ESRTREIT.com
2023 ANNUAL REPORT
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TRUSTED
S. Michael Giliberto 1, 3, 4
Independent Director
PARTNER
Patricia S. Han 2, 3, 4
Independent Director
CORPORATE INFORMATION
CORPORATE OFFICES:
111 West 33rd Street, 12TH Floor, New York, NY 10120
BOARD OF DIRECTORS
STOCKHOLDER ACCOUNT ASSISTANCE
Anthony E. Malkin
Chairman and Chief Executive Officer
Thomas J. DeRosa 1, 2, 4
Independent Director
Steven J. Gilbert 2, 3, 4
Lead Independent Director
Grant H. Hill 3, 4
Independent Director
R. Paige Hood 1, 3, 4
Independent Director
James D. Robinson IV 4
Independent Director
Christina Van Tassell 1, 4
Independent Director
Hannah Y. Yang 3, 4
Independent Director
SENIOR MANAGEMENT
Anthony E. Malkin
Chairman and Chief Executive Officer
Christina Chiu
President
Thomas P. Durels
Executive Vice President, Real Estate
Stephen V. Horn
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
COMMITTEE MEMBERSHIPS:
1. Audit Committee
2. Compensation and Human Capital Committee
3. Finance Committee
4. Nominating and Corporate Governance Committee
Registered stockholder records are
maintained by our Transfer Agent:
Equiniti
Attn: Proxy Tabulation Department
55 Challenger Road, Suite 200B, 2nd Floor
Ridgefield Park, NJ 07660
Shareholder Service Number:
(800) 937-5449
www.amstock.com
FORM 10-K
Our Form 10-K is incorporated herein and has
been filed with the Securities and Exchange
Commission. To request a copy of our Form
10-K (free of charge) from the Company,
please contact Investor Relations.
INVESTOR RELATIONS
Company information is available upon request
without charge. Please contact the Investor
Relations Department at (212) 850-2678
or by email at ir@esrtreit.com
ANNUAL STOCKHOLDERS MEETING
May 9, 2024 at 11:00 a.m. EST
STATE Grill and Bar
21 West 33 RD Street
New York, NY 10118
Virtual at:
www.virtualshareholdermeeting.com/ESRT2024
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
One Manhattan West
New York, New York 10001
STOCK EXCHANGE
The New York Stock Exchange – NYSE
Ticker Symbol – ESRT
Front Cover: ESRT Rings the NYSE Opening Bell to Celebrate its 10th Anniversary as a NYSE Listed REIT
PHOTO CREDITS:
¹ Pantry at 1359 Broadway ² 1350 Broadway 3 CLA’s Lounge at One Grand Central Place ⁴ Oprah Winfrey Lights the Empire State Building to Celebrate the Premiere of “The Color Purple” Film
⁵ Jared Leto Climbs the Empire State Building ⁶ Metro Center’s New Gaming Lounge ⁷ The Empire State Building Wins the 2023 BOMA Grand Pinnacle and the Earth Awards
⁸ Capco’s Pantry at the Empire State Building ⁹ Capco’s Reception Area at the Empire State Building
Back Cover: Capco’s Conference Room at the Empire State Building
TRUSTED
PARTNER
37489 Anthony E. Malkin
Chairman and Chief Executive Officer
Christina Chiu
President
To Our Fellow Shareholders:
This letter was finalized on March 28, 2024.
It is a pleasure to write to you this year as Chairman & CEO and President about
ESRT’s successful year and how we are well-positioned for the current market’s
challenges and opportunities.
ESRT’s four priorities are to lease space, sell tickets to the Observatory, manage our
balance sheet, and achieve sustainability goals. Against the cycle, we performed.
In 2023, ESRT benefited from its differentiated portfolio with diverse sources of
NOI from:
• Our top tier office assets that outperformed the leasing market;
• Our iconic Empire State Building Observatory, ranked the #1 attraction in
the U.S. in Tripadvisor’s Travelers’ Choice Awards: Best of the Best in
2023 and 2022;
• Our resilient everyday retail with 94% of NOI from national retailers; and
• Our growing multifamily platform.
People ask us why our office leasing has outperformed the market. We point
to our portfolio-wide investment in upgrades since our IPO and balance sheet
discipline during the financing and acquisition booms. Others levered up
and paid top of market prices. We invested to modernize and amenitize our
portfolio. We intentionally vacated space and invested approximately $1 billion
to consolidate floors, modernize through gut renovation, add amenities, make
our buildings energy efficient, and deliver indoor environmental quality. We now
have a future-ready portfolio and an opportunity-ready balance sheet.
ESRT’s overall GRESB score ranked first of all 115 listed companies in the
Against the
cycle, we
performed.
ESRT's
differentiated
portfolio, strong
balance sheet,
and continued
leasing
momentum
in 2023 set
us apart from
peers.
PG 1
Americas, including the most competitive peer group within the U.S. Our
sustainability leadership and our carbon neutrality attract tenants to lease
space in our commercial portfolio. Better credit tenants are attracted to ESRT
due to our sustainability leadership, and this boosts the value of our portfolio
for shareholders. We also are in the room where policy is created and share our
practices to inform local, state, and national government.
Our balance sheet is best-in-class. Lawrence A. Wien, the founder of our
predecessors and Tony’s grandfather, said always to borrow as little as you need
in a low interest rate environment and as much as you can afford in a high
interest rate environment. ESRT’s strong liquidity position, well-laddered debt
maturity schedule, lowest leverage of NYC REIT peers, and no floating rate debt
exposure give us options today.
Our team members are central to our successes. The dedicated, passionate, and
effective work of every one of our teams, from leasing and property management
to Observatory, accounting, and financial planning, puts points on the board
under every circumstance and delivered in 2023, and positions ESRT for future
growth. ESRT’s corporate and union teams align around superior service. Our
deep talent bench has allowed us to execute on succession plans. Christina’s
promotion to President was made possible by the fact that Steve Horn was
ready to rise to Chief Financial Officer & Chief Accounting Officer.
ESRT’s differentiated portfolio, strong balance sheet, and continued leasing
momentum in 2023 set us apart from peers.
2023 Portfolio Recap
LEASE SPACE
In 2023, we put points on the board.
Our Manhattan office portfolio is over 92% leased, an increase of 510 basis points
since the end of 2021 and 250 basis points year over year, while Manhattan’s
market-wide office availability increased year over year. The Empire State Building
is now just shy of 92% leased and that is an increase of 720 basis points over
the last year. Within our Broadway campus, the leased rate at 1359 Broadway
increased 730 basis points over the last year. We have driven positive leased
rate absorption across our commercial portfolio for eight consecutive quarters.
