Units) outstanding | 110,086,858 | | REIT controlling interest in OP | 59.4% | | Noncontrolling interest in OP | 40.6% | - The company's Board authorized a repurchase program of up to **$500 million** of Class A common stock and OP units from January 1, 2022, through December 31, 2023, with **$396.7 million** remaining as of June 30, 2023[93](index=93&type=chunk)[210](index=210&type=chunk) - Total dividends paid to common stockholders were **$11.3 million** for the six months ended June 30, 2023[98](index=98&type=chunk) - In May 2023, **237,856** LTIP units with a fair market value of **$1.2 million** were granted to non-employee directors, vesting over three or four years[100](index=100&type=chunk) [Note 11. Related Party Transactions](index=24&type=section&id=Note%2011.%20Related%20Party%20Transactions) This note discloses transactions with related parties, primarily entities affiliated with Anthony E. Malkin (Chairman, President, and CEO) Related Party Transactions Revenue | Revenue Type (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Supervisory fees | $300 | $300 | $500 | $500 | | Property management fees | $50 | $100 | $200 | $100 | | Other revenue (rent/support services) | $100 | $100 | $200 | $200 | - The company advanced a **$0.6 million** loan to the buyer of Westport retail assets in February 2023, with **$0.1 million** outstanding as of June 30, 2023[112](index=112&type=chunk) [Note 12. Segment Reporting](index=25&type=section&id=Note%2012.%20Segment%20Reporting) This note segments the company's operations into two reportable segments: real estate and observatory - The company operates in two reportable segments: real estate (ownership, management, operation of properties) and observatory (Empire State Building observatories)[113](index=113&type=chunk) Segment Performance | Metric (in thousands) | Real Estate Segment (3 Months Ended June 30, 2023) | Observatory Segment (3 Months Ended June 30, 2023) | Total (3 Months Ended June 30, 2023) | | :------------------------------------ | :------------------------------------------------- | :------------------------------------------------- | :----------------------------------- | | Total revenues | $178,051 | $33,433 | $190,542 | | Total operating expenses | $135,653 | $29,642 | $144,353 | | Net income | $33,650 | $3,305 | $36,955 | | Segment assets | $3,928,943 | $255,825 | $4,184,768 | | Metric (in thousands) | Real Estate Segment (6 Months Ended June 30, 2023) | Observatory Segment (6 Months Ended June 30, 2023) | Total (6 Months Ended June 30, 2023) | | :------------------------------------ | :------------------------------------------------- | :------------------------------------------------- | :----------------------------------- | | Total revenues | $336,433 | $55,587 | $355,164 | | Total operating expenses | $274,888 | $53,455 | $291,487 | | Net income | $45,549 | $3,100 | $48,649 | | Expenditures for segment assets | $35,576 | $58 | $35,634 | [Note 13. Subsequent Events](index=29&type=section&id=Note%2013.%20Subsequent%20Events) This note states that there were no subsequent events requiring disclosure after June 30, 2023 - No subsequent events were identified after June 30, 2023[119](index=119&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2023, compared to the prior year - The discussion compares performance for the three and six months ended June 30, 2023, with the corresponding periods in 2022[121](index=121&type=chunk) - Forward-looking statements are subject to substantial risks and uncertainties, including economic impact of catastrophic events, reduced demand for space, changes in tourism, increased borrowing costs, and declining real estate valuations[123](index=123&type=chunk)[124](index=124&type=chunk) [FORWARD-LOOKING STATEMENTS](index=30&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section clarifies that the report contains forward-looking statements, which are subject to substantial risks and uncertainties and should not be relied upon as predictions of future events - Forward-looking statements are identified by terms like "aims," "anticipates," "believes," "expects," and "will," and are covered by safe harbor provisions[122](index=122&type=chunk) - Key risks include economic impact of catastrophic events, reduced demand for office/multifamily/retail space, changes in tourism, increased borrowing costs, declining real estate valuations, and termination of ground leases[124](index=124&type=chunk) - The company assumes no obligation to update or revise publicly any forward-looking statement after the report date[125](index=125&type=chunk) [Overview](index=30&type=section&id=Overview) This overview highlights key achievements for the three months ended June 30, 2023, including net income attributable to common stockholders of $21.9 million, Core FFO of $69.2 million, a 90.3% leased commercial portfolio, significant leasing activity, and strong observatory performance - Net income attributable to common stockholders: **$21.9 million**[129](index=129&type=chunk) - Core Funds From Operations ("Core FFO") attributable to common stockholders and the operating partnership: **$69.2 million**[129](index=129&type=chunk) - Commercial portfolio **90.3%** leased; Manhattan office portfolio **91.6%** leased[129](index=129&type=chunk) - Signed **336,314** rentable square feet of new, renewal, and expansion leases[129](index=129&type=chunk) - Empire State Building Observatory generated **$24.8 million** of net operating income[129](index=129&type=chunk) - Repurchased **$7.4 million** of common stock in Q2 2023 and through July 25, 2023[129](index=129&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2023, versus 2022, broken down by Real Estate and Observatory segments [Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022](index=31&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202022) For the three months ended June 30, 2023, total revenues decreased by 3.8% to $190.5 million, primarily due to the absence of lease termination fees Results of Operations Summary | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Total revenues | $190,542 | $198,022 | $(7,480) | (3.8)% | | Net income attributable to common stockholders | $21,854 | $29,579 | $(7,725) | (26.1)% | | Rental revenue | $154,603 | $149,339 | $5,264 | 3.5% | | Observatory revenue | $33,433 | $27,368 | $6,065 | 22.2% | | Lease termination fees | $— | $18,859 | $(18,859) | (100.0)% | | Depreciation and amortization | $46,280 | $58,304 | $12,024 | 20.6% | | Interest income | $3,339 | $431 | $2,908 | 674.7% | | Gain on disposition of property | $13,565 | $27,170 | $(13,605) | (50.1)% | [Real Estate Segment](index=31&type=section&id=Real%20Estate%20Segment_3M) For the Real Estate segment in Q2 2023, rental revenue increased by 3.5% primarily due to the reversal of a straight-line rent receivable reserve related to Signature Bank - Rental revenue increased due to the reversal of a one-time straight-line rent receivable reserve tied to Signature Bank[131](index=131&type=chunk) - Property operating expenses increased due to higher repairs, maintenance, cleaning, and payroll costs[132](index=132&type=chunk) - Real estate taxes increased due to higher assessed values for multiple properties and the inclusion of a recently acquired multifamily property[133](index=133&type=chunk) - Depreciation and amortization decreased due to accelerated depreciation in Q2 2022 and the sale of properties[134](index=134&type=chunk) - Interest income increased significantly due to higher interest rates[135](index=135&type=chunk) - Gain on disposition of property reflects the sale of **500** Mamaroneck in April 2023[136](index=136&type=chunk) [Observatory Segment](index=33&type=section&id=Observatory%20Segment_3M) The Observatory segment experienced a 22.2% increase in revenue for Q2 2023, driven by higher visitation - Observatory revenues increased by **22.2%** due to higher visitation[137](index=137&type=chunk) - Observatory expenses increased by **11.3%** due to increased operating hours and higher variable costs (marketing, labor, maintenance)[138](index=138&type=chunk) - Income tax expense increased due to higher taxable income for the observatory segment[139](index=139&type=chunk) [Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022](index=33&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030%2C%202022) For the six months ended June 30, 2023, total revenues decreased by 1.9% to $355.2 million, primarily due to property dispositions and the absence of lease termination fees Results of Operations Summary | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | % Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | :------- | | Total revenues | $355,164 | $362,056 | $(6,892) | (1.9)% | | Net income attributable to common stockholders | $28,373 | $18,290 | $10,083 | 55.1% | | Rental revenue | $294,694 | $296,853 | $(2,159) | (0.7)% | | Observatory