Empire State Realty Trust, Inc. (NYSE:ESRT) Q2 2022 Earnings Conference Call July 28, 2022 12:00 PM ET Company Participants Tony Malkin – Chairman, President and Chief Executive Officer Christina Chiu – Executive Vice President and Chief Financial Officer Tom Keltner – Executive Vice President and General Counsel Tom Durels – Executive Vice President, Real Estate Conference Call Participants Steve Sakwa – Evercore ISI Michael Griffin – Citi John Kim – BMO Jamie Feldman – Bank of America Blaine Heck – Wells ...

EMPIRE STATE REALTY TRUST Investor Presentation July 2022 One Grand 250 W 57 Central Place LinkedIn at ESB Empire State Building Observator Empire Building Playbook Launch with A3 Artists Agency at ESB President Clinton, Governor Hochul, Mayor Adams Contents Company Priorities Competitive Advantages Flight To Quality Attractive Value Proposition Contracted Rents and Tenant Expansions Strong & Flexible Balance Sheet Focus on ESG Initiatives Sustainability Leadership & Scorecard ESRT Property Sector Highlight ...

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, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | |------------------------------------------------------------------------------|----------------------------------------------------------|---------- ...

Empire State Realty Trust, Inc. (NYSE:ESRT) Q1 2022 Earnings Conference Call April 28, 2022 12:00 PM ET Company Participants Tom Keltner - Executive Vice President & General Counsel Tony Malkin - Chairman, President & Chief Executive Officer Tom Durels - Executive Vice President, Real Estate Christina Chiu - Executive Vice President & Chief Financial Officer Conference Call Participants Steve Sakwa - Evercore Michael Bilerman - Citi Daniel Ismail - Green Street Operator Greetings, and welcome to the Empire ...

EMPIRE STATE REALTY TRUST Investor Presentation April 2022 Competitive Advantages | --- | --- | |----------|------------------------------------------------------| | | ▪ Portfolio Characteristics and Sources of Upside | | | ▪ Attractive Value Proposition / Flight To Quality | | | ▪ Contracted Rents and Tenant Expansions | | Contents | ▪ Strong & Flexible Balance Sheet | | | ▪ Sustainability Leadership & Scorecard | | | ESRT Property Sector Highlights | | | ▪ Office | | | ▪ ESB Observatory | | | ▪ Retail | | ...

[FORM 10-K Filing Information](index=1&type=section&id=FORM%2010-K) This section provides basic identification details for Empire State Realty Trust, Inc. as a registrant filing its annual report on Form 10-K for fiscal year 2021 [Registrant Information](index=1&type=section&id=Registrant%20Information) Identifies Empire State Realty Trust, Inc. as a well-known seasoned issuer filing its 2021 annual report on Form 10-K - Registrant: EMPIRE STATE REALTY TRUST, INC., a Maryland corporation[2](index=2&type=chunk) - Filing Type: Annual Report on Form 10-K for the fiscal year ended December 31, 2021[2](index=2&type=chunk) Indicator Status | Indicator | Status | | :------------------------ | :----- | | Well-known seasoned issuer | Yes | | Large accelerated filer | Yes | [Securities and Market Value](index=1&type=section&id=Securities%20and%20Market%20Value) Details Class A Common Stock trading on NYSE (ESRT) and **$2.07 billion** market value of voting stock held by non-affiliates Common Stock Details | Security Type | Trading Symbol | Exchange | | :------------------------ | :------------- | :---------------- | | Class A Common Stock | ESRT | New York Stock Exchange | | Class B Common Stock | N/A | N/A | Market Value and Shares Outstanding | Metric | Value | | :----------------------------------------- | :---------------- | | Aggregate market value of voting stock held by non-affiliates (June 30, 2021) | $2,068,792,000 | | Class A common stock outstanding (Feb 18, 2022) | 169,133,348 shares | | Class B common stock outstanding (Feb 18, 2022) | 995,210 shares | [Documents Incorporated by Reference](index=2&type=section&id=Documents%20Incorporated%20by%20Reference) Portions of the 2021 Proxy Statement for the Annual Stockholders' Meeting are incorporated by reference into Part III of this 10-K - Portions of the Proxy Statement for the 2021 Annual Stockholders' Meeting (May 12, 2022) are incorporated by reference into Part III of this 10-K[6](index=6&type=chunk) [Table of Contents](index=3&type=section&id=TABLE%20OF%20CONTENTS) [Definitions](index=4&type=section&id=DEFINITIONS) Defines key terms such as 'annualized rent,' 'fully diluted basis,' and 'enterprise value' for consistent report understanding - Key terms defined include 'annualized rent' (base rent + operating expenses/real estate taxes reimbursement), 'fully diluted basis' (Class A common stock + exchangeable OP units + convertible Class B common stock), and 'enterprise value' (fully diluted Class A common stock price + private perpetual preferred units + consolidated debt)[9](index=9&type=chunk) - The 'Malkin Group' refers to a specific group of individuals and entities, primarily Anthony E. Malkin and Peter L. Malkin and their descendants, with specific implications for tax protection rights[9](index=9&type=chunk) - 'Our company' refers to Empire State Realty Trust, Inc., a Maryland REIT, and its consolidated subsidiaries, including Empire State Realty OP, L.P., which is the 'operating partnership' through which substantially all business is conducted[9](index=9&type=chunk) [PART I](index=5&type=section&id=PART%20I) [ITEM 1. BUSINESS](index=5&type=section&id=ITEM%201.%20BUSINESS) Empire State Realty Trust, Inc. is a New York City-focused REIT managing office, retail, and multifamily assets, including the Empire State Building - Empire State Realty Trust, Inc. is a New York City-focused REIT owning and managing office, retail, and multifamily assets in Manhattan and the greater New York metropolitan area, including the Empire State Building and its Observatory Experience[13](index=13&type=chunk) Portfolio Summary (as of December 31, 2021) | Asset Type | Rentable Square Feet (Office & Retail) | Occupancy (Office & Retail) | Leased (Office & Retail, incl. signed) | Number of Office Properties | Number of Multifamily Units | | :--------------------- | :------------------------------------- | :-------------------------- | :------------------------------------- | :-------------------------- | :-------------------------- | | Office and Retail Portfolio | 10.1 million | 82.4% | 85.7% | 14 | N/A | | Multifamily Properties | N/A | N/A | N/A | N/A | 625 | - The company conducts substantially all business through its operating partnership, Empire State Realty OP, L.P., and has elected to be taxed as a REIT for U.S. federal income tax purposes since 2013[15](index=15&type=chunk) [Overview](index=5&type=section&id=Overview) Empire State Realty Trust, Inc. is a NYC-focused REIT managing office, retail, and multifamily properties, including the Empire State Building - The company is a New York City-focused REIT, owning and managing office, retail, and multifamily assets in Manhattan and the greater New York metropolitan area[13](index=13&type=chunk) - The portfolio includes the Empire State Building, which also features a newly reimagined Observatory Experience[13](index=13&type=chunk) Portfolio Composition (as of December 31, 2021) | Asset Type | Rentable Square Feet | Occupancy | Leased (incl. signed) | Number of Properties/Units | | :--------------------- | :------------------- | :-------- | :-------------------- | :------------------------- | | Office & Retail | 10.1 million | 82.4% | 85.7% | 14 office, 6 standalone retail | | Manhattan Office | 7.6 million | 82.5% | 85.3% | 9 | | Greater NY Office | 1.8 million | N/A | N/A | 5 | | Standalone Retail | 0.2 million | 100.0% | N/A | 6 | | Multifamily | N/A | N/A | N/A | 625 units | [Impact of COVID-19](index=5&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic significantly impacted New York City operations, leading to shutdowns and restrictions, with financial details referenced elsewhere - The COVID-19 pandemic created a global crisis, severely impacting the economy and social systems, especially in New York City and the tri-state region[16](index=16&type=chunk) - Government-imposed restrictions, including business shutdowns and travel limitations, have largely been lifted as the pandemic's impact improved due to vaccination[16](index=16&type=chunk) - Further information on COVID-19's impact on business and related risks can be found in Part II, Item 7 ('Management's