We have driven positive mark-to-market lease spreads across our NYC office
portfolio for ten consecutive quarters. We had +10% positive mark-to-market
spreads for NYC office in 2023 and positive net effective rent growth. We
achieved record high new starting office rents at the Empire State Building
and One Grand Central Place. Since IPO, 277 tenants have expanded within our
portfolio, a total of 2.6 million square feet, which is quite significant relative to
Our Manhattan
office portfolio
is over 92%
leased, an
increase of 510
basis points
since the end
of 2021 and
250 basis
points year
over year, while
Manhattan’s
market-
wide office
availability
increased year
over year. We
are a primary
destination for
the market’s
flight to quality.
PG 2
our entire portfolio that totals 9.3 million square feet today.
Our great leasing track record corrects the narrative that only AAA new buildings
get leases. ESRT is top of tier in our competitive set with great locations; fully
modernized, well-amenitized, energy efficient, healthy buildings; our service-
oriented approach; strong balance sheet; and compelling value proposition. We
are a primary destination for the market’s flight to quality.
Our retail portfolio is strong and steady. Our retail NOI is derived 94% from
national tenants with good credit and our stores are located in high foot
traffic neighborhoods.
Our residential properties are over 98% occupied. We look for opportunities to
grow this portfolio.
SELL TICKETS TO THE OBSERVATORY
For the second year in a row, our iconic Empire State Building Observatory was
named the #1 attraction in the U.S. in Tripadvisor’s Travelers’ Choice Awards:
Best of the Best. 2023 Observatory NOI returned to $94 million, as compared to
$95 million pre-pandemic.
The $165M renovation we completed ahead of the pandemic and conversion to
a 100% reservation-only model create an unmatched customer experience. We
have strong revenue per caps and reservations-based expense management.
In 2023, the Empire State Building had more than 388 billion global media
impressions and generated nearly $800 million in global advertising value
equivalency; our authentic, iconic brand has exceptional, international awareness.
Our Observatory has been resilient through cycles, new competition, and a
pandemic. There is further upside to our Observatory’s performance as tourism
continues to return.
MANAGE OUR BALANCE SHEET
ESRT’s balance sheet is the strongest among all New York City focused REITs.
We ended 2023 with a solid liquidity position, the lowest leverage among NYC
REIT peers, no floating rate debt exposure, and a well-laddered debt maturity
schedule. After year-end, we successfully executed on a new credit facility that
matures in 2029 including extensions. Balance sheet strength matters to tenants
who favor a financially stable landlord who will maintain high-quality standards
at their assets.
We are nimble with significant operating runway and the ability to allocate capital
as we deem best. Capital recycling, new acquisitions, and share repurchases are
In 2023, the
Empire State
Building had
over 388 billion
global media
impressions
and generated
nearly $800
million in global
advertising
value
equivalency;
our authentic,
iconic brand
has exceptional,
international
awareness.
PG 3
all options. We generate shareholder value with our flexible balance sheet. We
believe current capital dislocation and heavy near-term debt maturities create
an opportunity to invest with great upside. As omnivorous opportunivores, we
focus on cash flow growth.
ACHIEVE SUSTAINABILITY GOALS
Sustainability has always been a cornerstone of ESRT’s business philosophy,
and we have been the leader for more than a decade. Please read our annual
sustainability report for full details on our sustainability accomplishments and
initiatives, which include:
• GRESB – ranked first of 115 listed companies in the Americas, first in
the most competitive peer group within the U.S., and scored the highest
on its Public Disclosure Assessment
• Received the 2023 ENERGY STAR Partner of the Year Sustained
Excellence Award
• 2023 Platinum Green Lease Leader recognition
• Target validation approval from the Science Based Targets initiative with
the most advanced 1.5° target
• Local Law 97 (LL97) compliant with no anticipated fines through 2029
based on current assumptions
o We were the only commercial landlord member of NYC’s Department
of Buildings LL97 Implementation Advisory Board and co-chair of LL97
Commercial Buildings Working Group
• Achieved carbon neutrality for the commercial portfolio as of January
2022 and the multifamily portfolio as of January 2023
o Track and report Scope 1, Scope 2, and Scope 3 downstream
leased assets
o 43% reduced operational emissions in the commercial portfolio since 2009
o 100% renewable wind powered commercial portfolio
• Achieved recertification for WELL Health-Safety, ENERGY STAR,
and Fitwel
o Received the International WELL Building Institute (IWBI) Award for
Leadership in Health and Safety
o 86% of Manhattan Portfolio Fitwel certified
• ESB earned the Building Owners and Managers Association (BOMA) New
Our portfolio-
wide
investment
since our IPO
and balance
sheet discipline
make our
portfolio
future-ready.
PG 4
York Earth Building of the Year Award and the Grand Pinnacle Award
• ESRT represents industry where policy is conceived, made,
and implemented
o Tony continues to chair the Real Estate Roundtable’s Sustainability
Policy Advisory Committee
o Christina serves on the NYC Building Decarbonization and Climate
Finance Task Force
o Our Director of Energy, Sustainability, and ESG, SVP Dana Robbins
Schneider serves on the Mayor’s NYC Sustainability Advisory Board
BUILD SHAREHOLDER VALUE
We are confident that ESRT will put more points on the board in 2024. Our
top four priorities are unchanged – lease space, sell tickets to the Observatory,
maintain our balance sheet, and achieve sustainability goals.
ESRT is in a position to take advantage of opportunities created through market
disruptions and capital dislocation and we are prepared to act to enhance
shareholder value.
We believe in New York City, and we offer four ways to play it – office, the Empire
State Building Observatory, retail, and multifamily. New York City is resilient and
ESRT is future-ready and well-positioned to drive value for ESRT shareholders
again in 2024.
We thank each and every member of the ESRT team from our partners in
leadership – Tom Durels for more than three decades and Steve Horn for more
than three years – our great team leaders and members, and our Board of
Directors. Our hard work, discipline, and unwavering commitment to excellence
drives our success.
And thank you, our investors and stakeholders, for your continued support
and partnership.
As omnivorous
opportunivores,
ESRT is in a
position to take
advantage of
opportunities
created
through market
disruptions
and capital
dislocation
and we are
prepared to
act to enhance
shareholder
value.
ONWARD AND UPWARD.
Anthony E. Malkin
Chairman and Chief
Executive Officer
Christina Chiu
President
PG 5
FORM 10-K
This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including
this statement for purposes of complying with those safe harbor provisions. You can identify forward-looking statements by the use of forward-looking
terminology such as “aims,” “anticipates,” “approximately,” “believes,” “contemplates,” “continues,” “estimates,” “expects,” “forecasts,” “hope,” “intends,”
“may,” “plans,” “seeks,” “should,” “thinks,” “will,” “would” or the negative of these words and phrases or similar words or phrases. In particular, any
projection, guidance, or similar estimation about the future or future results, performance or achievements is a forward-looking statement.
Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control,
and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be
incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described
(or that they will happen at all).