revenue | $55,587 | $40,609 | $14,978 | 36.9% | | Lease termination fees | $— | $20,032 | $(20,032) | (100.0)% | | Depreciation and amortization | $93,688 | $125,410 | $31,722 | 25.3% | | Interest income | $5,934 | $580 | $5,354 | 923.1% | | Gain on disposition of property | $29,261 | $27,170 | $2,091 | 7.7% | [Real Estate Segment](index=34&type=section&id=Real%20Estate%20Segment_6M) For the Real Estate segment in H1 2023, rental revenue slightly decreased due to property dispositions - Rental revenue decreased primarily due to the dispositions of four properties between April 2022 and April 2023[142](index=142&type=chunk) - Property operating expenses increased due to higher repairs, maintenance, cleaning, and payroll costs[143](index=143&type=chunk) - General and administrative expenses increased due to higher payroll and equity compensation costs[144](index=144&type=chunk) - Real estate taxes increased due to higher assessed values and the inclusion of a recently acquired multifamily property[145](index=145&type=chunk) - Depreciation and amortization decreased due to accelerated depreciation in H1 2022 and the sale of properties[147](index=147&type=chunk) - Interest income increased due to higher interest rates[148](index=148&type=chunk) - Gain on disposition of property reflects the sales of **500** Mamaroneck and Westport retail assets[149](index=149&type=chunk) [Observatory Segment](index=36&type=section&id=Observatory%20Segment_6M) The Observatory segment's revenue increased by 36.9% for H1 2023, driven by higher visitation - Observatory revenues increased by **36.9%** due to increased visitation[150](index=150&type=chunk) - Observatory expenses increased due to increased operating hours and higher variable costs (marketing, labor, maintenance)[151](index=151&type=chunk) - Income tax benefit decreased due to a lower taxable loss for the observatory segment[152](index=152&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its cash requirements, highlighting primary liquidity sources such as cash on hand, operating cash flows, debt issuances, and an $850 million unsecured revolving credit facility - Primary liquidity sources include cash on hand, operating cash flows, debt issuances, and an unsecured revolving credit facility[154](index=154&type=chunk) - As of June 30, 2023, the company had **$315.4 million** in cash and cash equivalents and **$850 million** available under its unsecured revolving credit facility[155](index=155&type=chunk) - Total consolidated indebtedness was approximately **$2.3 billion**, with a weighted average interest rate of **3.9%** and a weighted average maturity of **5.9 years**[155](index=155&type=chunk) - No outstanding debt matures until November 2024, excluding principal amortization[155](index=155&type=chunk) [Portfolio Transaction Activity](index=36&type=section&id=Portfolio%20Transaction%20Activity) This section summarizes recent property sales, including the disposition of 69-97 and 103-107 Main Street in Westport, Connecticut, for $40.0 million on February 1, 2023, and 500 Mamaroneck Avenue in Harrison, NY, for $53.0 million on April 5, 2023 - Sold **69-97** and **103-107** Main Street in Westport, CT, for **$40.0 million** on February 1, 2023[156](index=156&type=chunk) - Sold **500** Mamaroneck Avenue in Harrison, NY, for **$53.0 million** on April 5, 2023[157](index=157&type=chunk) [Unsecured Revolving Credit and Term Loan Facilities](index=37&type=section&id=Unsecured%20Revolving%20Credit%20and%20Term%20Loan%20Facilities) The company's BofA Credit Facility includes an $850.0 million revolving credit facility and a $215.0 million term loan, both maturing in March 2025 - BofA Credit Facility includes an **$850.0 million** revolving credit facility (matures March 2025) and a **$215.0 million** term loan (matures March 2025)[51](index=51&type=chunk) - Wells Term Loan Facility is for **$175.0 million** (matures December 2026)[52](index=52&type=chunk) - Both facilities' terms were revised to replace LIBOR with SOFR and allow multifamily assets as Unencumbered Eligible Property[51](index=51&type=chunk)[52](index=52&type=chunk) - As of June 30, 2023, there were no borrowings under the revolving credit facility and **$215.0 million** under the BofA term loan, and **$175.0 million** under the Wells Term Loan Facility[51](index=51&type=chunk)[52](index=52&type=chunk) [Mortgage Debt](index=37&type=section&id=Mortgage%20Debt) As of June 30, 2023, consolidated mortgage notes payable amounted to $896.4 million - Consolidated mortgage notes payable totaled **$896.4 million** as of June 30, 2023[159](index=159&type=chunk) - The first maturity for mortgage debt is in November 2024[159](index=159&type=chunk) [Senior Unsecured Notes](index=37&type=section&id=Senior%20Unsecured%20Notes) The company's senior unsecured notes include customary covenants and financial ratios, such as maximum leverage and minimum fixed charge coverage - Senior unsecured notes include customary covenants and financial ratios, such as maximum leverage ratio and minimum fixed charge coverage ratio[160](index=160&type=chunk) - As of June 30, 2023, the company was in compliance with all covenants under the outstanding senior unsecured notes[160](index=160&type=chunk) [Financial Covenants](index=37&type=section&id=Financial%20Covenants) As of June 30, 2023, Empire State Realty Trust was in compliance with all its financial covenants, including maximum total leverage (33.8% vs. <60%), maximum secured leverage (13.2% vs. <40%), minimum fixed charge coverage (3.1x vs. >1.50x), minimum unencumbered interest coverage (5.3x vs. >1.75x), and maximum unsecured leverage (25.1% vs. <60%) Financial Covenants Compliance | Financial covenant | Required | June 30, 2023 | In Compliance | | :------------------------------------ | :------- | :------------ | :------------ | | Maximum total leverage | < 60% | 33.8 % | Yes | | Maximum secured leverage | < 40% | 13.2 % | Yes | | Minimum fixed charge coverage | > 1.50x | 3.1x | Yes | | Minimum unencumbered interest coverage | > 1.75x | 5.3x | Yes | | Maximum unsecured leverage | < 60% | 25.1 % | Yes | [Leverage Policies](index=37&type=section&id=Leverage%20Policies) The company's Board of Directors determines the amount of leverage in its capital structure and considers various factors, including economic conditions, cost of capital, market values, and growth opportunities - The Board of Directors determines leverage amounts, considering economic conditions, cost of capital, market values, and growth opportunities[162](index=162&type=chunk) - The company's charter and bylaws do not limit the amount or percentage of indebtedness[162](index=162&type=chunk) [Capital Expenditures](index=37&type=section&id=Capital%20Expenditures) This section details capital expenditures, leasing commission costs, and tenant improvement costs for office and retail properties Capital Expenditures and Leasing Costs | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Office Properties: Total square feet leased | 527,295 | 634,582 | | Office Properties: Leasing commission costs per sq ft | $18.52 | $22.14 | | Office Properties: Tenant improvement costs per sq ft | $72.34 | $62.15 | | Retail Properties: Total square feet leased | 11,076 | 4,289 | | Retail Properties: Leasing commission costs per sq ft | $25.95 | $16.64 | | Retail Properties: Tenant improvement costs per sq ft | $26.07 | $— | | Total Portfolio: Capital expenditures (excluding TI & LC) (in thousands) | $25,987 | $19,697 | - The company expects to incur approximately **$138.4 million** in additional costs for tenant improvements and leasing commissions under existing lease agreements[168](index=168&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2023, the company did not have any off-balance sheet arrangements - No off-balance sheet arrangements existed as of June 30, 2023[170](index=170&type=chunk) [Distribution Policy](index=38&type=section&id=Distribution%20Policy) The company intends to distribute its net taxable income to security holders to satisfy REIT distribution requirements and avoid U.S. federal income tax liability, expecting to make quarterly distributions - The company aims to distribute net taxable income to satisfy REIT distribution requirements and avoid U.S. federal income tax[171](index=171&type=chunk) - Quarterly distributions are expected, but may require using cash reserves, incurring debt, or liquidating assets under certain circumstances[172](index=172&type=chunk) [Distribution to Equity Holders](index=38&type=section&id=Distribution%20to%20Equity%20Holders) Total distributions and dividends to equity holders amounted to $20.3 million for the six months ended June 30, 2023, a decrease from $21.6 million in the prior year Equity Holder Distributions | Metric (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | | Distributions and dividends to equity holders | $20.3 | $21.6 | $(1.3) | [Stock and Publicly Traded Operating Partnership Unit Repurchase Program](index=38&type=section&id=Stock%20and%20Publicly%20Traded%20Operating%20Partnership%20Unit%20Repurchase%20Program) The Board of Directors authorized a repurchase program of up to $500 million for Class A common stock and OP units from January 1, 2022, through December 31, 2023 - Board authorized a **$500 million** repurchase program for Class A common stock and OP units from Jan 1, 2022, to Dec 31, 2023[174](index=174&type=chunk)[210](index=210&type=chunk) - As of June 30, 2023, **$396.7 million** remained available for future repurchases[210](index=210&type=chunk) Stock Repurchase Program Activity | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | Maximum Approximate Dollar Value Available for Future Purchase (in thousands) | | :----------------------- | :------------------------------- | :------------------------------------ | :-------------------------------------------------------------------------- | | April 1 - April 30, 2023 | 1,214,770 | $6.09 | $396,736 | | May 1 - May 31, 2023 | 2,700 | $6.00 | $396,720 | | June 1 - June 30, 2023 | — | $— | $396,720 | [Cash Flows](index=38&type=section&id=Cash%20Flows) For the six months ended June 30, 2023, cash and cash equivalents and restricted cash decreased to $395.8 million from $412.8 million in the prior year Cash Flow Summary | Metric (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :----- | | Cash and cash equivalents and restricted cash | $395.8 | $412.8 | $(17.0) | | Net cash provided by operating activities | $105.9 | $83.7 | $22.2 | | Net cash provided by (used in) investing activities | $12.7 | $(56.6) | $69.3 | | Net cash used in financing activities | $(37.5) | $(88.9) | $51.4 | [Net Operating Income ("NOI")](index=39&type=section&id=Net%20Operating%20Income%20%28%22NOI%22%29) Net Operating Income (NOI) is a non-GAAP financial measure used by management to evaluate property performance, excluding factors like financing costs, depreciation, and general administrative expenses - NOI is a non-GAAP measure used to evaluate property performance, excluding cost of funds, depreciation, acquisition expenses, and general & administrative expenses[179](index=179&type=chunk) Net Operating Income | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net operating income | $108,163 | $120,353 | $188,340 | $206,343 | [Funds from Operations ("FFO")](index=40&type=section&id=Funds%20from%20Operations%20%28%22FFO%22%29) Funds from Operations (FFO) is a non-GAAP measure defined by NAREIT, used to understand REIT financial performance by excluding certain non-cash items like depreciation and gains/losses from property sales - FFO is a non-GAAP measure defined by NAREIT, excluding impairment write-offs, gains/losses from debt restructurings and property sales, and including real estate-related depreciation and amortization[184](index=184&type=chunk) Funds from Operations | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | FFO attributable to common stockholders and the Operating Partnership | $67,225 | $77,204 | $108,240 | $124,410 | [Modified Funds From Operations ("Modified FFO")](index=40&type=section&id=Modified%20Funds%20From%20Operations%20%28%22Modified%20FFO%22%29) Modified FFO is a non-GAAP measure that adjusts traditional FFO by adding back amortization of above or below-market ground leases, which is considered material due to non-cash accounting treatment - Modified FFO adds back amortization of above or below-market ground leases to FFO, useful for evaluating operating performance due to non-cash accounting treatment[185](index=185&type=chunk) Modified Funds From Operations | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Modified FFO attributable to common stockholders and the Operating Partnership | $69,183 | $79,162 | $112,156 | $128,326 | [Core Funds From Operations ("Core FFO")](index=40&type=section&id=Core%20Funds%20From%20Operations%20%28%22Core%20FFO%22%29) Core FFO further adjusts Modified FFO by excluding IPO litigation expense, severance expenses, and loss on early extinguishment of debt, providing a supplemental measure of operating performance by removing non-recurring items - Core FFO adds back IPO litigation expense, severance expenses, and loss on early extinguishment of debt to Modified FFO to provide a clearer view of operating performance[187](index=187&type=chunk) Core Funds From Operations | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Core FFO attributable to common stockholders and the Operating Partnership | $69,183 | $79,162 | $112,156 | $128,326 | [Factors That May Influence Future Results of Operations](index=41&type=section&id=Factors%20That%20May%20Influence%20Future%20Results%20of%20Operations) This section discusses key factors that could impact future financial results, including leasing activity, observatory operations, and the broader economic outlook [Leasing](index=41&type=section&id=Leasing) Leasing activity can significantly impact future results due to the small number of large leases signed quarterly, affecting average rent, tenant improvement, and leasing commission costs - Leasing activity, particularly larger leases, can disproportionately impact average rent, tenant improvement, and leasing commission costs[189](index=189&type=chunk) - As of June 30, 2023, **0.9 million** rentable square feet (**9.7%** of portfolio) was available to lease[190](index=190&type=chunk) - Leases representing **3.4%** and **5.4%** of net rentable square footage will expire in 2023 and 2024, respectively[190](index=190&type=chunk) [Observatory Operations](index=41&type=section&id=Observatory%20Operations) Observatory operations are influenced by domestic and international tourism, admission prices, seasonal trends, competition, and weather - The observatory hosted **666,000** visitors for the three months ended June 30, 2023, up from **573,000** in the prior year[191](index=191&type=chunk) - Observatory revenue for the three months ended June 30, 2023, was **$33.4 million**, compared to **$27.4 million** in the prior year, driven by higher visitation[192](index=192&type=chunk) - Revenues and admissions are dependent on tourism trends, admission prices, seasonality, competition, and weather[193](index=193&type=chunk) [Outlook](index=42&type=section&id=Outlook) Despite global economic uncertainties, including inflation, rising interest rates, and commercial real estate market softening, the company believes its modernized, energy-efficient New York City-focused portfolio is well-positioned - The global economy faces uncertainty from inflation, rising interest rates, real estate loan weakness, and geopolitical unrest[195](index=195&type=chunk) - Concerns exist about the softening commercial real estate market, particularly office, due to refinancing challenges and the gradual return-to-office[195](index=195&type=chunk) - The company's modernized, amenitized, energy-efficient NYC-focused portfolio is in a good competitive position, characterized by competitive rental rates, strong leased percentage, and diversified income[196](index=196&type=chunk) - The Empire State Building Observatory 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[196](index=196&type=chunk) - The business is supported by a strong balance sheet, modest leverage, and absence of near-term debt maturities or floating rate debt exposure[197](index=197&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) This section refers to the Annual Report for a discussion of critical accounting estimates, noting that there were no material changes to these estimates during the period - No material changes to critical accounting estimates were disclosed in the Annual Report[198](index=198&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=43&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily interest rate risk on its unsecured revolving credit facility and debt refinancings - The company is exposed to interest rate changes on its unsecured revolving credit facility and debt refinancings[200](index=200&type=chunk) - To mitigate interest rate risk, the company uses interest rate SOFR swap and cap agreements with an aggregate notional value of **$574.0 million**, maturing between October 2024 and November 2033[201](index=201&type=chunk) - The weighted average interest rate on **$2.3 billion** of fixed-rate indebtedness outstanding was **3.9%** per annum as of June 30, 2023[202](index=202&type=chunk) - The fair value of outstanding debt was approximately **$2.0 billion**, which was **$217.6 million** less than the book value as of June 30, 2023[203](index=203&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=43&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, and concluded they were effective - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[205](index=205&type=chunk) - No material changes to internal control over financial reporting were identified during the period[206](index=206&type=chunk) [PART II. OTHER INFORMATION](index=43&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and a list of exhibits [ITEM 1. LEGAL PROCEEDINGS](index=43&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 9 of the financial statements for a description of legal proceedings, indicating that the company is involved in ongoing litigation related to its IPO and Empire State Building Associates - Legal proceedings are described in Note 9, primarily involving arbitration claims related to the IPO and Empire State Building Associates[207](index=207&type=chunk)[77](index=77&type=chunk) [ITEM 1A. RISK FACTORS](index=44&type=section&id=ITEM%201A.