Discussion and Analysis') and Part I, Item 1A ('Risk Factors')[17](index=17&type=chunk) [Business and Growth Strategies](index=6&type=section&id=Business%20and%20Growth%20Strategies) Strategies focus on maximizing shareholder returns and property value via environmental leadership, acquisitions, portfolio management, and Observatory enhancements - Primary business objectives are to maximize cash flow and total returns to shareholders and increase property value[19](index=19&type=chunk) - **Capitalize on Environmental Leadership:** Pioneered energy efficiency retrofits (e.g., Empire State Building), achieved GRESB 5 Star rating, ENERGY STAR Partner of the Year, WELL Health-Safety Rating, and Fitwel Champion. **100%** of portfolio contracted for renewable wind energy since January 2021. No exposure to fines in 2024 under NYC's Local Law 97[19](index=19&type=chunk)[20](index=20&type=chunk) - **Pursue Attractive Acquisition and Redevelopment Opportunities:** Built a dedicated investment team, focusing on NYC office, retail, and multifamily properties. Acquired two Manhattan multifamily assets in December 2021. Holds entitled land for Metro Tower office development in Stamford, CT[21](index=21&type=chunk) - **Proactively Manage Our Portfolio:** Service-intensive approach to asset and property management, focusing on increasing occupancy and rental rates, fostering strong tenant relationships, and extensive tenant diligence. Achieved over **200** tenant expansions totaling **2.5 million** square feet since 2013[22](index=22&type=chunk) - **Enhance and Recover our Observatory Operations:** Aiming to return to pre-COVID-19 profitability for the Empire State Building Observatory through enhanced operations (timed-entry), marketing, and health/safety protocols (MERV 13 filters, bipolar ionization). Observatory visitor numbers declined from **3.5-3.8 million** (2018-2019) to **0.5 million** (2020) and **0.8 million** (2021) due to the pandemic[24](index=24&type=chunk) [Leasing](index=7&type=section&id=Leasing) Focuses on a high-quality brand for properties, emphasizing services, healthy buildings, and energy efficiency to attract and retain high credit-quality tenants - Focus on maintaining a brand associated with high quality services, healthy buildings, amenities, and energy efficiency to attract high credit-quality tenants[25](index=25&type=chunk) - Emphasizes long-term relationships with brokers and tenants, with senior management actively involved in communication to maximize leasing results[25](index=25&type=chunk) [Property Management](index=7&type=section&id=Property%20Management) Self-manages all office and retail properties, focusing on proactive maintenance, capital improvements, and aggressive operating expense control - Self-manages all office and retail properties, focusing on routine preventive maintenance and capital improvement programs[26](index=26&type=chunk) - Strategies include aggregating smaller spaces to attract high credit-quality tenants, creating efficient pre-built offices, and aggressively managing operating expenses[26](index=26&type=chunk) - Energy efficiency retrofitting and sustainability are portfolio-wide initiatives, with cost savings passed on to tenants, making properties more desirable[26](index=26&type=chunk) [Business Segments](index=7&type=section&id=Business%20Segments) Operates two reportable segments: Real Estate (commercial/multifamily) and Observatory (Empire State Building), managed distinctly due to differing characteristics - Reportable segments are Real Estate and Observatory[27](index=27&type=chunk) - Real Estate segment: Ownership, management, operation, acquisition, repositioning, and disposition of commercial and multifamily assets in Manhattan and greater New York metropolitan area[27](index=27&type=chunk) - Observatory segment: Operates the 86th and 102nd floor observatories at the Empire State Building[27](index=27&type=chunk) [Regulation](index=7&type=section&id=Regulation) Properties are subject to federal, state, and local laws, including ADA and environmental regulations, with potential liabilities for non-compliance and NYC Local Law 97 emission limits - Properties are subject to various laws, ordinances, and regulations, including those related to common areas, ADA, and environmental matters[29](index=29&type=chunk)[30](index=30&type=chunk)[33](index=33&type=chunk) - Potential liabilities include fines or damages for ADA noncompliance, costs for investigating/remediating hazardous substances (e.g., at 69-97 Main Street, Westport, CT, and 500 Mamaroneck Avenue, Harrison, NY), and issues related to asbestos or mold[32](index=32&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - Subject to New York City's Local Law 97, establishing annual greenhouse gas emission limits for large commercial buildings, but expects no fines for the 2024-2030 enforcement period[42](index=42&type=chunk) - Certain multifamily units are designated for lower-income households and are regulated by state and federal authorities[43](index=43&type=chunk) [Insurance](index=9&type=section&id=Insurance) Maintains comprehensive liability, property, and terrorism insurance, including through its captive, with substantial self-insurance and exclusions for certain losses - Carries comprehensive liability, fire, extended coverage, earthquake, terrorism, and rental loss insurance for all Manhattan and greater New York metropolitan area properties under a blanket policy[44](index=44&type=chunk) - ESRT Captive Insurance Company L.L.C., a wholly-owned captive, provides additional all-risk property and business insurance, including **$1.2 billion** in terrorism coverage (in excess of **$800 million**) for the Empire State Building, totaling **$2 billion** aggregate[44](index=44&type=chunk) - NBCR (Nuclear, Biological, Chemical, and Radiological) insurance is held for **$50 million** in the commercial market, with ESRT Captive Insurance providing an additional **$1.95 billion** in excess[44](index=44&type=chunk) - Policies include substantial self-insurance, significant deductibles, and co-payments. Certain losses, such as those caused by war or business interruption due to pandemics, are not covered[49](index=49&type=chunk)[50](index=50&type=chunk) [Competition](index=10&type=section&id=Competition) The real estate leasing market in Manhattan and greater New York metropolitan area is highly competitive, impacting revenues based on rent, location, services, and facility condition - The real estate leasing market in Manhattan and the greater New York metropolitan area is highly competitive[51](index=51&type=chunk) - Competition factors include rent, location, services, and property condition, with rivals potentially offering lower rates or better facilities[51](index=51&type=chunk) - Faces competition from other real estate companies (REITs, private funds, financial institutions) with potentially greater financial resources[51](index=51&type=chunk) - Observatory and broadcasting operations also face competition from new and existing facilities, and adverse travel trends or currency exchange rates could decrease demand[51](index=51&type=chunk) [Our Tax Status](index=10&type=section&id=Our%20Tax%20Status) Elected REIT status since 2013, exempting it from federal income tax on distributed income, and uses TRSs for non-qualifying activities subject to corporate tax - Elected to be taxed as a REIT since December 31, 2013, and aims to qualify annually to avoid U.S. federal income tax on distributed net taxable income[52](index=52&type=chunk) - REIT qualification requires distributing at least **90%** of REIT taxable income annually; failure to do so incurs corporate tax rates and potential excise tax[55](index=55&type=chunk) - Must meet gross income and asset tests: at least **75%** of assets in cash, government securities, or qualified REIT real estate assets, and limits on securities of any one issuer or TRSs[56](index=56&type=chunk) - Uses Taxable REIT Subsidiaries (TRSs) for non-qualifying income activities like the Empire State Building observatory and broadcasting licenses, with rent/fees from these TRSs qualifying as REIT income based on IRS private letter rulings[58](index=58&type=chunk)[59](index=59&type=chunk) [Inflation](index=11&type=section&id=Inflation) Leases include tax and operating expense escalations and fixed rent increases, expected to partially offset inflation, which historically has not materially impacted financials - Substantially all leases include separate real estate tax and operating expense escalations, and many have fixed base rent increases[60](index=60&type=chunk) - These contractual provisions are expected to partially offset inflationary increases[60](index=60&type=chunk) - Historically, inflation has not had a material impact on the company's financial position or results of operations[60](index=60&type=chunk) [Seasonality](index=11&type=section&id=Seasonality) The observatory business experiences seasonality due to tourism and weather, with higher revenues in Q2 and Q3, while other business is not materially seasonal - Observatory business is subject to tourism trends and weather, leading to seasonality[61](index=61&type=chunk) Historical Annual Observatory Revenue Distribution (Pre-COVID-19) | Quarter | Percentage of Annual Revenue | | :------ | :--------------------------- | | Q1 | 16.0% - 18.0% | | Q2 | 26.0% - 28.0% | | Q3 | 31.0% - 33.0% | | Q4 | 23.0% - 25.0% | - The rest of the company's business is not materially affected by seasonal fluctuations[62](index=62&type=chunk) [Human Capital Management](index=12&type=section&id=Human%20Capital%20Management) As of December 31, 2021, the company employed 693 people, 484 unionized, prioritizing diversity, talent, learning, and health/safety protocols - As of December 31, 2021, the company employed **693** people, with approximately **484** covered by collective bargaining agreements[63](index=63&type=chunk) - **Diversity and Inclusion:** Strives for a diverse and inclusive workplace, recognized by the 2022 Bloomberg Gender-Equality Index[64](index=64&type=chunk) - **Talent Acquisition and Retention:** Offers competitive compensation, benefits, and equity grants (annual for senior management, multi-year anniversaries for others). Regularly collects employee feedback[65](index=65&type=chunk) - **Training and Development:** Invests in mandatory and voluntary training programs to support productivity, innovation, and retention[66](index=66&type=chunk) - **Health, Safety and Wellness:** Recognized for leadership in indoor environmental quality. Implemented COVID-19 protocols including online screening, temperature checks, air quality tests, remote work options, and PPE[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [Offices](index=12&type=section&id=Offices) Principal executive offices are in New York, New York, with five regional offices, and current facilities are adequate for present and future operations - Principal executive offices are at 111 West 33rd Street, New York, New York[70](index=70&type=chunk) - Maintains five additional regional leasing and property management offices in Manhattan and the greater New York metropolitan area[70](index=70&type=chunk) - Current facilities are adequate for present and future operations, with potential for expansion[70](index=70&type=chunk) [Available Information](index=12&type=section&id=Available%20Information) Provides free online access to SEC filings (10-K, 10-Q, 8-K) and corporate governance documents on its website, with additional reports via the SEC - Company website (http://www.esrtreit.com) provides free access to SEC filings (10-K, 10-Q, 8-K) and amendments[71](index=71&type=chunk)[73](index=73&type=chunk) - Corporate governance documents, including committee charters, governance guidelines, and the Code of Business Conduct and Ethics, are also available on the website[73](index=73&type=chunk) - The SEC's website (http://www.sec.gov) also contains reports and information regarding the company[73](index=73&type=chunk) [ITEM 1A. RISK FACTORS](index=14&type=section&id=ITEM%201A.%20RISK%20FACTORS) Outlines significant risks that could materially and adversely affect the company's business, operations, financial condition, and REIT qualification - The company faces substantial risks and uncertainties that could materially and adversely affect its business, operations, financial condition, and REIT qualification[75](index=75&type=chunk)[76](index=76&type=chunk) - Key risk categories include the economic and social impact of the COVID-19 pandemic, portfolio concentration in New York and Connecticut, and reliance on a few key properties and tenants[76](index=76&type=chunk)[83](index=83&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk) - Other significant risks involve real estate market conditions (e.g., shift to remote work, retail industry downturn, competition), non-real estate operations (observatory, broadcasting), debt and liquidity, natural disasters, environmental compliance, human capital, legal/cybersecurity issues, and maintaining REIT status[90](index=90&type=chunk)[93](index=93&type=chunk)[96](index=96&type=chunk)[101](index=101&type=chunk)[106](index=106&type=chunk)[110](index=110&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[124](index=124&type=chunk)[133](index=133&type=chunk)[136](index=136&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[153](index=153&type=chunk)[155](index=155&type=chunk)[157](index=157&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk)[173](index=173&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[194](index=194&type=chunk)[196](index=196&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) [Risks Related to Our Business and Properties](index=14&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Properties) Faces significant risks from COVID-19, portfolio concentration in New York/Connecticut, terrorist events, and reliance on key properties/tenants - **COVID-19 Pandemic:** Serious adverse effects on business, operations, and financial condition due to tenant rent deferrals/defaults, reduced observatory visitor volume (**0.5 million** in 2020, **0.8 million** in 2021 vs **3.5 million** in 2019), and potential claims related to protective measures. Impacts human capital, economic demand, capital projects, debt compliance, stock price, and dividend payments[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - **Portfolio Concentration:** Properties are primarily in Manhattan, Fairfield County (CT), and Westchester County (NY), making the business highly dependent on the New York City economy and vulnerable to local economic/regulatory developments, including potential negative demographic shifts due to tax policies[83](index=83&type=chunk)[84](index=84&type=chunk) - **Terrorist Event:** Threat or occurrence of a terrorist event, especially in New York City, could decrease demand, occupancy, rental rates, and property values, particularly for high-profile assets like the Empire State Building[85](index=85&type=chunk)[86](index=86&type=chunk) - **Reliance on Key Properties/Tenants:** Six properties account for ~**75.5%** of rental revenues, with the Empire State Building alone contributing ~**31.7%**. Observatory operations generated **$41.5 million** in 2021, significantly down from **$128.8 million** in 2019. The five largest tenants represent **13.2%** of annualized rent, posing risks if they face financial strain or default[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [Risks Relating to the Real Estate Market](index=15&type=section&id=Risks%20Relating%20to%20the%20Real%20Estate%20Market) Real estate market risks include remote work shifts, adverse economic conditions, tenant bankruptcies, high competition, and multifamily lease volatility - **Shift to Remote Work:** A sustained shift away from in-person work or increased remote work could adversely affect demand, occupancy, and rental rates for office and multifamily properties[90](index=90&type=chunk) - **Adverse Economic Conditions:** Economic and geopolitical conditions, especially impacting the retail industry (**17.1%** of annualized rent), could cause reduced demand, rental rates, and occupancy for retail and office space due to online shopping trends and bankruptcies[91](index=91&type=chunk)[93](index=93&type=chunk) - **Tenant Bankruptcy/Insolvency:** Tenant bankruptcies (e.g., GBG USA Inc. in July 2021) can lead to lease terminations, non-recovery of upfront investments, and substantial costs in enforcing rights. Smaller tenants, which constitute a large number, have a higher failure rate[94](index=94&type=chunk)[95](index=95&type=chunk) - **Competition:** Highly competitive leasing market in greater New York City, with increased competition from lessors offering concessions, amenities, and certifications, challenging the ability to lease space and maximize effective rents[96](index=96&type=chunk) - **Lease