Many important factors could cause our actual results and future events to differ materially from those set forth or contemplated in our forward-looking
statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events,
including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme weather events, terrorism
and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) a failure of conditions or performance regarding any event
or transaction described herein; (iii) resolution of legal proceedings involving the Company; (iv) reduced demand for office, multifamily or retail space,
including as a result of the changes in the use of office space and remote work; (v) changes in our business strategy; (vi) a decline in Observatory visitors
due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from
other observatories; (vii) defaults on, early terminations of, or non-renewal of, leases by tenants; (viii) increases in the Company’s borrowing costs as a
result of changes in interest rates and other factors; (ix) declining real estate valuations and impairment charges; (x) termination of our ground leases;
(xi) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds; (xii) decreased rental rates or
increased vacancy rates; (xiii) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget;
(xiv) difficulties in identifying and completing acquisitions; (xv) impact of changes in governmental regulations, tax laws and rates and similar matters;
(xvi) our failure to qualify as a REIT; (xvii) incurrence of taxable capital gain on disposition of an asset due to failure of use or compliance with a 1031
exchange program; and (xviii) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental
regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the company’s future results, performance, or
transactions, see the section entitled “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2023 and any additional factors
that may be contained in any filing we make with the U.S. Securities and Exchange Commission.
While forward-looking statements reflect the company’s good faith beliefs, they do not guarantee future performance. Any forward-looking statement
speaks only as of the date on which it was made, and we assume no obligation to update or revise publicly any forward-looking statement to reflect
changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Annual Report,
except as required by applicable law. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on
information currently available to the company (or to third parties making the forward-looking statements).
The sustainability aspirations, targets and objectives contained in this document reflect our current plans and aspirations and are not guarantees that we
will be able to achieve them. In addition, these efforts are impacted by our tenants’ willingness and ability to collaborate in reporting sustainability metrics
and meeting sustainability goals, the ability of the New York grid to meet the emissions reduction targets and timing set forth in New York States’s CLCPA
legislation, and replacement of equipment at the end of its useful life cycle.
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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
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)
Maryland
(State or other jurisdiction of incorporation or organization)
37-1645259
(I.R.S. Employer Identification No.)
111 West 33rd Street, 12th Floor
New York, New York 10120
(Address of principal executive offices) (Zip Code)
(212) 687-8700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock, par value $0.01 per share
Class B Common Stock, par value $0.01 per share
Trading Symbol
ESRT
N/A
Name of Exchange on Which Registered
The New York Stock Exchange
N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1 (b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most
recently completed second fiscal quarter was $1,197,221,000 based on the June 30, 2023 closing price of the registrant's Class A common
stock of $7.49 per share on the New York Stock Exchange.
As of February 22, 2024, there were 163,091,331 shares of the registrants' Class A common stock outstanding and 983,434 shares of the
registrants' Class B common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Empire State Realty Trust, Inc.'s Proxy Statement for its 2023 Annual Stockholders' Meeting (which is scheduled to be held on
May 9, 2024 in-person and virtually via a live webcast) to be filed within 120 days after the end of the Registrant's fiscal year are incorporated
by reference into Part III of this Annual Report on Form 10-K.
EMPIRE STATE REALTY TRUST, INC.
FORM 10-K
TABLE OF CONTENTS
PART I.
1.
Business
1A. Risk Factors
1B. Unresolved Staff Comments
1C.
Cybersecurity
2.
3.
4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II.
Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity
Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
5.
6.
7.
7A. Quantitative and Qualitative Disclosure about Market Risk
8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9.
9A. Controls and Procedures
9B. Other Information
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
10.
11.
12.
13.
14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
15.
16.
Exhibits, Financial Statements and Schedules
Form 10-K Summary
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1
DEFINITIONS
•
•
•
•
•
•
•
•
•
•
"annualized rent" represents annualized base rent and current reimbursement for operating expenses and
real estate taxes;
"formation transactions" means a series of transactions pursuant to which we acquired, substantially
concurrently with the completion of the Offering, through a series of contributions and merger transactions,
our commercial portfolio of real estate assets which were held by existing entities, the ownership interests
in the certain management entities of our predecessor and one development parcel;
"fully diluted basis" means all outstanding shares of our Class A common stock at the time indicated plus
shares of Class A common stock that may be issuable upon the exchange of operating partnership units on a
one-for-one basis and shares of Class A common stock issuable upon the conversion of Class B common
stock on a one-for-one basis, which is not the same as the meaning of “fully diluted” under generally
accepted accounting principles in the United States of America ("GAAP");
"enterprise value" means all outstanding shares of our Class A common stock at the time indicated plus
shares of Class A common stock that may be issuable upon the exchange of operating partnership units on a
one-for-one basis and shares of Class A common stock issuable upon the conversion of Class B common
stock on a one-for-one basis multiplied by the Class A common share price at December 31, 2023, plus
private perpetual preferred units plus consolidated debt at December 31, 2023;
"Malkin Group” means all of the following, as a group: Anthony E. Malkin, Peter L. Malkin and each of
their spouses and lineal descendants (including spouses of such descendants), any estates of any of the
foregoing, any trusts now or hereafter established for the benefit of any of the foregoing, or any corporation,
partnership, limited liability company or other legal entity controlled by Anthony E. Malkin or any
permitted successor in such entity for the benefit of any of the foregoing; provided, however that solely with
respect to tax protection rights and parties who entered into the contribution agreements with respect to the
formation transactions, the Malkin Group shall also include the lineal descendants of Lawrence A. Wien
and his spouse (including spouses of such descendants), any estates of the foregoing, any trusts now or
hereafter established for the benefit of any of the foregoing, or any corporation, partnership, limited liability
company or other legal entity controlled by Anthony E. Malkin for the benefit of the foregoing;
the "Offering" means the initial public offering of our Class A common stock which was completed on
October 7, 2013;
"our Company," "we," "us", "our" and "ESRT" refer to Empire State Realty Trust, Inc., a Maryland real
estate investment trust, together with its consolidated subsidiaries, including Empire State Realty OP, L.P.;
“operating partnership” refers to Empire State Realty OP, L.P., a Delaware limited partnership through
which Empire State Realty Trust, Inc. conducts substantially all of its business and of which it is the general
partner;
"securityholder" means a holder of our Class A common stock or Class B common stock as well as a holder
of our operating partnership's Series ES, Series 250, Series 60 and Series PR operating partnership units;
and
"traded OP units" mean our operating partnership's Series ES, Series 250 and Series 60 operating
partnership units.
2
ITEM 1. BUSINESS
Overview
PART I
Empire State Realty Trust, Inc. (NYSE: ESRT) is a NYC-focused REIT that owns and operates a portfolio of
modernized, amenitized, and well-located office, retail, and multifamily assets. The Company is a recognized leader in energy
efficiency and indoor environmental quality. ESRT’s flagship Empire State Building – the “World’s Most Famous Building” –
includes its Observatory, the #1 attraction in the U.S. in Tripadvisor’s Travelers’ Choice Awards: Best of the Best for two
consecutive years.