%20RISK%20FACTORS) As of June 30, 2023, there have been no material changes to the risk factors previously disclosed in the company's Annual Report and the quarterly report for Q1 2023 - No material changes to risk factors were disclosed as of June 30, 2023, compared to previous reports[208](index=208&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=44&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports no recent unregistered sales of equity securities - No recent unregistered sales of equity securities[209](index=209&type=chunk) - The Board authorized a **$500 million** repurchase program for Class A common stock and OP units from Jan 1, 2022, to Dec 31, 2023, with **$396.7 million** remaining as of June 30, 2023[210](index=210&type=chunk) Equity Repurchase Activity | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | Maximum Approximate Dollar Value Available for Future Purchase (in thousands) | | :----------------------- | :------------------------------- | :------------------------------------ | :-------------------------------------------------------------------------- | | April 1 - April 30, 2023 | 1,214,770 | $6.09 | $396,736 | | May 1 - May 31, 2023 | 2,700 | $6.00 | $396,720 | | June 1 - June 30, 2023 | — | $— | $396,720 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=44&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section states that there were no defaults upon senior securities - No defaults upon senior securities[212](index=212&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=44&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[213](index=213&type=chunk) [ITEM 5. OTHER INFORMATION](index=44&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section states that there is no other information to report - No other information to report[214](index=214&type=chunk) [ITEM 6. EXHIBITS](index=45&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and Principal Financial Officer, and XBRL interactive data files - Includes certifications from the CEO and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[216](index=216&type=chunk) - XBRL interactive data files are provided (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[216](index=216&type=chunk) [SIGNATURES](index=46&type=section&id=SIGNATURES) This section contains the required signatures for the Form 10-Q report, confirming its submission on behalf of Empire State Realty Trust, Inc. by its Executive Vice President, Chief Operating Officer and Chief Financial Officer, and its Senior Vice President, Chief Accounting Officer - The report is signed by Christina Chiu (EVP, COO, CFO) and Stephen V. Horn (SVP, Chief Accounting Officer) on August 4, 2023[220](index=220&type=chunk)

Contents Empire State Building ° Competitive advantages | --- | --- | --- | --- | |------------------------------------|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36105 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36105 EMPIRE STATE REALTY TRUST, INC. (Exact name of Registrant as specified in its charter) (State or other jurisdiction of incorporation or orga ...

Financial Data and Key Metrics Changes - For Q4 2022, the company reported core FFO of $59 million or $0.22 per diluted share, compared to core FFO of $50 million or $0.18 per diluted share for Q4 2021, indicating a year-over-year increase of 22% in core FFO per share [39] - The full-year 2022 core FFO was $244 million or $0.90 per diluted share, up from $195 million or $0.70 per diluted share in 2021, exceeding guidance expectations [61] - The company's balance sheet as of December 31, 2022, had total liquidity of $1.1 billion, consisting of $264 million in cash and $850 million in undrawn capacity on its revolving credit facility [41] Business Line Data and Key Metrics Changes - The observatory hosted 660,000 visitors in Q4 2022, generating NOI of $23.8 million, significantly up from 360,000 visitors and NOI of $10.7 million in Q4 2021 [40] - The company signed office and retail leases totaling 144,000 square feet in Q4 and over 1.1 million square feet for the full year, with a 260 basis points increase in Manhattan office portfolio leased percentage [60] - The observatory NOI expectations for 2023 are projected to be approximately $88 million to $96 million, up from $75 million in 2022 [47] Market Data and Key Metrics Changes - The Manhattan office leased percentage improved by 260 basis points, and occupancy increased by 210 basis points for the year, benefiting from the flight to quality trend [139] - The company achieved positive mark-to-market lease spreads in each of the last four quarters, with steady net effective rent growth throughout the year [138] - The commercial portfolio is now over 85% occupied and over 88% leased, reflecting strong demand for high-quality assets [69] Company Strategy and Development Direction - The company aims to lease space, sell tickets to the observatory, manage its portfolio proactively, achieve sustainability goals, and drive shareholder value [19] - The addition of multi-family assets to the portfolio since December 2021 has diversified cash flow streams and strengthened the company's position in New York City [10] - The company has executed a capital recycling strategy, selling suburban assets and reinvesting in Manhattan multi-family properties [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive leased rates higher in 2023, supported by a strong balance sheet and ongoing demand for quality office space [33] - The company anticipates same-store cash NOI to decline by 4% to 6% in 2023, primarily due to an expected 8% increase in property operating expenses [66] - Management highlighted the importance of maintaining a strong customer experience at the observatory while balancing volume and price [54] Other Important Information - The company achieved carbon neutrality in 2022 and aims for net zero emissions by 2035, reflecting its commitment to sustainability [28] - The company repurchased $88.9 million of its common stock in 2022, bringing the cumulative buyback total to $281 million, representing approximately 11% of total shares outstanding [141] - The company is the only New York City commercial landlord on the Local Law 97 implementation Advisory Board, emphasizing its leadership in ESG initiatives [29] Q&A Session Summary Question: What are the expectations around leasing spreads for Greater New York Metropolitan office and retail portfolios? - Management expects flat to modest negative spreads in the Greater New York Metropolitan portfolio, offset by the value of leasing up vacant space [75] Question: How are you balancing volume and price for the observatory? - Management emphasized maintaining customer experience while increasing average ticket prices, focusing on quality over volume [54] Question: What is the outlook for same-store NOI in 2023? - Management provided guidance of a 4% to 6% decline in same-store cash NOI, reflecting conservatism due to uncertainties in the market [66][125] Question: What are the plans for the use of proceeds from asset sales? - Most proceeds will be redeployed, with further details to be provided as more information becomes available [111] Question: How does the company view the current office market and potential dispositions? - The company is monitoring the market closely and will explore sales when conditions are favorable, leveraging its strong balance sheet [115]