Renewals/Re-leasing:** Risk of being unable to renew leases or re-lease vacant space (**1.4 million** sq ft vacant, **5.7%** expiring in 2022, **6.3%** in 2023) on favorable terms, potentially requiring rent concessions or significant capital expenditures for property improvements, especially for older properties[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - **Multifamily Lease Volatility:** Short-term nature of multifamily leases (**12 months** or less) exposes the company more quickly to declining market rents, increasing revenue volatility[100](index=100&type=chunk) [Risks Relating to Our Properties](index=16&type=section&id=Risks%20Relating%20to%20Our%20Properties) Faces risks from ground leases, property development, uncontrollable operating costs, and reliance on third-party multifamily property management - **Ground Leases:** Interests in three commercial office properties (1350 Broadway, 111 West 33rd Street, 1400 Broadway) are ground leases expiring between 2050 and 2077. Risks include lease termination for breach, inability to renew on favorable terms, loss of operating rights, no share in land value increase, and limited eminent domain compensation[101](index=101&type=chunk)[103](index=103&type=chunk) - **Property Development:** Exposed to risks in development activities (e.g., Metro Tower at Stamford Transportation Center), including financing availability/pricing, zoning approvals, occupancy rates, construction costs/delays, and timely lease-up. Abandonment of projects could lead to unrecovered expenses[104](index=104&type=chunk)[105](index=105&type=chunk) - **Operating Costs:** Inability to control operating costs (real estate taxes, insurance, maintenance) which generally do not decrease with lower occupancy or rental rates. Inflation impacts these costs, and lease terms may limit tenant reimbursement[106](index=106&type=chunk)[107](index=107&type=chunk) - **Third-Party Property Management:** Uses a third-party for certain multifamily properties, exposing the company to risks of non-performance, additional costs, and reputational harm if standards are not met[108](index=108&type=chunk)[109](index=109&type=chunk) [Risks Related to Our Non-Real Estate Operations](index=17&type=section&id=Risks%20Related%20to%20Our%20Non-Real%20Estate%20Operations) Observatory operations are susceptible to competition, weather, and tourist trends, while broadcasting faces competition and technological changes, with goodwill impairment risk - **Observatory Operations:** Not traditional real estate, highly susceptible to competition (World Trade Center, Rockefeller Center, etc.), adverse weather, and tourist trends. COVID-19 caused significant revenue decline (**$128.8 million** in 2019 to **$29.1 million** in 2020 and **$41.5 million** in 2021), with uncertainty on return to pre-pandemic levels[110](index=110&type=chunk)[111](index=111&type=chunk) - **Broadcasting Operations:** Not traditional real estate, faces competition and changes in broadcasting technology. Revenue from licenses (**$13.5 million** in 2021, down from **$21 million** peak) has been negatively impacted, with reduced revenue from lease renewals and higher operating/capital expenses. Government regulations may further reduce demand for broadcast licenses[112](index=112&type=chunk) - **Goodwill Impairment:** Balance sheet includes **$491.5 million** in goodwill (primarily from Empire State Building Company L.L.C. and 501 Seventh Avenue Associates L.L.C.). Ongoing impairment assessments, particularly for the observatory reporting unit (**$227.5 million** goodwill), are sensitive to future market and economic conditions, and an impairment could materially affect reported earnings[114](index=114&type=chunk)[115](index=115&type=chunk) [Risks Relating to Acquisitions and Dispositions](index=18&type=section&id=Risks%20Relating%20to%20Acquisitions%20and%20Dispositions) Acquisition challenges include competition and unknown liabilities; tax-deferred transactions may dilute securityholders and restrict asset sales; real estate illiquidity hinders dispositions - **Acquisition Challenges:** Difficulty in identifying and successfully completing acquisitions due to significant competition, especially from private investors. Incurring costs and diverting management attention for uncompleted acquisitions. Successful acquisitions may involve higher-than-budgeted improvements and unknown liabilities[116](index=116&type=chunk)[117](index=117&type=chunk) - **Tax Deferred Contribution Transactions:** Acquiring properties via tax-deferred contribution transactions in exchange for operating partnership units could lead to securityholder dilution, reduced tax depreciation, and restrictions on asset disposition to protect contributors' tax deferral[118](index=118&type=chunk)[119](index=119&type=chunk) - **Inability to Sell/Dispose/Refinance:** Real estate investments are illiquid. Restrictions from the Internal Revenue Code on REIT property dispositions may limit the ability to realize investment objectives through timely sales, other dispositions, or refinancing at attractive prices[120](index=120&type=chunk)[121](index=121&type=chunk) [Risks Relating to Our Indebtedness and Liquidity](index=18&type=section&id=Risks%20Relating%20to%20Our%20Indebtedness%20and%20Liquidity) Faces interest rate risk from variable-rate debt (LIBOR phase-out), substantial debt (**$2.3 billion**) with restrictive covenants, and dependence on external capital, impacting financial flexibility - **LIBOR Phase-out:** Exposure to interest rate risk on revolving credit facility and term loan, which use USD LIBOR. Phase-out by June 30, 2023, and transition to SOFR could result in higher interest rates and market disruption[122](index=122&type=chunk) - **Debt and Limitations:** Total debt of approximately **$2.3 billion** as of December 31, 2021, with no maturity before November 2024. Loan documents contain covenants (e.g., maximum leverage, minimum fixed charge coverage) that restrict financial and operational flexibility and distributions. Default could accelerate debt and lead to foreclosures[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - **Mortgage Risks:** Mortgages expose the company to foreclosure and loss of investment. High mortgage rates or unavailability of debt could make financing/refinancing difficult, reducing net income and cash distributions. Foreclosures could also trigger tax protection agreement indemnification obligations[128](index=128&type=chunk)[129](index=129&type=chunk) - **Dependence on External Capital:** As a REIT, the company relies on external sources of capital (debt, equity issuances, asset sales) to fund future capital needs, acquisitions, and distributions. Access to capital depends on general economic and market conditions, and market perception of growth potential[130](index=130&type=chunk)[132](index=132&type=chunk) [Risks Relating to Disaster Recovery and Business Continuity](index=20&type=section&id=Risks%20Relating%20to%20Disaster%20Recovery%20and%20Business%20Continuity) Properties are vulnerable to natural disasters and climate change, with potentially inadequate insurance coverage and significant environmental compliance costs, including NYC Local Law 97 - **Natural Disasters and Climate Change:** Properties concentrated in the New York metropolitan area are vulnerable to earthquakes, storms, floods, and hurricanes. Climate change (rising sea levels, extreme temperatures) could impact demand, operations, insurance affordability, and energy costs. Disaster recovery plans may be inadequate[133](index=133&type=chunk)[134](index=134&type=chunk) - **Insurance Coverage Limitations:** Insurance may not cover all losses (e.g., war, pandemic business interruption). Policies have substantial self-insurance, deductibles, and co-payments. Uninsured losses or exceeding policy limits could incur significant costs. Inability to obtain required insurance could lead to debt default[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - **Environmental Compliance Costs:** Significant costs to comply with environmental laws (air/water quality, hazardous substances, health/safety). Contamination (e.g., at 69-97 Main Street, Westport, CT, and 500 Mamaroneck Avenue, Harrison, NY) could lead to fines, remediation costs, and impair ability to sell, lease, or finance properties. New York City's Local Law 97 on greenhouse gas emissions poses compliance challenges and potential penalties, though no fines are expected for 2024-2030[138](index=138&type=chunk)[140](index=140&type=chunk) [Risks Relating to Human Capital Management](index=21&type=section&id=Risks%20Relating%20to%20Human%20Capital%20Management) Success depends on key personnel, especially CEO Anthony E. Malkin, whose outside interests may create conflicts, and maintaining satisfactory labor relations with unionized workforce is crucial - **Departure of Key Personnel:** Success depends on key personnel, especially Anthony E. Malkin (Chairman, President, CEO), whose leadership and industry reputation are critical. Loss of senior management could materially affect the company[141](index=141&type=chunk)[142](index=142&type=chunk) - **CEO Outside Business Interests:** Mr. Malkin has outside investments and management obligations that could conflict with his responsibilities to the company, potentially diverting his time and attention[143](index=143&type=chunk) - **Labor Relations:** **70%** of the workforce (**484** employees) is covered by collective bargaining agreements. Inability to negotiate acceptable renewals could result in strikes, work stoppages, and increased operating costs from temporary replacement workers