As of December 31, 2023, our portfolio is comprised of approximately 8.6 million rentable square feet of office space,
0.7 million rentable square feet of retail space and 727 residential units. Our office portfolio included 11 properties (including
three long-term ground leasehold interests) encompassing approximately 8.6 million rentable square feet. Nine of these office
properties are located in midtown Manhattan and encompass approximately 7.6 million rentable square feet, including the
Empire State Building. The remaining two office properties encompass approximately 1.1 million rentable square feet and are
located in Stamford, Connecticut, with immediate access to mass transportation. Additionally, we have entitled land adjacent to
one of the Stamford office properties that can support the development of either office or residential per local zoning. Our
multifamily portfolio included 727 residential units in New York City.
We were organized as a Maryland corporation on July 29, 2011 and commenced operations upon completion of our
initial public offering and related formation transactions on October 7, 2013 (the "IPO"). Our operating partnership, Empire
State Realty OP, L.P. (the "Operating Partnership"), holds substantially all of our assets and conducts substantially all of our
business. As of December 31, 2023, we owned approximately 60.2% of the aggregate operating partnership units in the
Operating Partnership. We, as the sole general partner in the Operating Partnership, have responsibility and discretion in the
management and control of the Operating Partnership, and the limited partners in the Operating Partnership, in such capacity,
have no authority to transact business for, or participate in the management activities of, the Operating Partnership.
Accordingly, the Operating Partnership has been consolidated by us. We elected to be subject to tax as a REIT for U.S. federal
income tax purposes commencing with our taxable year ended December 31, 2013.
Business and Growth Strategies
Our primary business objectives are to maximize cash flow and total returns to our shareholders and to increase the
value of our properties through the pursuit of the following strategies:
Lease Space
We believe we benefit from the tenant flight to quality trend. Tenants seek a compelling value proposition from
landlords with a strong balance sheet and low leverage that continue to invest in the improvement of their buildings, and we
offer a high-quality experience in high-quality assets at our attractive price point. Our buildings are fully modernized, well-
located near mass transit, well-amenitized, and feature industry leadership in energy efficiency and indoor environmental
quality, which helps us to draw consistent leasing volumes through cycles. They also have character. The quality of our
commercial portfolio contributed to a strong leasing year in 2023; we leased 951,000 square feet of space and made meaningful
absorption progress with a 130 basis point increase in Manhattan office occupancy and a 250 basis point increase in Manhattan
leased rate throughout the year. Additionally, we believe our proactive, service-intensive approach to asset and property
management helps increase occupancy and rental rates.
We have a brand that we believe tenants associate with a consistently high level of quality of services, healthy
buildings, amenities, maintenance, and tenant installations, with high performance design guidelines for energy efficiency and
indoor environmental quality, and long-term financial stability. Through our commitment to brokers, we have developed long-
term relationships with a focus to attract high quality tenants to our properties. We proactively manage and cultivate our
industry relationships and make the most senior members of our management team available to our constituencies. We believe
that our consistent, open dialogue with our tenants and brokers enables us to maximize our results. Our focus on performance
and long-term perspective allows us to concentrate on the ongoing management of our portfolio, while we concurrently seek
opportunities for growth in the future.
We do extensive diligence on our tenants' financial prospects, businesses and business models to determine if we think
there is potential to establish long-term relationships in which they will both renew with us and expand over time. Since the
Offering, we have completed 277 expansions with existing tenants which total 2.6 million square feet within our portfolio. Our
comprehensive building management services and our strong commitment to tenant and broker relationships and satisfaction
enable us to negotiate attractive leasing deals, which attracts and retains high credit-quality tenants. We proactively manage our
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rent roll, foster strong tenant relationships, maintain continuous communication with our tenants, and are responsive to tenant
needs. We believe the success of our long-term tenant relationships improves our operating results over time by reducing
leasing, marketing and tenant improvement costs, as well as tenant turnover.
We regularly monitor our properties, perform routine preventive maintenance, and implement capital improvement
programs in connection with property redevelopment and life cycle replacement of equipment and systems to protect our
investments. We self-manage all of our office and retail properties, and we use a third-party property manager to manage our
multifamily properties. We proactively manage our office properties and rent rolls to create efficient, modern, pre-built offices
that can be rented through several lease cycles and attract high credit-quality tenants. We manage and control operating
expenses at all of our properties. In addition, we have made energy efficiency retrofitting and sustainability a portfolio-wide
initiative driven by economic return. We pass on cost savings achieved by such improvements to our tenants through lower
utility costs and reduced operating expense escalations. We believe these initiatives make our properties more desirable to a
broader tenant base than the properties of our competitors.
Sell Tickets to the Empire State Building Observatory
The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th
and 102nd floor observatories. In December 2019, we completed the Observatory’s comprehensive multi-year reimagination
and redevelopment. In 2020, we reprogrammed our Observatory business to operate by reservations only, created a new focus
on customer experience and reduction of crowds and lines, with an emphasis on growing revenue per visitor, and matched our
hours of operation to the reservations demand to manage expenses. We enhanced health and safety protocols, improved
marketing and cross-promotional activities to increase brand awareness, and managed expenses prudently.
Our efforts have resulted in strong performance from our Observatory and we experienced continued improvement in
Observatory revenue and operating income throughout 2023. We had approximately 2.6 million visitors in 2023 as compared to
0.5 million in 2020, 0.8 million in 2021 and 2.2 million in 2022. Additionally, the Empire State Building Observatory was
ranked the # 1 attraction in the United States in Tripadvisor's Travelers’ Choice Awards: Best of the Best for two consecutive
years.
Enhance Shareholder Value
We enhance shareholder value primarily through the execution of our capital allocation strategy, maintenance of our
balance sheet flexibility and enhanced transparency and disclosure. As it relates to capital allocation strategy, we (i)
opportunistically recycle our capital, (ii) make selective, value-enhancing acquisitions and (iii) reinvest in our own shares
through share repurchases.
We are diversified and we believe we benefit from New York City’s rebound from our office, Observatory, retail, and
multifamily exposure in the city. We have a dedicated investment function to identify potential investment opportunities, which
includes our Chief Investment Officer and a full acquisitions team. We believe our well-positioned balance sheet, access to
capital, and expertise in redevelopment gives us significant flexibility to structure and pursue attractive investment
opportunities. Since December 2021, we have completed acquisitions of three multifamily properties in Manhattan and a retail
asset in the Williamsburg neighborhood of Brooklyn, NY. We have also completed the disposition of non-core assets in our
greater New York metropolitan area portfolio, including office assets in Norwalk, CT, White Plains, NY and Harrison, NY, and
retail assets in Westport, CT. See ITEM 2. Properties for more information.
For the foreseeable future, we intend to focus our acquisition strategy primarily on NYC office, retail and multifamily
properties where we can achieve attractive returns on invested capital.