1 Observatory revenues include the fixed license fee received from WDFG North America, the Observatory gift shop operator. 2 The 102nd floor was closed for 1Q 2018 to replace elevator. The revenue impact was approximately $3 million dollars. 3 The 102v6 floor was closed for -9 months in 2019 for redevelopment. The revenue impact was approximately $9 million dollars for those 9 months. 4 The Observatory experienced a significant decline in visitors from the 2nd week of March and was closed on March 16, 2020 ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%2E%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Empire State Realty Trust, Inc [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201%2E%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Empire State Realty Trust, Inc., including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, property dispositions, debt, financial instruments, leases, commitments, equity, related party transactions, and segment reporting [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a slight decrease in total assets and liabilities from December 31, 2021, to September 30, 2022, with commercial real estate properties (net) and cash and cash equivalents decreasing, while total equity also saw a minor reduction Condensed Consolidated Balance Sheets (thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---|:---|:---| | Total Assets | $4,201,140 | $4,282,447 | | Commercial real estate properties, net | $2,378,183 | $2,427,979 | | Cash and cash equivalents | $387,248 | $423,695 | | Total Liabilities | $2,527,311 | $2,598,115 | | Total Equity | $1,673,829 | $1,684,332 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three and nine months ended September 30, 2022, the company reported a significant turnaround from net loss to net income, driven by substantial increases in observatory revenue and a gain on property disposition for the nine-month period, despite higher operating expenses and interest expenses Condensed Consolidated Statements of Operations (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Total Revenues | $183,712 | $165,048 | $545,768 | $463,760 | | Total Operating Expenses | $148,185 | $151,845 | $457,694 | $405,724 | | Total Operating Income | $35,527 | $13,203 | $88,074 | $58,036 | | Net Income (Loss) | $10,118 | $(10,183) | $41,592 | $(8,963) | | Net Income (Loss) Attributable to Common Stockholders | $5,557 | $(6,977) | $23,847 | $(7,523) | | Basic EPS | $0.03 | $(0.04) | $0.14 | $(0.04) | | Diluted EPS | $0.03 | $(0.04) | $0.14 | $(0.04) | | Dividends per share | $0.035 | $0.035 | $0.105 | $0.070 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a significant increase in comprehensive income for both the three and nine months ended September 30, 2022, primarily due to unrealized gains on interest rate swap agreements, contrasting with losses in the prior year Condensed Consolidated Statements of Comprehensive Income (Loss) (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Net Income (Loss) | $10,118 | $(10,183) | $41,592 | $(8,963) | | Unrealized gain (loss) on valuation of interest rate swap agreements | $19,588 | $(103) | $39,407 | $(139) | | Other comprehensive income | $20,980 | $2,817 | $46,835 | $8,548 | | Comprehensive income (loss) | $31,098 | $(7,366) | $88,427 | $(415) | | Comprehensive income (loss) attributable to common stockholders | $18,019 | $(5,221) | $51,281 | $(2,214) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased slightly from December 31, 2021, to September 30, 2022, primarily due to common share repurchases and dividends, partially offset by net income and other comprehensive income Condensed Consolidated Statements of Stockholders' Equity (thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---|:---|:---| | Total Stockholders' Equity | $952,379 | $998,128 | | Non-controlling interests in the Operating Partnership | $676,008 | $643,012 | | Total Equity | $1,673,829 | $1,684,332 | - The company repurchased **$18.1 million** of common shares during the three months ended September 30, 2022, contributing to the decrease in total stockholders' equity[14](index=14&type=chunk) - For the nine months ended September 30, 2022, common share repurchases amounted to **$82.5 million**, and dividends and distributions totaled **$32.2 million**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, net cash provided by operating activities increased, but net cash used in investing and financing activities also increased significantly, leading to an overall decrease in cash and cash equivalents and restricted cash Condensed Consolidated Statements of Cash Flows (thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---| | Net cash provided by operating activities | $173,985 | $167,027 | | Net cash used in investing activities | $(89,116) | $(70,760) | | Net cash used in financing activities | $(119,692) | $(43,239) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $(34,823) | $53,028 | | Cash and cash equivalents and restricted cash—end of period | $439,815 | $620,967 | - Cash paid for interest increased to **$67.7 million** for the nine months ended September 30, 2022, from **$58.2 million** in the prior year[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business operations, accounting policies, property transactions, debt structure, financial instruments, lease agreements, legal matters, equity, related party dealings, and segment performance [1. Description of Business and Organization](index=14&type=section&id=1%2E%20Description%20of%20Business%20and%20Organization) Empire State Realty Trust, Inc. (ESRT) is a New York City-focused REIT that owns and manages a portfolio of office, retail, and multifamily assets, including the iconic Empire State Building and its Observatory Experience. The company operates primarily through its Operating Partnership, in which it holds a 59.3% interest - ESRT is a New York City-focused REIT owning and managing office, retail, and multifamily assets, including the Empire State Building and its Observatory Experience[28](index=28&type=chunk) - As of September 30, 2022, the total portfolio included **9.9 million** rentable square feet of office and retail space, **13** office properties, **6** standalone retail properties, and **2** multifamily properties (**625** units)[29](index=29&type=chunk) - ESRT owned approximately **59.3%** of the aggregate operating partnership units in its Operating Partnership as of September 30, 2022, and elected to be taxed as a REIT[30](index=30&type=chunk) [2. Summary of Significant Accounting Policies](index=14&type=section&id=2%2E%20Summary%20of%20Significant%20Accounting%20Policies) The company's unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC regulations, with no material changes to significant accounting policies from the prior annual report. The observatory business is subject to tourism seasonality, with the third quarter historically generating the highest revenue - No material changes to significant accounting policies were reported compared to the December 31, 2021 Annual Report on Form 10-K[31](index=31&type=chunk) - The observatory business is subject to tourism seasonality, with **31.0% to 33.0%** of annual observatory revenue historically realized in the third quarter[35](index=35&type=chunk) - The company consolidates entities where it has a controlling financial interest, including its Operating Partnership, which is identified as a Variable Interest Entity (VIE)[36](index=36&type=chunk) [3. Property Disposition](index=16&type=section&id=3%2E%20Property%20Disposition) In April 2022, the company transferred 383 Main Avenue, Norwalk CT, back to the lender in a consensual foreclosure, recognizing a non-cash gain of $27.2 million. Additionally, agreements were made to sell two other properties for $95.0 million, expected to close in Q1 2023 - In April 2022, the company transferred 383 Main Avenue, Norwalk CT, to the lender, resulting in a non-cash gain of **$27.2 million**[40](index=40&type=chunk) - Subsequent to September 30, 2022, agreements were made to sell 500 Mamaroneck Avenue and 10 Bank Street for a gross asset valuation of **$95.0 million**, with closings expected in Q1 2023[41](index=41&type=chunk) [4. Deferred Costs, Acquired Lease Intangibles and Goodwill](index=18&type=section&id=4%2E%20Deferred%20Costs%2C%20Acquired%20Lease%20Intangibles%20and%20Goodwill) Deferred costs, net, decreased to $183.2 million as of September 30, 2022, from $195.2 million at December 31, 2021. The company holds $491.5 million in goodwill, allocated between the observatory and real estate segments, and performed a qualitative assessment for goodwill impairment for the observatory segment, concluding no impairment Deferred Costs, Acquired Lease Intangibles and Goodwill (thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---|:---|:---| | Total deferred costs, net, excluding net deferred financing costs | $183,210 | $195,205 | | Acquired below-market ground leases, net | $331,030 | $336,904 | | Acquired below-market leases, net | $(18,897) | $(24,941) | - Goodwill amounted to **$491.5 million** as of September 30, 2022, with **$227.5 million** allocated to the observatory segment and **$264.0 million** to the real estate segment[45](index=45&type=chunk) - A qualitative assessment for the quarter ended September 30, 2022, indicated no impairment of goodwill for the observatory reportable segment[48](index=48&type=chunk) [5. Debt](index=20&type=section&id=5%2E%20Debt) Total principal debt decreased slightly to $2.3 billion as of September 30, 2022, from $2.33 billion at December 31, 2021. The company has various mortgage notes, senior