EMPIRE STATE REALTY TRUST Investor Presentation February 2022 | --- | --- | |----------|---------------------------------------| | | Overview | | | New York City Focus | | | Flight To Quality | | Contents | Sustainability Leadership & Scorecard | | | Strong & Flexible Balance Sheet | | | ESRT Portfolio | | | Office | | | ESB Observatory | | | Retail | | | Multifamily | | | Meet the Team: ESRT Management | | | Appendix | 2 | 29 | --- | --- | --- | |------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - The company reported core FFO of $49.8 million or $0.18 per diluted share for Q4 2021 [40] - Same-store property cash NOI decreased by 4.9% from Q4 2020, primarily due to reduced revenues from lease terminations and decreased occupancy [40] - Fourth quarter NOI for the observatory was $10.7 million, a 67% increase from the previous quarter [41] Business Line Data and Key Metrics Changes - In Q4, the company signed 34 new and renewal leases totaling approximately 375,000 square feet, with 294,000 square feet in Manhattan office properties [27] - Rental rates on new leases in Manhattan office properties increased by 3.9% on a cash basis compared to prior escalator rents [31] - The total portfolio occupancy was at 82.4%, down 110 basis points from the prior quarter, while the leased percentage was 85.7% [32] Market Data and Key Metrics Changes - Hotel occupancy in New York City was up 21% year-over-year through November, with December bookings up 312% year-over-year [11] - Foot traffic in the Garment district rebounded to 86% of pre-COVID levels, with 3.2 million people traversing the area [11] - Building utilization for the Manhattan office portfolio currently stands at 30%, with expectations for steady increases as companies announce return-to-office dates [36] Company Strategy and Development Direction - The company is focused on maximizing the benefits of its balance sheet and adapting to a post-COVID environment [8] - There is a strong emphasis on leasing activity and attracting long-term tenants, with a focus on modernized, healthy office spaces [14][35] - The company aims to capitalize on the flight to quality trend, providing accessible rents for well-amenitized buildings [15][72] Management's Comments on Operating Environment and Future Outlook - Management noted that the first quarter is historically the slowest period, but they are already seeing post-Omicron recovery [17] - The company anticipates an increase in leased percentage starting in Q1 2022, despite a slight decline in occupancy due to lease terminations [32][54] - Management expressed confidence in the recovery of New York City tourism and the return to office trends [49] Other Important Information - The company closed on the acquisition of 625 multifamily units in Manhattan, which is expected to be accretive to FFO [22][45] - ESRT received a $5 million grant as part of the Empire Building Challenge to reduce greenhouse gas emissions [24] - The company has a flexible balance sheet with $1.3 billion in liquidity, including $424 million in cash [42] Q&A Session Summary Question: Can you elaborate on the leasing and occupancy targets for 2022? - Management expects occupancy to reach the mid-80s by year-end 2022, with a focus on tenant retention and signed leases not yet commenced [51][54] Question: What is the outlook for investment activity in the multifamily sector? - The investment team is actively underwriting deals, focusing on opportunities that add value, while being cautious about market conditions [55][56] Question: How is the company addressing the flight to quality trend? - The company is seeing increased demand for modernized, healthy buildings with good access to mass transit, which aligns with their portfolio offerings [71][72] Question: What are the implications of the Norwalk impairment charge? - The impairment charge is specific to that property and reflects the weak fundamentals of the Norwalk submarket, with no impact on the broader portfolio [47][48] Question: How are tenants in the retail sector performing amid current challenges? - Retail tenants are performing well, with a 91% leased rate, and the company has supported smaller retailers through COVID [90]

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The unaudited financial statements detail balance sheets, operations, equity, and cash flows for periods ended September 30, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities slightly decreased while cash and cash equivalents increased from year-end 2020 | Metric | September 30, 2021 (thousands) | December 31, 2020 (thousands) | | :--- | :--- | :--- | | Total Assets | $4,112,163 | $4,150,695 | | Total Liabilities | $2,398,482 | $2,419,388 | | Total Equity | $1,713,681 | $1,731,307 | | Cash and Cash Equivalents | $582,188 | $526,714 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net loss narrowed year-over-year, driven by significant growth in observatory revenue and lease termination fees | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(10,183) | $(12,269) | $(8,963) | $(23,599) | | Total Revenues | $165,048 | $146,575 | $463,760 | $457,829 | | Observatory Revenue | $12,796 | $4,419 | $23,758 | $24,049 | | Lease Termination Fees | $11,321 | $331 | $15,949 | $1,575 | | Basic Earnings Per Share | $(0.04) | $(0.05) | $(0.04) | $(0.09) | | Dividends Per Share | $0.035 | $— | $0.070 | $0.210 | - Observatory revenue increased by **189.6%** for the three months ended September 30, 2021, compared to the same period in 2020[168](index=168&type=chunk) - Lease termination fees surged by **3,320.2%** for the three months ended September 30, 2021, compared to the same period in 2020[168](index=168&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss significantly decreased due to improved unrealized gains on interest rate swap agreements | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Comprehensive Loss | $(7,366) | $(9,332) | $(415) | $(36,953) | | Unrealized gain (loss) on valuation of interest rate swap agreements | $(103) | $64 | $(139) | $(19,340) | [Condensed Consolidated Statements of Stockholders' Equity (Three Months)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20The%20Three%20Months%20Ended%20September%2030%2C%202021%20and%202020) Stockholders' equity decreased in Q3 2021 due to share repurchases and dividends, partially offset by other comprehensive income | Metric | Balance at June 30, 2021 (thousands) | Balance at September 30, 2021 (thousands) | | :--- | :--- | :--- | | Total Stockholders' Equity | $1,055,659 | $1,038,978 | | Repurchases of common shares | N/A | $(6,510) | | Dividends and distributions | N/A | $(11,029) | | Other comprehensive income | N/A | $2,817 | [Condensed Consolidated Statements of Stockholders' Equity (Nine Months)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20The%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) Total equity decreased over nine months due to share repurchases and dividends exceeding other comprehensive income | Metric | Balance at Dec 31, 2020 (thousands) | Balance at September 30, 2021 (thousands) | | :--- | :--- | :--- | | Total Equity | $1,731,307 | $1,713,681 | | Repurchases of common shares | N/A | $(10,043) | | Dividends and distributions | N/A | $(22,584) | | Other comprehensive income | N/A | $8,548 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash from operations increased while financing activities used cash, resulting in a net increase in total cash | Metric | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $167,027 | $163,553 | | Net Cash Used in Investing Activities | $(70,760) | $(113,354) | | Net Cash (Used in) Provided by Financing Activities | $(43,239) | $106,157 | | Net Increase in Cash and Cash Equivalents and Restricted Cash | $53,028 | $156,356 | | Cash and Cash Equivalents and Restricted Cash—End of Period | $620,967 | $427,953 | [Notes to Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detailed breakdowns for the financial statements [1. Description of Business and Organization](index=15&type=section&id=1.