In the current financial environment, we believe our well-positioned balance sheet differentiates us in our efforts to
attract brokers and new tenants, who look to partner with financially stable landlords which will invest in their customers and
maintain high-quality standards at their assets. Our well-positioned balance sheet has also allowed us to be nimble and recycle
capital as well as repurchase shares.
Achieve Sustainability Goals
We are recognized as a leader in the real estate industry in sustainability, and we focus on net zero emissions, energy
efficiency, water use reduction, indoor environmental quality, and healthy buildings. We have pioneered certain practices to
achieve emissions reduction and energy efficiency, including those described in our Empire Building Playbook, a free guide
that we published in partnership with the New York Energy Research Development Authority and the Clinton Global Initiative,
for existing commercial buildings to follow our lead and develop a technical and economic pathway to achieve net zero carbon
reduction with a proven payback. The reduced energy consumption and emissions lower costs for us and our tenants, and we
believe creates a competitive advantage for our properties. We believe that higher quality tenants prioritize sustainability, cost
reduction, and lower contributions to greenhouse gas emissions.
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Business Segments
Our reportable segments consist of a real estate segment and an Observatory segment. Our real estate segment includes
all activities related to the ownership, management, operation, acquisition, repositioning and disposition of our commercial and
multifamily real estate assets, principally office assets, located in Manhattan. Our Observatory segment operates the 86th and
102nd floor observatories at the Empire State Building. These segments are managed separately because each business requires
different support infrastructure, provides different services and has dissimilar economic characteristics such as investments
needed, stream of revenues and marketing strategies. We account for intersegment sales and rent as if the sales or rent were to
third parties at current market prices. This intersegment rent is eliminated upon consolidation.
For more information about our segments, refer to “Financial Statements - Note 13 Segment Reporting” in this Annual
Report on Form 10-K.
Rental Revenue
We derive revenues primarily from rents, rent escalations, expense reimbursements and other income received from
tenants under existing leases at each of our properties. “Escalations and expense reimbursements” consist of payments made by
tenants to us under contractual lease obligations to reimburse a portion of the property operating expenses and real estate taxes
incurred at each property.
We believe that the average rental rates for in-place leases at our properties are generally below the current market
rates, although individual leases at particular properties presently may be leased above, at or below the current market rates
within its particular submarket.
Regulation
General
The properties in our portfolio are subject to various laws, ordinances and regulations, including regulations relating to
common areas. We believe each of the existing properties has the necessary permits and approvals to operate its business.
Americans with Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act, or ("ADA"), to the extent that such
properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access
by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe the
existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital
expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of
fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one,
and we will continue to assess our properties and to make alterations as appropriate in this respect.
Environmental Matters
Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of
real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or
petroleum products at, on, in, under or from such property, including costs for investigation or remediation, natural resource
damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may
be joint and several. Some of our properties have been or may be impacted by contamination arising from current or prior uses
of the property or adjacent properties for commercial, industrial or other purposes. Such contamination may arise from spills of
petroleum or hazardous substances or releases from tanks used to store such materials. We also may be liable for the costs of
remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous
substances at such facilities, without regard to whether we comply with environmental laws in doing so. The presence of
contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and/or
retain tenants, and our ability to develop or sell or borrow against those properties. In addition to potential liability for cleanup
costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Environmental laws also
may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such
contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the
manner in which that property may be used or how businesses may be operated on that property.
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Some of our properties are adjacent to or near other properties which are used for industrial or commercial purposes or
have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic
substances. Releases from these properties could impact our properties. In addition, some of our properties have previously
been used by former owners or tenants for commercial or industrial activities, e.g., gas stations and dry cleaners, and a portion
of the Metro Tower site is currently used for automobile parking and was formerly leased to a fueling facility that may release
petroleum products or other hazardous or toxic substances at such properties or to surrounding properties. While certain
properties contain or contained uses that could have or have impacted our properties, we are not aware of any liabilities related
to environmental contamination that we believe will have a material adverse effect on our operations.
We have post-closing obligations related to the 69-97 and 103-107 Main Street, Westport, Connecticut properties that
we sold in February 2023 to (i) close out a voluntary remediation program at 69-97 Main Street to address residual impacts of
prior presence of underground storage tanks and (ii) comply with a consent order issued by the Connecticut Department of
Environmental Protection to investigate soil conditions at 103-107 Main Street. We believe any expenses incurred to close out
and comply with the remediation program and consent order, respectively, will be immaterial to the results of our operations.
Our property situated at 500 Mamaroneck Avenue in Harrison, New York was the subject of a voluntary remedial
action work cleanup plan under an agreement with the New York State Department of Environmental Conservation, but we
sold this property in April 2023 and the obligations have been transferred to the buyer.
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and
regulations. Noncompliance with these laws and regulations could subject us or our tenants to liability. These liabilities could
affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of
compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated
expenditures. We sometimes require our tenants to comply with environmental and health and safety laws and regulations and
to indemnify us for any related liabilities in our leases with them. But in the event of the bankruptcy or inability of any of our
tenants to satisfy such obligations, we may be required to satisfy such obligations. We are not presently aware of any instances
of material non-compliance with environmental or health and safety laws or regulations at our properties, and we believe that
we and/or our tenants have all material permits and approvals necessary under current laws and regulations to operate our
properties.
In addition, we may become subject to new compliance requirements and/or new costs or taxes associated with natural
resource or energy usage and related emissions (such as a carbon tax), which could increase our operating costs. In particular,
as the owner of large commercial buildings in New York City, we are subject to Local Law 97 passed by the New York City
Council in April 2019, which for each such building establishes annual limits for greenhouse gas emissions, requires yearly
emissions reports beginning in May 2025, and imposes penalties for emissions above such limits. Based upon our present
understanding of the law and calculations related thereto, we expect to pay no fine on any building in our commercial portfolio
in the 2024-2029 first period of enforcement.
As the owner or operator of real property, we may also incur liability based on various building conditions. For
example, environmental site assessments and investigations have identified asbestos or asbestos-containing material ("ACM")
in certain of our properties, and it is possible that other properties that we currently own or operate or those we acquire or
operate in the future contain, may contain, or may have contained ACM. Refer to “Financial Statements - Note 9 Commitments
and Contingencies - Asset Retirement Obligations” in this Annual Report on Form 10-K. Environmental and health and safety
laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or
employers for non-compliance with those requirements. These requirements include special precautions, such as removal,
abatement or air monitoring, if ACM would be disturbed during maintenance, redevelopment or demolition of a building,
potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage
sustained as a result of releases of ACM into the environment. We are not presently aware of any material liabilities related to
building conditions, including any instances of material non-compliance with asbestos requirements or any material liabilities
related to asbestos.
Our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to
liability for adverse health effects or property damage or costs for remediation. When excessive moisture accumulates in
buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not
addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem
from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as
pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety
of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or
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other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or
remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the
presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our
tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air
quality issues at our properties.