unsecured notes, and unsecured term loan facilities, with no significant maturities until November 2024. The benchmark interest rate for credit facilities was converted from LIBOR to SOFR Debt (thousands) | Debt Type | Principal Sep 30, 2022 | Balance Dec 31, 2021 | |:---|:---|:---| | Total mortgage debt | $933,088 | $968,793 | | Senior unsecured notes | $875,000 | $875,000 | | Unsecured term loan facilities | $390,000 | $390,000 | | Total principal | $2,298,088 | $2,333,793 | - Aggregate required principal payments show no maturities in 2022 or 2023, with significant maturities starting in **2024 ($77.7 million)** and **2025 ($315.0 million)**[53](index=53&type=chunk) - The benchmark interest rate for the BofA Credit Facility and Wells Term Loan Facility was converted from LIBOR to SOFR as of August 29, 2022[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) [6. Accounts Payable and Accrued Expenses](index=24&type=section&id=6%2E%20Accounts%20Payable%20and%20Accrued%20Expenses) Total accounts payable and accrued expenses decreased to $94.4 million as of September 30, 2022, from $120.8 million at December 31, 2021, primarily due to the absence of interest rate swaps liability Accounts Payable and Accrued Expenses (thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---|:---|:---| | Accrued capital expenditures | $55,320 | $49,247 | | Accounts payable and accrued expenses | $36,353 | $41,664 | | Interest rate swaps liability | — | $25,308 | | Total accounts payable and accrued expenses | $94,436 | $120,810 | [7. Financial Instruments and Fair Values](index=24&type=section&id=7%2E%20Financial%20Instruments%20and%20Fair%20Values) The company uses derivative financial instruments, primarily interest rate swaps, to manage interest rate risk. As of September 30, 2022, the fair value of interest rate swaps was a net asset of $18.5 million, a significant improvement from a net liability of $(25.3) million at December 31, 2021, reflecting unrealized gains - In May 2022, the company entered into forward interest rate swaps with an aggregate notional value of **$390.0 million**, fixing the interest rate on **100%** of its term loans[62](index=62&type=chunk) Financial Instruments and Fair Values (thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---|:---|:---| | Fair value of interest rate swaps (asset) | $18,515 | $13 | | Fair value of interest rate swaps (liability) | — | $(25,308) | | Aggregate notional value of interest rate swaps and caps | $576,300 | $451,300 | - Cash flow hedges were deemed highly effective, resulting in a net unrealized gain of **$21.0 million** for the three months and **$46.8 million** for the nine months ended September 30, 2022[65](index=65&type=chunk) [8. Leases](index=27&type=section&id=8%2E%20Leases) The company acts as both a lessor and a lessee. As a lessor, rental revenue from fixed payments increased for both the three and nine months ended September 30, 2022. As a lessee, operating lease agreements relate to three ground lease assets, with a weighted average remaining lease term of 47.7 years Rental Revenue (thousands) | Rental Revenue | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Fixed payments | $131,800 | $124,764 | $399,995 | $374,968 | | Variable payments | $16,490 | $14,794 | $45,148 | $45,618 | | Total rental revenue | $148,290 | $139,558 | $445,143 | $420,586 | - Future minimum lease payments from non-cancellable operating leases to tenants total **$3.88 billion** through 2039[74](index=74&type=chunk) - Ground lease liabilities are **$28.7 million** as of September 30, 2022, with a weighted average remaining lease term of **47.7 years** and a weighted average incremental borrowing rate of **4.5%**[75](index=75&type=chunk)[76](index=76&type=chunk) [9. Commitments and Contingencies](index=30&type=section&id=9%2E%20Commitments%20and%20Contingencies) The company is involved in ongoing legal proceedings related to the 2013 IPO and formation transactions, with an appeal pending regarding a $1.2 million arbitration award. It also estimates $117.9 million in unfunded capital expenditures for existing lease agreements and manages environmental matters, including asbestos, with no material impact expected - An arbitration panel awarded claimants approximately **$1.2 million** in August 2020 related to the company's IPO and formation transactions; the company has appealed the ruling[80](index=80&type=chunk)[81](index=81&type=chunk) - The company estimates approximately **$117.9 million** in unfunded capital expenditures (tenant improvements and leasing commissions) for existing lease agreements, to be funded by operating cash flow, mortgage financings, and credit facilities[83](index=83&type=chunk) - Environmental site assessments have identified asbestos in certain properties, but management has no plans to remove or alter them in a manner that would trigger removal obligations, and ongoing maintenance costs are expensed as incurred[85](index=85&type=chunk)[87](index=87&type=chunk) [10. Equity](index=32&type=section&id=10%2E%20Equity) The company has Class A and Class B common stock, OP Units, and private perpetual preferred units. A $500 million stock and OP unit repurchase program is authorized through December 31, 2023, with $417.5 million remaining. Equity compensation plans include LTIP units and restricted stock, with associated noncash compensation expense recognized over vesting periods - As of September 30, 2022, there were **160.6 million** Class A common shares, **0.99 million** Class B common shares, and **111.0 million** OP Units outstanding[96](index=96&type=chunk) - A **$500 million** stock and OP unit repurchase program is authorized from January 1, 2022, through December 31, 2023, with approximately **$417.5 million** remaining as of September 30, 2022[97](index=97&type=chunk)[224](index=224&type=chunk) Equity Repurchases (thousands) | Equity Repurchases | July 2022 | August 2022 | September 2022 | |:---|:---|:---|:---| | Total Number of Shares Purchased | 184,045 | 621,314 | 1,761,561 | | Weighted Average Price Paid per Share | $6.92 | $7.32 | $6.97 | - Total dividends paid to common stockholders were **$5.7 million** and **$17.4 million** for the three and nine months ended September 30, 2022, respectively[100](index=100&type=chunk) [11. Related Party Transactions](index=38&type=section&id=11%2E%20Related%20Party%20Transactions) The company engages in related party transactions, including supervisory fees, property management fees, and rent from entities affiliated with its Chairman, President, and CEO, Anthony E. Malkin. These transactions generated minor revenue for the company Related Party Revenue (thousands) | Related Party Revenue | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Supervisory fees | $0.2 | $0.3 | $0.8 | $0.8 | | Property management fees | $0.1 | $0.1 | $0.2 | $0.2 | | Other revenue (rent, computer support) | $0.1 | $0.1 | $0.2 | $0.2 | [12. Segment Reporting](index=40&type=section&id=12%2E%20Segment%20Reporting) The company operates in two reportable segments: real estate and observatory. For the three and nine months ended September 30, 2022, both segments contributed positively to net income, with the observatory segment showing significant revenue growth - The company has two reportable segments: real estate (ownership, management, operation of traditional real estate assets) and observatory (operation of the Empire State Building observatories)[113](index=113&type=chunk) Segment Net Income (thousands) | Segment Net Income | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Real Estate | $5,770 | $(11,329) | $37,020 | $(3,906) | | Observatory | $4,348 | $1,146 | $4,572 | $(5,057) | | Total Net Income (Loss) | $10,118 | $(10,183) | $41,592 | $(8,963) | - Observatory revenue for the three months ended September 30, 2022, was **$33.1 million**, a substantial increase from **$12.8 million** in the prior year, reflecting increased visitation[115](index=115&type=chunk)[117](index=117&type=chunk) [13. Subsequent Events](index=44&type=section&id=13%2E%20Subsequent%20Events) No material subsequent events were reported after September 30, 2022 - No subsequent events were reported[122](index=122&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=45&type=section&id=ITEM%202%2E%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance, condition, and future outlook, highlighting key operational achievements, revenue and expense drivers, liquidity, capital resources, and non-GAAP financial measures like NOI, FFO, Modified FFO, and Core FFO [FORWARD-LOOKING STATEMENTS](index=45&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section contains forward-looking statements regarding capital resources, portfolio performance, dividend policy, and anticipated market conditions, emphasizing that these statements are subject to substantial risks and uncertainties and are not guarantees of future performance - Forward-looking statements cover capital resources, portfolio performance, dividend policy, and results of operations, and are subject to substantial risks and uncertainties[125](index=125&type=chunk)[126](index=126&type=chunk) - Key risk factors include the economic impact of COVID-19, reduced demand for space, changes in tourism, increased borrowing costs, declining real estate valuations, and failure to qualify as a REIT[127](index=127&type=chunk) [Overview](index=47&type=section&id=Overview) The company, a NYC-focused REIT, reported net income of $5.6 million and Core FFO of $56.5 million for Q3 2022, with its commercial portfolio 88.5% leased and the Empire State Building Observatory generating $24.5 million in net operating income - Net income attributable to common stockholders was **$5.6 million** for the three months ended September 30, 2022[132](index=132&type=chunk) - Core Funds From Operations (Core FFO) attributable to common stockholders and the operating partnership reached **$56.5 million**[132](index=132&type=chunk) - The total commercial portfolio was **88.5%** leased, with the New York City office portfolio at **89.4%** leased. The Empire State Building Observatory generated **$24.5 million** of net operating income[132](index=132&type=chunk)[134](index=134&type=chunk) [Results of Operations](index=47&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth for both the three and nine months ended September 30, 2022, primarily driven by increased observatory visitation and the inclusion of multifamily property revenues. This led to a substantial improvement in net income compared to the prior year, despite higher operating and interest expenses [Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021](index=47&type=section&id=Three%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030%2C%202021) For Q3 2022, total revenues increased by 11.3% to $183.7 million, primarily due to a 158.3% surge in observatory revenue and a 6.3% rise in rental revenue. Net income attributable to common stockholders turned positive at $5.6 million, a 179.6% increase from a loss in Q3 2021, despite higher property operating and observatory expenses Results of Operations - Three Months (thousands) | Metric | 2022 | 2021 | Change | % Change | |:---|:---|:---|:---|:---| | Rental revenue | $148,290 | $139,558 | $8,732 | 6.3% | | Observatory revenue | $33,051 | $12,796 | $20,255 | 158.3% | | Total revenues | $183,712 | $165,048 | $18,664 | 11.3% | | Total operating expenses | $148,185 | $151,845 | $3,660 | 2.4% | | Net income (loss) attributable to common stockholders | $5,557 | $(6,977) | $12,534 | 179.6% | - The increase in rental revenue was due to the inclusion of revenue from multifamily properties acquired in December 2021[138](index=138&type=chunk) - Property operating expenses increased by **28.3%** due to higher payroll, utilities, cleaning, and the inclusion of multifamily property expenses[141](index=141&type=chunk) [Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021](index=52&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030%2C%202021) For the nine months ended September 30, 2022, total revenues grew by 17.7% to $545.8 million, primarily driven by a 210.0% increase in observatory revenue and a 5.8% increase in rental revenue. Net income attributable to common stockholders significantly improved to $23.8 million from a loss of $7.5 million in the prior year, also benefiting from a $27.2 million gain on property disposition Results of Operations - Nine Months (thousands) | Metric | 2022 | 2021 | Change | % Change | |:---|:---|:---|:---|:---| | Rental revenue | $445,143 | $420,586 | $24,557 | 5.8% | | Observatory revenue | $73,660 | $23,758 | $49,902 | 210.0% | | Total revenues | $545,768 | $463,760 | $82,008 | 17.7% | | Total operating expenses | $457,694 | $405,724 | $(51,970) | (12.8)% | | Gain on disposition of property | $27,170 | — | $27,170 | 100.0% | | Net income (loss) attributable to common stockholders | $23,847 | $(7,523) | $31,370 | 417.0% | - The increase in rental revenue reflects the inclusion of revenue from multifamily properties acquired on December 22, 2021[152](index=152&type=chunk) - Property operating expenses increased by **28.6%** due to higher payroll, utilities, repairs, maintenance, cleaning, and the inclusion of multifamily property expenses[156](index=156&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash on hand, operating cash flows, debt issuances, and an unsecured revolving credit facility. As of September 30, 2022, it had $387.2 million in cash and equivalents and $850 million available under its credit facility, with total consolidated indebtedness of $2.3 billion and no significant maturities until November 2024. The company was in compliance with all financial covenants - Primary liquidity sources include cash on hand, cash from operations, debt issuances, and an unsecured revolving credit facility[166](index=166&type=chunk)[167](index=167&type=chunk) - As of September 30, 2022, the company had **$387.2 million** in cash and cash equivalents and **$850 million** available under its unsecured revolving credit facility[167](index=167&type=chunk) Financial Covenant Compliance | Financial Covenant | Required | Sep 30, 2022 | In Compliance | |:---|:---|:---|:---| | Maximum total leverage | < 60% | 39.0% | Yes | | Maximum secured leverage | < 40% | 15.6% | Yes | | Minimum fixed charge coverage | > 1.50x | 2.6x | Yes | | Minimum unencumbered interest coverage | > 1.75x | 4.7x | Yes | | Maximum unsecured leverage | < 60% | 28.5% | Yes | - Total consolidated indebtedness was approximately **$2.3 billion** with a weighted average interest rate of **3.9%** and a weighted average maturity of **6.7 years**, with no outstanding debt maturing until November 2024 (excluding principal amortization)[168](index=168&type=chunk) [Net Operating Income ("NOI")](index=60&type=section&id=Net%20Operating%20Income%20%28%22NOI%22%29) NOI, a non-GAAP measure, is used by management to evaluate property performance by excluding financing costs, depreciation, amortization, acquisition expenses, and general and administrative expenses. For the three and nine months ended September 30, 2022, NOI increased to $97.8 million and $304.7 million, respectively - NOI is a non-GAAP measure used to evaluate property performance, excluding costs like interest expense, depreciation, and general and administrative expenses[188](index=188&type=chunk)[191](index=191&type=chunk) Net Operating Income (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Net income (loss) | $10,118 | $(10,183) | $41,592 | $(8,963) | | Net operating income | $97,847 | $93,110 | $304,730 | $254,827 | [Funds from Operations ("FFO")](index=62&type=section&id=Funds%20from%20Operations%20%28%22FFO%22%29) FFO, a non-GAAP measure defined by NAREIT, is presented as a supplemental measure of operating performance for REITs, excluding items like depreciation and gains/losses from property sales. For the three and nine months ended September 30, 2022, FFO attributable to common stockholders and the Operating Partnership was $54.6 million and $179.0 million, respectively - FFO is a non-GAAP financial measure for REITs, defined by NAREIT, useful for understanding financial performance and comparison among REITs[195](index=195&type=chunk)[196](index=196&type=chunk) Funds from Operations (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Net income (loss) | $10,118 | $(10,183) | $41,592 | $(8,963) | | FFO attributable to common stockholders and the Operating Partnership | $54,578 | $53,332 | $178,988 | $139,035 | [Modified Funds From Operations ("Modified FFO")](index=64&type=section&id=Modified%20Funds%20From%20Operations%20%28%22Modified%20FFO%22%29) Modified FFO is a supplemental non-GAAP measure that adjusts FFO by adding back the amortization of below-market ground leases, which is material to the company's results due to non-cash accounting treatment. For the three and nine months ended September 30, 2022, Modified FFO was $56.5 million and $184.9 million, respectively - Modified FFO adjusts FFO by adding back the amortization of below-market ground leases, which is a material non-cash item[199](index=199&type=chunk) Modified Funds From Operations (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | FFO attributable to common stockholders and the Operating Partnership | $54,578 | $53,332 | $178,988 | $139,035 | | Amortization of below-market ground leases | $1,957 | $1,957 | $5,873 | $5,873 | | Modified FFO attributable to common stockholders and the Operating Partnership | $56,535 | $55,289 | $184,861 | $144,908 | [Core Funds From Operations](index=64&type=section&id=Core%20Funds%20From%20Operations) Core FFO is a non-GAAP measure that further adjusts Modified FFO by excluding IPO litigation expense, severance expenses, and loss on early extinguishment of debt, providing a