%20Description%20of%20Business%20and%20Organization) Empire State Realty Trust, Inc. is a self-managed REIT focused on office and retail properties in the New York area - ESRT is a self-administered and self-managed REIT that owns, manages, operates, acquires, and repositions office and retail properties in Manhattan and the greater New York metropolitan area[29](index=29&type=chunk) - As of September 30, 2021, the total portfolio contained **10.1 million rentable square feet** of office and retail space[30](index=30&type=chunk) - ESRT owned approximately **60.8%** of the aggregate operating partnership units in the Operating Partnership as of September 30, 2021[31](index=31&type=chunk) [2. Summary of Significant Accounting Policies](index=15&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements adhere to GAAP and SEC regulations, with key policies involving significant estimates and recent adoptions - Unaudited condensed consolidated financial statements are prepared in conformity with GAAP for interim financial information and SEC rules[33](index=33&type=chunk) - The company consolidates entities where it has a controlling financial interest, including variable interest entities where it is the primary beneficiary (e.g., the Operating Partnership)[37](index=37&type=chunk) - Significant accounting estimates include allocation of purchase price for acquired real estate, useful life of assets, impairment analysis, tenant expense reimbursements, and valuation of derivative instruments and debt[40](index=40&type=chunk) - The company elected to apply hedge accounting expedients related to probability and effectiveness assessments for future LIBOR-indexed cash flows under **ASU 2020-04 (Reference Rate Reform)**[42](index=42&type=chunk)[44](index=44&type=chunk) [3. Deferred Costs, Acquired Lease Intangibles and Goodwill](index=19&type=section&id=3.%20Deferred%20Costs%2C%20Acquired%20Lease%20Intangibles%20and%20Goodwill) Deferred costs decreased, while goodwill underwent an impairment test with the observatory unit's fair value exceeding its carrying value | Metric | September 30, 2021 (thousands) | December 31, 2020 (thousands) | | :--- | :--- | :--- | | Total deferred costs, net (excluding financing) | $181,495 | $201,721 | | Acquired below-market ground leases, net | $338,862 | $344,735 | | Acquired below-market leases, net | $(23,512) | $(31,705) | - Goodwill as of September 30, 2021, was **$491.5 million**, allocated $227.5 million to the observatory segment and $264.0 million to the real estate segment[46](index=46&type=chunk) - An impairment test for the Observatory reporting unit's goodwill determined its fair value exceeded its carrying value by **less than 15.0%**, influenced by COVID-19 impacts[46](index=46&type=chunk)[48](index=48&type=chunk) [4. Debt](index=21&type=section&id=4.%20Debt) The company maintained compliance with all debt covenants, with total principal debt of approximately $2.15 billion | Metric | September 30, 2021 (thousands) | | :--- | :--- | | Total Principal Debt | $2,148,831 | | Weighted Average Interest Rate | 3.9% | | Weighted Average Maturity | 7.4 years | - The company was in compliance with all debt covenants as of September 30, 2021[49](index=49&type=chunk)[55](index=55&type=chunk)[58](index=58&type=chunk) - Excluding principal amortization, **no outstanding debt matures until November 2024**[146](index=146&type=chunk) - The company has an amended senior unsecured credit facility of up to **$1.065 billion**, including an $850.0 million revolving credit facility (undrawn as of Sep 30, 2021) and a $215.0 million term loan facility[53](index=53&type=chunk) [5. Accounts Payable and Accrued Expenses](index=25&type=section&id=5.%20Accounts%20Payable%20and%20Accrued%20Expenses) Accounts payable and accrued expenses decreased, with a notable reduction in interest rate swap agreement liability | Metric | September 30, 2021 (thousands) | December 31, 2020 (thousands) | | :--- | :--- | :--- | | Total Accounts Payable and Accrued Expenses | $94,216 | $103,203 | | Interest Rate Swap Agreement Liability | $4,887 | $8,849 | [6. Financial Instruments and Fair Values](index=25&type=section&id=6.%20Financial%20Instruments%20and%20Fair%20Values) The company uses interest rate swaps to manage interest rate risk, with derivatives classified as Level 2 fair value - Derivative financial instruments, primarily interest rate swap and forward agreements, are used to manage interest rate risk and are not considered speculative[60](index=60&type=chunk) - As of September 30, 2021, an interest rate LIBOR swap with an aggregate notional value of **$265.0 million** had a fair value of **$(4.9) million** (liability) and was designated as a highly effective cash flow hedge[62](index=62&type=chunk)[65](index=65&type=chunk) - Derivatives are classified as **Level 2** in the fair value hierarchy, while mortgage notes, senior unsecured notes, and term loan facilities are determined using **Level 3** inputs[67](index=67&type=chunk)[68](index=68&type=chunk) [7. Leases](index=28&type=section&id=7.%20Leases) The company's rental revenue includes fixed and variable payments, with future minimum lease payments totaling $3.9 billion | Metric | Three Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | | :--- | :--- | :--- | | Total Rental Revenue | $139,558 | $420,586 | | Fixed Payments | $124,764 | $374,968 | | Variable Payments | $14,794 | $45,618 | - Future contractual minimum lease payments (as lessor) on non-cancellable operating leases total **$3,902,670 thousand** as of September 30, 2021, expiring through 2039[74](index=74&type=chunk) - Operating lease agreements (as lessee) relate to three ground lease assets, with right-of-use assets and lease liabilities of **$28.9 million** each, and a weighted average remaining lease term of **48.6 years**[75](index=75&type=chunk) [8. Commitments and Contingencies](index=29&type=section&id=8.%20Commitments%20and%20Contingencies) The company faces ongoing IPO-related litigation and anticipates $85.2 million in unfunded capital expenditures - An arbitration panel awarded claimants approximately **$1.2 million** (inclusive of interest) in IPO-related litigation, with the court denying the company's motion to vacate[80](index=80&type=chunk)[81](index=81&type=chunk) - Estimated unfunded capital expenditures of approximately **$85.2 million** for tenant improvements and leasing commissions under existing lease agreements[83](index=83&type=chunk) - The company is unable to reasonably estimate the fair value of conditional asset retirement obligations related to asbestos removal due to indeterminable settlement dates[85](index=85&type=chunk) [9. Equity](index=33&type=section&id=9.%20Equity) The company reauthorized a $500 million stock repurchase program and reinstated quarterly dividends in Q3 2021 - As of September 30, 2021, there were **285,104,512 common stock and OP Units outstanding**, with ESRT owning 60.8%[96](index=96&type=chunk) - The Board of Directors reauthorized a stock repurchase program of up to **$500 million** of Class A common stock and OP units through December 31, 2021[97](index=97&type=chunk) | Metric | Three Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | | :--- | :--- | :--- | | Total Dividends Paid to Common Stockholders | $6,100 | $12,100 | | Total Distributions Paid to OP Unitholders | $3,900 | $7,300 | | Total Distributions Paid to Preferred Unitholders | $1,100 | $3,200 | - The company reinstated its quarterly dividend, declaring **$0.035 per share** for the third quarter of 2021[227](index=227&type=chunk) - Unrecognized compensation expense for LTIP units and restricted stock was **$28.1 million** at September 30, 2021, to be recognized over a weighted average period of **2.4 years**[109](index=109&type=chunk) [10. Related Party Transactions](index=39&type=section&id=10.