Affordable Housing
Certain units in our multifamily properties are designated for lower income households and are therefore subject to
supervision and regulation by state and federal governmental authorities which regulate affordable housing rental activities. See
"Risk Factors - Government housing regulations may limit opportunities at the multifamily properties in which we invest, and
failure to comply with resident qualification requirements may result in financial penalties or loss of benefits" for more
information.
Insurance
We carry comprehensive liability, fire, extended coverage, earthquake, terrorism and rental loss insurance covering all
of our New York City properties and our greater New York metropolitan area properties under a blanket policy. We carry
additional all-risk property and business insurance, which includes terrorism insurance, on the Empire State Building through
ESRT Captive Insurance Company L.L.C., or ESRT Captive Insurance, our wholly owned captive insurance company. ESRT
Captive Insurance covers terrorism insurance for $1.2 billion in losses in excess of $800 million per occurrence suffered by the
Empire State Building, providing us with aggregate terrorism coverage of $2 billion at that property. ESRT Captive Insurance
fully reinsures the 20% coinsurance under the Terrorism Risk Insurance Program Reauthorization Act of 2015 ("TRIPRA") and
the difference between the TRIPRA captive deductible and policy deductible of $100,000 for non-Nuclear, Biological,
Chemical and Radiological exposures. We purchased a $50 million limit of Nuclear, Biological, Chemical and Radiological
("NBCR") insurance in excess of a $1.0 million deductible in the commercial insurance market. ESRT Captive Insurance
provides NBCR insurance coverage under TRIPRA with a limit of $1.95 billion in excess of the $50 million policy. As a result,
we remain only liable for the 20% coinsurance under TRIPRA for NBCR exposures within ESRT Captive Insurance, as well as
a deductible equal to 20% of ESRT Captive Insurance’s prior year’s premium. As long as we own ESRT Captive Insurance, we
are responsible for ESRT Captive Insurance’s liquidity and capital resources, and ESRT Captive Insurance’s accounts are part
of our consolidated financial statements. If we experience a loss and ESRT Captive Insurance is required to pay under its
insurance policy, we would ultimately record the loss to the extent of its required payment. The policies described above cover
certified terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 ("TRIA") and subsequent extensions. On
December 20, 2019, the President of the United States signed into law TRIPRA act of 2019, which extended TRIA through
December 31, 2027. TRIA provides for a system of shared public and private compensation for insured losses resulting from
acts of terrorism. As a result, the certified terrorism coverage provided by ESRT Captive Insurance is eligible for 80%
coinsurance provided by the United States Treasury in excess of a statutorily calculated deductible. ESRT Captive Insurance
reinsures 100% of its 20% coinsurance for non-NBCR exposures. The 20% coinsurance on NBCR exposures is retained by
ESRT Captive Insurance.
Reinsurance contracts do not relieve ESRT Captive Insurance from its primary obligations to its policyholders.
Additionally, failure of the various reinsurers to honor their obligations could result in significant losses to ESRT Captive
Insurance. The reinsurance has been ceded to reinsurers approved by the State of Vermont. ESRT Captive Insurance
continually evaluates the reinsurers’ financial condition by considering published financial stability ratings of the reinsurers and
other factors. There can be no assurance that reinsurance will continue to be available to ESRT Captive Insurance to the same
extent and at the same cost. ESRT Captive Insurance may choose in the future to reevaluate the use of reinsurance to increase or
decrease the amounts of risk it cedes.
In addition to insurance held through ESRT Captive Insurance described above, we carry terrorism insurance on all of
our properties in an amount and with deductibles which we believe are commercially reasonable.
Our insurance policies include substantial self-insurance portions and significant deductibles and co-payments for
certain events, and hurricanes in the United States have affected the availability and price of such insurance. We may
discontinue certain insurance coverage on some or all of our properties in the future if the cost of premiums for any of these
policies in our judgment exceeds the value of the coverage discounted for the risk of loss.
Additionally, we do not carry insurance for certain losses, including, but not limited to, losses caused by war.
Furthermore, business interruption insurance due to pandemic level or other public health events may not be readily available at
commercially acceptable rates.
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Competition
The leasing of real estate is highly competitive in New York City and Stamford, Connecticut where we operate. We
compete with numerous acquirers, developers, owners and operators of commercial real estate, many of which own or may seek
to acquire or develop properties similar to ours in the same markets in which our properties are located. The principal means of
competition are rent charged, location, amenities and services provided, and the nature and condition of the facility to be leased.
In addition, we face competition from other real estate companies, including other REITs, private real estate funds, domestic
and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others, that
may have greater financial resources or access to capital than we do or that are willing to acquire properties in transactions
which are more highly leveraged or are less attractive from a financial viewpoint than we are willing to pursue. In addition,
competition from new and existing observatories and/or broadcasting operations may have a negative impact on revenues from
our Observatory operations and/or broadcasting revenues. Adverse impacts on domestic and international travel and changes in
foreign currency exchange rates may also decrease demand in the future, which could have a material adverse effect on our
results of operations, financial condition and ability to make distributions to our securityholders. If our competitors offer space
at rental rates below current market rates, below the rental rates we currently charge our tenants, in better locations within our
markets or in higher quality facilities, we may lose potential tenants and we may be pressured to reduce our rental rates below
those we currently charge in order to retain tenants when our tenants’ leases expire.
Our Tax Status
We elected to be subject to tax as a REIT and have operated in a manner that we believe allows us to qualify as a REIT
for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. We believe we have been
organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of
1986, as amended, (the "Code"), and that our intended manner of operation will enable us to continue to meet the requirements
for qualification and taxation as a REIT. So long as we qualify as a REIT, we generally will not be subject to U.S. federal
income tax on our net taxable income that we distribute to our securityholders. If we fail to qualify as a REIT in any taxable
year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate
rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we
lost our REIT qualification. Even if we qualify as a REIT, we may be subject to certain U.S. federal, state and local taxes on our
income or property.
In order to qualify as a REIT, we must distribute to our securityholders, on an annual basis, at least 90% of our REIT
taxable income, determined without regard to the deduction for distributions paid and excluding net capital gains. In addition,
we will be subject to U.S. federal income tax at the generally applicable corporate tax rate to the extent that we distribute less
than 100% of our net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the
amount by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income
tax laws.
In addition, to qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the
end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and
qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-backed securities. The
remainder of our investment in securities (other than government securities, securities of corporations that are treated as
Taxable REIT Subsidiaries ("TRSs") and qualified REIT real estate assets) generally cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one
issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real
estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be
represented by securities of one or more TRSs.
Rents from real property are generally not qualifying income for purposes of the REIT gross income tests if the rent is
treated as “related party rent.” Related party rent generally includes (i) any rent paid by a corporation if the REIT (or any person
who owns 10% or more of the stock of the REIT by value) directly or indirectly owns 10% or more of the stock of the
corporation by vote or value and (ii) rent paid by a partnership if the REIT (or any person who owns 10% or more of the stock
of the REIT by value) directly or indirectly owns an interest of 10% or more in the assets or net profits of the partnership.