clearer view of core operating performance. For the three and nine months ended September 30, 2022, Core FFO was $56.5 million and $184.9 million, respectively - Core FFO adjusts Modified FFO by excluding IPO litigation expense, severance expenses, and loss on early extinguishment of debt to reflect core operating performance[200](index=200&type=chunk) Core Funds From Operations (thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Modified FFO attributable to common stockholders and the Operating Partnership | $56,535 | $55,289 | $184,861 | $144,908 | | Loss on early extinguishment of debt | — | — | — | $214 | | Core FFO attributable to common stockholders and the Operating Partnership | $56,535 | $55,289 | $184,861 | $145,122 | [Factors That May Influence Future Results of Operations](index=65&type=section&id=Factors%20That%20May%20Influence%20Future%20Results%20of%20Operations) Future results will be influenced by portfolio transaction activity, leasing trends, and observatory operations. The company expects to close $95.0 million in property sales in Q1 2023 and anticipates increased occupancy and rental revenues long-term, despite short-term fluctuations from repositioning efforts. Observatory performance remains tied to tourism trends [Portfolio Transaction Activity](index=65&type=section&id=Portfolio%20Transaction%20Activity) Subsequent to September 30, 2022, the company entered into agreements to sell two properties, 500 Mamaroneck Avenue and 10 Bank Street, for a gross asset valuation of $95.0 million, with closings anticipated in the first quarter of 2023 - Agreements were made to sell 500 Mamaroneck Avenue and 10 Bank Street for **$95.0 million**, expected to close in Q1 2023[203](index=203&type=chunk) [Leasing](index=65&type=section&id=Leasing) As of September 30, 2022, 11.5% of the portfolio's rentable square footage was available to lease, with 1.4% and 5.5% of leases expiring in 2022 and 2023, respectively. The company anticipates long-term increases in occupancy and rental revenues from redevelopment efforts, despite potential short-term lower occupancy - As of September 30, 2022, approximately **1.1 million** rentable square feet (**11.5%** of portfolio) was available to lease[205](index=205&type=chunk) - Leases representing **1.4%** and **5.5%** of net rentable square footage will expire in 2022 and 2023, respectively[205](index=205&type=chunk) - The company expects increased occupancy levels and rental revenues over the long-term due to redevelopment and repositioning of properties, despite potential short-term lower occupancy[206](index=206&type=chunk)[208](index=208&type=chunk) [Observatory Operations](index=67&type=section&id=Observatory%20Operations) Observatory visitation significantly increased to 687,000 visitors in Q3 2022 from 255,000 in Q3 2021, driving revenue growth. Future performance remains dependent on domestic and international tourism trends, pricing, seasonality, competition, and weather - The observatory hosted **687,000** visitors in Q3 2022, a significant increase from **255,000** visitors in Q3 2021[209](index=209&type=chunk) - Observatory revenue for Q3 2022 was **$33.1 million**, up from **$12.8 million** in Q3 2021[210](index=210&type=chunk) - Observatory revenues and admissions are dependent on tourism trends (domestic and international), admission prices, seasonal trends, competition, and weather[210](index=210&type=chunk) [Critical Accounting Estimates](index=67&type=section&id=Critical%20Accounting%20Estimates) There were no material changes to the critical accounting estimates disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to critical accounting estimates were reported[211](index=211&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=68&type=section&id=ITEM%203%2E%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to interest rate risk, primarily on its unsecured revolving credit facility and debt refinancings, which it mitigates through fixed-rate borrowings and derivative financial instruments like interest rate swaps and caps. As of September 30, 2022, the company had $576.3 million in notional value of interest rate swap and cap agreements, with a fair value of $18.5 million, and is transitioning from LIBOR to SOFR swap agreements - The company uses derivative financial instruments (interest rate swaps and caps) to manage interest rate risk on its unsecured revolving credit facility and debt refinancings[213](index=213&type=chunk) - As of September 30, 2022, the company had **$576.3 million** in aggregate notional value of interest rate LIBOR swap and cap agreements and SOFR swap agreements, with a fair value of **$18.5 million**[214](index=214&type=chunk) - The weighted average interest rate on **$2.3 billion** of fixed-rate indebtedness was **3.9%** per annum as of September 30, 2022[215](index=215&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=68&type=section&id=ITEM%204%2E%20CONTROLS%20AND%20PROCEDURES) As of September 30, 2022, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective. No changes in internal control over financial reporting were identified that materially affected or are reasonably likely to materially affect these controls - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[217](index=217&type=chunk) - No material changes to internal control over financial reporting were identified during the period[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=69&type=section&id=PART%20II%2E%20OTHER%20INFORMATION) This section provides additional disclosures including legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=69&type=section&id=ITEM%201%2E%20LEGAL%20PROCEEDINGS) The company's legal proceedings are detailed in Note 9 to the Condensed Consolidated Financial Statements, which primarily involve an ongoing arbitration appeal related to the 2013 IPO and formation transactions - Legal proceedings are described in Note 9 to the Condensed Consolidated Financial Statements[220](index=220&type=chunk) [ITEM 1A. RISK FACTORS](index=70&type=section&id=ITEM%201A%2E%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2021[222](index=222&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=70&type=section&id=ITEM%202%2E%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities. It continued its $500 million stock and OP unit repurchase program, with approximately $417.5 million remaining authorized as of September 30, 2022, and detailed repurchases made during Q3 2022 - No unregistered sales of equity securities were reported[223](index=223&type=chunk) - A **$500 million** stock and OP unit repurchase program is authorized through December 31, 2023, with approximately **$417.5 million** remaining as of September 30, 2022[224](index=224&type=chunk) Equity Repurchases | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | |:---|:---|:---|\ | July 1-31, 2022 | 184,045 | $6.92 | | August 1-31, 2022 | 621,314 | $7.32 | | September 1-30, 2022 | 1,761,561 | $6.97 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=70&type=section&id=ITEM%203%2E%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[227](index=227&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=70&type=section&id=ITEM%204%2E%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine safety disclosures are not applicable to the company[228](index=228&type=chunk) [ITEM 5. OTHER INFORMATION](index=70&type=section&id=ITEM%205%2E%20OTHER%20INFORMATION) No other information was reported under this item - No other information was reported[229](index=229&type=chunk) [ITEM 6. EXHIBITS](index=71&type=section&id=ITEM%206%2E%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications from the CEO and CFO, and XBRL-related documents - Exhibits include amendments to credit agreements (10.62*, 10.63*), CEO and CFO certifications (31.1*, 31.2*, 32.1*, 32.2*), and XBRL documents (101.INS* to 101.PRE*, 104)[231](index=231&type=chunk) [SIGNATURES](index=72&type=section&id=SIGNATURES) The report is duly signed on behalf of Empire State Realty Trust, Inc. by its Executive Vice President and Chief Financial Officer, Christina Chiu, and Senior Vice President, Chief Accounting Officer, Stephen V. Horn, on November 3, 2022 - The report was signed by Christina Chiu, Executive Vice President and Chief Financial Officer, and Stephen V. Horn, Senior Vice President, Chief Accounting Officer, on November 3, 2022[236](index=236&type=chunk)

Empire State Realty Trust, Inc. (NYSE:ESRT) Q3 2022 Earnings Conference Call October 26, 2022 ET Company Participants Heather Houston - SVP, Deputy General Counsel and Corporate Secretary Anthony Malkin - Chairman, CEO and President Tom Durels - EVP, Real Estate Christina Chiu - EVP and CFO Conference Call Participants Camille Bonnel - Bank of America Merrill Lynch Blaine Heck - Wells Fargo Steve Sakwa - Evercore ISI Michael Griffin - Citi Daniel Ismail - Green Street John Kim - BMO Operator Greetings, and ...