%20Related%20Party%20Transactions) The company engages in various transactions with entities affiliated with its Chairman and CEO, Anthony E. Malkin | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Supervisory Fees Revenue | $300 | $200 | $800 | $700 | | Property Management Fee Revenue | $100 | $100 | $200 | $200 | | Other Revenue (rent & computer support) | $100 | $100 | $200 | $200 | [11. Segment Reporting](index=41&type=section&id=11.%20Segment%20Reporting) The company operates in two segments, with the real estate segment reporting a net loss and the observatory segment generating net income in Q3 2021 - The company has two reportable segments: **real estate** (ownership, management, operation of properties) and **observatory** (Empire State Building observatories)[117](index=117&type=chunk) | Metric | Real Estate (3 Months Ended Sep 30, 2021, thousands) | Observatory (3 Months Ended Sep 30, 2021, thousands) | | :--- | :--- | :--- | | Net Income (Loss) | $(11,329) | $1,146 | | Total Operating Income | $11,984 | $1,219 | | Total Revenues | $157,424 | $12,934 | | Metric | Real Estate (9 Months Ended Sep 30, 2021, thousands) | Observatory (9 Months Ended Sep 30, 2021, thousands) | | :--- | :--- | :--- | | Net Loss | $(3,906) | $(5,057) | | Total Operating Income (Loss) | $66,732 | $(8,696) | | Total Revenues | $456,135 | $23,896 | - During the nine months ended September 30, 2020, the real estate segment recorded **$6.2 million in impairment charges**, including a $4.1 million write-off for a power generation project and a $2.1 million write-off for a halted build-to-suit development[125](index=125&type=chunk) [12. Subsequent Events](index=45&type=section&id=12.%20Subsequent%20Events) The company signed conditional agreements to acquire two Manhattan multifamily assets for approximately $307 million - On October 26, 2021, the company signed conditional agreements to purchase two multifamily assets in Manhattan (625 residential units) for approximately **$307 million**, including **$186 million** of assumed debt[126](index=126&type=chunk) - The transaction is subject to conditions, and there is no assurance that it will close[127](index=127&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=46&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, liquidity, and capital resources, including COVID-19 impacts and non-GAAP measures [Overview](index=48&type=section&id=Overview) The company reported a net loss of $7.0 million but achieved Core FFO of $55.3 million for Q3 2021 amid recovering operations - Incurred net loss attributable to the Company of **$7.0 million** and achieved Core Funds From Operations ('Core FFO') of **$55.3 million** for the three months ended September 30, 2021[136](index=136&type=chunk) - Empire State Building Observatory revenue for Q3 2021 increased to **$12.8 million**, more than doubling Q2 earnings contribution, as visitation continued to ramp up[138](index=138&type=chunk) - Signed **34 new, renewal, and expansion leases**, representing a total of **268,055 rentable square feet**, including 21 leases totaling 212,301 rentable square feet in the Manhattan office portfolio[139](index=139&type=chunk) - Repurchased **$6.5 million** of common stock at a weighted average price of **$10.41 per share** in Q3 2021 and through October 26, 2021[140](index=140&type=chunk) - As of September 30, 2021, the total portfolio contained **10.1 million rentable square feet** of office and retail space[141](index=141&type=chunk) [Impact of COVID-19](index=50&type=section&id=Impact%20of%20COVID-19) The pandemic continued to impact operations, particularly the observatory and leasing, though the company maintains strong liquidity - The company holds **$582.2 million in cash and cash equivalents** and has **$850 million undrawn capacity** under its unsecured revolving credit facility[148](index=148&type=chunk) - All office buildings remained open, with scaled-back operations to reduce costs, while the company implemented plans for safe tenant reoccupation[152](index=152&type=chunk)[153](index=153&type=chunk) - Leasing activity slowed due to economic uncertainty, with the portfolio **86.5% leased** as of September 30, 2021[155](index=155&type=chunk) - GBG USA Inc. filed for Chapter 11 bankruptcy, leading to a **$1.6 million non-cash write-off** of straight-line receivables and the conversion of a **$17.0 million letter of credit** to cash, applied against receivables and recognized as rental revenue and lease termination income[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) - The Empire State Building Observatory fully reopened with interactive exhibits on June 16, 2021, but visitor mix remains impacted by international travel restrictions, with full restoration expected in 2022[164](index=164&type=chunk) [Results of Operations](index=54&type=section&id=Results%20of%20Operations) Net loss improved year-over-year for both three and nine-month periods, driven by increased observatory and lease termination revenue [Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020](index=54&type=section&id=Three%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030%2C%202020) Total revenues increased 12.6% in Q3 2021, driven by a 189.6% surge in observatory revenue and a 3,320.2% rise in lease termination fees | Metric | 2021 (thousands) | 2020 (thousands) | Change (thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $165,048 | $146,575 | $18,473 | 12.6% | | Observatory Revenue | $12,796 | $4,419 | $8,377 | 189.6% | | Lease Termination Fees | $11,321 | $331 | $10,990 | 3,320.2% | | Net Loss Attributable to Common Stockholders | $(6,977) | $(8,204) | $1,227 | 15.0% | | Depreciation and Amortization | $65,794 | $44,733 | $(21,061) | (47.1)% | - The increase in depreciation and amortization reflects write-offs primarily related to one tenant[180](index=180&type=chunk) - Real estate taxes decreased due to a reduction in assessed value for the tax period July 1, 2021, to June 30, 2022[179](index=179&type=chunk) [Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020](index=57&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030%2C%202020) Total revenues rose 1.3% over nine months, driven by a significant increase in lease termination fees, improving net loss by 54.4% | Metric | 2021 (thousands) | 2020 (thousands) | Change (thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $463,760 | $457,829 | $5,931 | 1.3% | | Lease Termination Fees | $15,949 | $1,575 | $14,374 | 912.6% | | Net Loss Attributable to Common Stockholders | $(7,523) | $(16,502) | $8,979 | 54.4% | | Property Operating Expenses | $92,429 | $105,054 | $12,625 | 12.0% | | General and Administrative Expenses | $42,369 | $48,617 | $6,248 | 12.9% | - The decrease in property operating expenses was primarily due to lower payroll, cleaning, and repair/maintenance costs, driven by lower tenant utilization[193](index=193&type=chunk) - The decrease in general and administrative expenses was primarily due to lower equity compensation expense, lower legal leasing costs, and higher severance costs in 2020[195](index=195&type=chunk) - Impairment charges in 2020 included a **$4.1 million write-off** for a power generation project and a **$2.1 million write-off** for a halted build-to-suit development[197](index=197&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $582.2 million in cash and $850 million undrawn credit, with no debt maturing until 2024 - As of September 30, 2021, the company had **$582.2 million in cash and cash equivalents** and **$850 million available** under its unsecured revolving credit facility[206](index=206&type=chunk) - Total consolidated indebtedness was approximately **$2.1 billion**, with a weighted average interest rate of **3.9%** and a weighted average maturity of **7.4 years**[207](index=207&type=chunk) - Excluding principal amortization, there is **no outstanding debt maturing until November 2024**[207](index=207&type=chunk) - The company was in compliance with all financial covenants under its credit facilities and senior unsecured notes as of September 30, 2021[210](index=210&type=chunk)[213](index=213&type=chunk) - The company reinstated its quarterly dividend in May 2021, declaring **$0.035 per share** for Q3 2021[227](index=227&type=chunk) - The Board of Directors authorized the repurchase of up to **$500 