Under an exception to this rule, related party rent is treated as qualifying income for purposes of the REIT gross income tests if
it is paid by a TRS of the REIT and (i) at least 90% of the leased space in the relevant property is rented to persons other than
either TRSs or other related parties of the REIT, and (ii) the amounts paid to the REIT as rent from real property are
substantially comparable to the rents paid by unrelated tenants of the REIT for comparable space.
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Income from admissions to the Empire State Building Observatory, and certain other income generated by the
Observatory, would not likely be qualifying income for purposes of the REIT gross income tests. We jointly elected with
Observatory TRS, which is the current lessee and operator of the Observatory and which is wholly owned by our operating
partnership, for Observatory TRS to be treated as a TRS of ours for U.S. federal income tax purposes. Observatory TRS leases
the Empire State Building Observatory from the operating partnership pursuant to a lease that provides for fixed base rental
payments and variable rental payments equal to certain percentages of Observatory TRS’s gross receipts from the operation of
the Observatory. Given the unique nature of the real estate comprising the Observatory, as of the date of such lease, we did not
believe that there is any space in the Empire State Building or in the same geographic area as the Empire State Building that is
likely to be considered sufficiently comparable to the Observatory for the purpose of applying the exception to related party
rent described above. We have received from the IRS a private letter ruling that the rent that our operating partnership receives
from Observatory TRS pursuant to the lease of the Empire State Building Observatory is qualifying income for purposes of the
REIT gross income tests so long as such rent reflects the fair market rental value of the Empire State Building Observatory as
determined by an appraisal rendered by a qualified third-party appraiser.
In addition, our operating partnership has acquired various license agreements (i) granting certain third-party
broadcasters the right to use space on the tower on the top of the Empire State Building for certain broadcasting and other
communication purposes and (ii) granting certain third-party vendors the right to operate concession stands in the Observatory.
We have received from the IRS a private letter ruling that the license fees that our operating partnership receives under the
license agreements described above constitute qualifying income for purposes of the REIT gross income tests.
Inflation
Substantially all of our leases provide for separate real estate tax and operating expense escalations. In addition, many
of the leases provide for fixed base rent increases. We believe inflationary increases may be at least partially offset by the
contractual rent increases and expense escalations described above. We do not believe inflation has had a material impact on
our financial position or results of operations.
Seasonality
Our Observatory business is subject to tourism trends and weather, and therefore does experience some seasonality.
For the year ended December 31, 2023, approximately 17% of our annual Observatory revenue was realized in the first quarter,
26% was realized in the second quarter, 29% was realized in the third quarter, and 28% was realized in the fourth quarter. Our
multifamily business experiences some seasonality based on general market trends in New York City – the winter months
(November through January) are slower in terms of lease activity. We seek to mitigate this by staggering lease terms such that
lease expirations are matched with seasonal demand. We do not consider the balance of our business to be subject to material
seasonal fluctuations.
Leasing Trend Fluctuations
Due to the relatively small number of leases that are signed in any particular quarter, one or more larger leases may
have a disproportionately positive or negative impact on average rent, tenant improvement and leasing commission costs for
that period. As a result, we believe it is more appropriate when analyzing trends in average rent and tenant improvement and
leasing commission costs to review activity over multiple quarters or years. Tenant improvement costs include expenditures for
general improvements occurring concurrently with, but that are not directly related to, the cost of installing a new tenant.
Leasing commission costs are similarly subject to significant fluctuations depending upon the length of leases being signed and
the mix of tenants from quarter to quarter.
Human Capital Management
As of December 31, 2023, we employed 666 people, of whom approximately 429 are covered by collective bargaining
agreements. We generally have and expect to continue to maintain good relations with our employees and workforce, including
those employees covered by collective bargaining agreements. We believe that our success is realized through the attraction,
retention, development, engagement and empowerment of our highly-valued and diverse employees, and we endeavor to set our
policies and practices accordingly.
We offer what we believe to be generally competitive compensation and benefits. To reward and reinforce
participation in the Company’s outcomes, we also make equity grants to employees. We regularly review our compensation and
benefits against our peers and the industry to remain competitive.
9
We strive to attract, hire and retain diverse candidates who meet our high standards. Our retention strategy is based on
the effective training and development of, and focus on the total wellness of, our employees. We believe continuous learning
supports productivity, innovation and retention, as well as personal and professional growth for our employees. We invest in
employee training, including certain programs which are mandatory for all employees, and other programs which are voluntary
and self-directed on platforms provided by the Company. We also regularly assess the performance and potential of our diverse
workforce, review our succession plans and create robust developmental action plans to grow our employees and prepare them
for internal promotional opportunities. We believe our public recognition demonstrates the strength of our program. As of
February 2023, we are Great Place to Work-Certified. We were also selected for inclusion in the Bloomberg Gender Equality
Index in 2022 and 2023.
Offices
Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120. We also
have additional regional leasing and property management offices in Manhattan and Stamford, Connecticut. Our current
facilities are adequate for our present and future operations, although we may add or eliminate regional offices, depending upon
our future operations.
Available Information
Our website address is http://www.esrtreit.com. The information found on, or otherwise accessible through, our
website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K or any other report
or document we file with or furnish to the SEC. We make available, free of charge, on or through the SEC Filings section of our
website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with, or furnish it to,
the SEC. We have also posted on our website the Audit Committee Charter, Compensation and Human Capital Committee
Charter, Finance Committee Charter, Nominating and Corporate Governance Committee Charter, Corporate Governance
Guidelines and Code of Business Conduct and Ethics, which govern our directors, officers and employees. Within the time
period required by the SEC, we will post on our website any amendment to our Code of Business Conduct and Ethics and any
waiver applicable to our senior financial officers and our executive officers or directors. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC.
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ITEM 1A. RISK FACTORS
You should carefully consider the following risks, together with all other information in this Annual Report on Form
10-K, before you decide to retain or make an investment in our securities. These are not the only risks we face. Additional risks
currently unknown or deemed immaterial could have a material adverse effect on us and our REIT qualification, which could
reduce our share price and cause loss of all or part of your investment. Some items below are forward-looking statements. See
“Forward-Looking Statements.”
Risks Related to Our Business and Properties
Risks Relating to Portfolio Concentration
Our properties are geographically concentrated in New York and Connecticut, and adverse state or local economic or
regulatory developments could have a material adverse effect on our business, results of operations, cash flow and financial
condition.
Our commercial portfolio is comprised of properties primarily in New York City as well as in Stamford, Connecticut.