million** of Class A common stock and OP units through December 31, 2021[230](index=230&type=chunk) [Net Operating Income ("NOI")](index=71&type=section&id=Net%20Operating%20Income%20(%22NOI%22)) NOI, a non-GAAP measure used to evaluate property performance, increased for both the three and nine-month periods - NOI is a non-GAAP financial measure used to evaluate property performance, excluding cost of funds, depreciation, amortization, and general and administrative expenses[236](index=236&type=chunk) | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Operating Income | $93,110 | $72,154 | $254,827 | $235,891 | [Funds from Operations ("FFO")](index=72&type=section&id=Funds%20from%20Operations%20(%22FFO%22)) FFO, a supplemental non-GAAP measure of operating performance for REITs, increased significantly year-over-year - FFO is a non-GAAP financial measure, defined by NAREIT, that excludes impairment write-offs, gains/losses from debt restructurings and property sales, and includes real estate-related depreciation and amortization[240](index=240&type=chunk) | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders and non-controlled interests | $53,332 | $30,969 | $139,035 | $117,169 | [Modified Funds From Operations ("Modified FFO")](index=74&type=section&id=Modified%20Funds%20From%20Operations%20(%22Modified%20FFO%22)) Modified FFO, which adjusts for ground lease amortization, provides a more comprehensive view of operating performance - Modified FFO adds back an adjustment for any above or below-market ground lease amortization to traditionally defined FFO[242](index=242&type=chunk) | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Modified FFO attributable to common stockholders and non-controlled interests | $55,289 | $32,926 | $144,908 | $123,042 | [Core Funds From Operations ("Core FFO")](index=74&type=section&id=Core%20Funds%20From%20Operations%20(%22Core%20FFO%22)) Core FFO adjusts for non-recurring items like litigation and severance expenses to clarify core operating performance - Core FFO adds back to Modified FFO items such as IPO litigation expense, severance expenses, and loss on early extinguishment of debt to provide a supplemental measure of operating performance[243](index=243&type=chunk) | Metric | Three Months Ended Sep 30, 2021 (thousands) | Three Months Ended Sep 30, 2020 (thousands) | Nine Months Ended Sep 30, 2021 (thousands) | Nine Months Ended Sep 30, 2020 (thousands) | | :--- | :--- | :--- | :--- | :--- | | Core FFO attributable to common stockholders and non-controlled interests | $55,289 | $34,896 | $145,122 | $128,106 | [Factors That May Influence Future Results of Operations](index=76&type=section&id=Factors%20That%20May%20Influence%20Future%20Results%20of%20Operations) Future results depend on COVID-19's impact on tourism and office demand, leasing activity, and observatory operations - The economic uncertainty relating to the COVID-19 pandemic continues to impact leasing activity, potentially leading to higher vacancy, longer fill times, increased concessions, and lower rental rates[155](index=155&type=chunk) - As of September 30, 2021, **13.5%** of the portfolio's net rentable square footage was available to lease, with **2.3%** and **5.5%** of leases expiring in 2021 and 2022, respectively[250](index=250&type=chunk) - Observatory operations are closely tied to national and international travel trends, which remain adversely impacted by the COVID-19 pandemic, with pre-COVID-19 attendance levels not expected until 2022[253](index=253&type=chunk)[254](index=254&type=chunk) [Critical Accounting Estimates](index=78&type=section&id=Critical%20Accounting%20Estimates) No material changes were made to the critical accounting estimates disclosed in the 2020 Annual Report on Form 10-K - No material changes to critical accounting estimates since the Annual Report on Form 10-K for the year ended December 31, 2020[256](index=256&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](index=79&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, which it mitigates with hedging instruments while monitoring the LIBOR transition - The primary market risk is interest rate risk on variable rate indebtedness, with floating rate debt representing **2.5%** of total enterprise value as of September 30, 2021[258](index=258&type=chunk) - The company uses hedging instruments, such as interest rate swap agreements, to mitigate interest rate volatility and fix a portion of interest rates for financing and refinancing transactions[259](index=259&type=chunk)[260](index=260&type=chunk) - As of September 30, 2021, an interest rate LIBOR swap agreement with a notional value of **$265.0 million** fixes the LIBOR interest rate at **2.1485%** and matures on August 24, 2022[261](index=261&type=chunk) - The company is monitoring and evaluating risks related to the phasing out of USD LIBOR after June 30, 2023, and the transition to alternative reference rates like SOFR[264](index=264&type=chunk)[266](index=266&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=81&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[272](index=272&type=chunk) - No material changes to internal control over financial reporting were identified during the period covered by the report[273](index=273&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=81&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 8 of the financial statements for details on legal proceedings, including IPO-related litigation - Legal proceedings are described in Note 8 to the Notes to Condensed Consolidated Financial Statements[274](index=274&type=chunk) [ITEM 1A. RISK FACTORS](index=81&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes have been made to the risk factors previously disclosed in the 2020 Annual Report and Q1 2021 Quarterly Report - No material changes to the risk factors included in the Annual Report on Form 10-K for 2020 and the Quarterly Report on Form 10-Q for Q1 2021[275](index=275&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=81&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities and continued its $500 million stock repurchase program - No recent sales of unregistered securities[276](index=276&type=chunk) - The Board of Directors authorized the repurchase of up to **$500 million** of Class A common stock and operating partnership units through December 31, 2021[278](index=278&type=chunk) Equity Repurchases (Three Months Ended September 30, 2021) | Period | Total Shares Purchased | Weighted Average Price per Share | Maximum Approximate Dollar Available for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | July 2021 | — | — | $496,467 | | August 2021 | 403,831 | $10.54 | $492,212 | | September 2021| 221,771 | $10.17 | $489,958 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=83&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon its senior securities - No defaults upon senior securities[280](index=280&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=83&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The company stated that mine safety disclosures are not applicable - Mine safety disclosures are not applicable[280](index=280&type=chunk) [ITEM 5. OTHER INFORMATION](index=83&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reported no other information for this period - No other information to report[280](index=280&type=chunk) [ITEM 6. EXHIBITS](index=84&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer (31.1, 32.1) and Principal Financial Officer (31.2, 32.2), along with XBRL Instance, Schema, Calculation, Definitions, Labels, and Presentation Documents[282](index=282&type=chunk) [SIGNATURES](index=85&type=section&id=SIGNATURES) The report is duly signed by the company's Chief Financial Officer and Chief Accounting Officer - The report is signed by Christina Chiu, Executive Vice President and Chief Financial Officer, and Stephen V. Horn, Senior Vice President, Chief Accounting Officer[287](index=287&type=chunk)

EMPIRE STATE REALTY TRUST Investor Presentation October 2021 Well-Positioned with Path to the Future Balance sheet � $582 million cash, $850 million undrawn revolving credit facility � No outstanding debt maturity until 2024 Value proposition � � Energy efficient, Indoor Environmental Quality leadership, modernized for the 21吋 Century Benefits from the flight to quality trend in the leasing market � Less expensive than new construction/aged Class A Upside � $45 million in contracted revenue growth represent ...