As a result, our business is dependent on the New York City economy in general and the market for office, retail and
multifamily space in New York City in particular, which exposes us to greater economic and regulatory risks than if we owned
a more geographically diverse portfolio. These risks include business layoffs, downsizing, industry slowdowns, and relocations
of businesses as well as increases in real estate and other local taxes, and regulatory compliance costs. The current federal tax
limits on the deductibility of state and local taxes as well as higher individual tax rate proposals may negatively impact
demographic trends in high tax states like New York and Connecticut.
The threat or occurrence of a terrorist event, particularly in New York City, may materially and adversely affect the value of
our properties and our ability to generate cash flow.
The threat or occurrence of a terrorist event may cause people to relocate from New York City and Stamford,
Connecticut to less populated, lower-profile areas. This could trigger a decrease in the demand, occupancy and rental rates for,
and materially affect the value of, our properties and our cash flow. Such negative consequences may be even more likely in a
high-profile property like the Empire State Building and its Observatory. Additionally, a terrorist event could cause insurance
premiums at certain of our properties to increase significantly.
We rely on three properties, in particular the Empire State Building and its Observatory, for a significant portion of our
revenue.
For the year ended December 31, 2023, three of our properties together accounted for approximately 53.2% of our
portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 29.6%. Our revenue and
cash available for distribution would be materially and adversely affected if any of these three properties were materially
damaged or a significant number of their tenants experienced financial strain leading to lease default or bankruptcy filing.
Additionally, for fiscal years ended December 31, 2021, 2022 and 2023, we derived revenue of approximately $41.5 million,
$106.0 million and $129.4 million, respectively from the Empire State Building’s Observatory operations. Loss of revenue from
the Observatory has in the past and may in the future have a material adverse impact on our results of operations and financial
condition.
Our five largest tenants represented approximately 15.9% of our total commercial portfolio’s annualized rent as of
December 31, 2023.
As of December 31, 2023, our five largest tenants together represented approximately 15.9% of our total commercial
portfolio’s annualized rent, with our largest tenant leasing an aggregate of 0.5 million rentable square feet of office space at one
of our office properties, representing approximately 5.4% of our total commercial portfolio rentable square feet and
approximately 6.2% of our total commercial portfolio annualized rent. Our significant tenants have in the past, and may in the
future, experience financial strain leading to lease default or bankruptcy. In such cases, we may not recover our upfront
investments in tenant improvement allowances, concessions, and transaction costs like professional fees and commissions.
Upon tenant default, we may experience delays and substantial costs in enforcing our rights and protecting our investment. Our
business, results of operations, cash flow and financial condition could be materially adversely affected if any of our significant
tenants were to suffer a downturn in their business, become insolvent, default under their leases, and/or fail to renew on
favorable terms or at all.
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Risks Relating to the Real Estate Market
A sustained shift away from in-person work environments to remote work could have an adverse effect on the overall
demand for our office and multifamily apartment units.
Certain remote work practices implemented in reaction to the pandemic are still in place and have shifted employers
and employees away from fully in-person work environments, and a more permanent shift of this type could have an adverse
effect on the overall demand for our office space. Additionally, with increased employer flexibility to work from home, current
and prospective residents may be less likely to live in dense urban centers or multifamily housing like the properties we own. If
these trends continue, it could impair demand and value at our properties.
Adverse economic and geopolitical conditions impacting the industries of our tenants, in particular the retail industry, could
cause reduced demand, rental rates and occupancy for our retail and office space.
As of December 31, 2023, approximately 18.2% of our commercial portfolio’s annualized rent was comprised of retail
tenants. In recent years, the retail industry has faced reductions in sales revenues and increase in bankruptcies throughout the
United States, due to a consumer shift to online shopping. This has reduced demand for physical retail space especially at street
level, which typically commanded the highest rental rates per square foot in office properties.
The bankruptcy or insolvency of any tenant could result in the termination of such tenant’s lease and material losses to us.
The occurrence of a tenant bankruptcy or insolvency has in the past, and could in the future, diminish or terminate the
income we receive from that tenant. We may also be unable to re-lease a terminated or rejected space on favorable terms or at
all. Additionally, a large number of our tenants (measured by number of tenants as opposed to aggregate square footage) are
smaller businesses that generally do not have the financial strength of larger corporate tenants. Smaller businesses generally
experience a higher rate of failure than large businesses, and their insolvency could have a material adverse effect on our
business, results of operations, cash flow and financial condition.
Competition may impede our ability to attract or retain tenants or re-lease space and we may be required to make rent or
other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants.
The leasing of real estate in New York City and its surrounding metropolitan area is highly competitive in rental rates,
location, services and property condition. We have seen increased competition from lessors in offering concessions, short term,
amenities, indoor environmental quality and sustainability certifications. See Part I, ITEM 1, “Business – Competition” for
more information. Increased competition challenges our ability to lease space and maximize our effective rents.
Upon expiration of leases at our properties and with respect to our current vacant space, we may be required to make
rent or other concessions to tenants, accommodate increased requests for renovations, build-to-suit remodeling and other
improvements or provide additional services to our tenants. In addition, eight of our existing properties are pre-war office
properties, which may require more frequent and costly maintenance to retain existing tenants or attract new tenants than newer
properties. As a result, and due to the increased competition from lessors in the greater New York City area, we have made, and
may have to make, significant capital or other expenditures in order to maintain the competitiveness of our properties. There
can be no assurances that any such expenditure would result in higher occupancy, higher rental rates or deter existing tenants
from relocating to properties owned by our competitors. If we are unable to match the competition for lack of capital or other
reasons, we may fail to attract new tenants or to renew existing tenants.
We may be unable to renew leases or re-lease vacant space on favorable terms or at all as leases expire.
As of December 31, 2023, we had approximately 0.9 million rentable square feet of vacant space in our office and
retail properties. In addition, leases representing 5.4% and 6.4% of the square footage of the office and retail properties in our
commercial portfolio will expire in 2024 and 2025, respectively. We cannot be assured that leases scheduled to expire will be
renewed or that our properties will be re-leased at net effective rental rates at or above the current average. If the terms of the
renewal or re-leasing are less favorable than current terms, or we fail to re-lease such spaces at all, our business, results of
operations, cash flow and financial condition will be negatively affected.
The short-term nature of multifamily leases exposes us more quickly to the effects of declining market rents, potentially
making our revenue more volatile.
Generally, our multifamily leases are for twelve months or less. If the terms of the renewal or reletting are less
favorable than current terms, our business, results of operations, cash flow and financial condition will be negatively affected.
Given their short-term lease structure, our multifamily rental revenues are more sensitive to market declines.
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Risks Relating to Our Properties
We face various risks related to our ground leases, including those arising from breach, expiration and eminent domain
proceedings, and we have no permanent economic interest in the land or improvements at such properties.
Our interests in three of our commercial office properties, 1350 Broadway, 111 West 33rd Street and 1400 Broadway,
are ground leases (i.e., long-term leaseholds of the land and the improvements), rather than a fee interest in the land and the
improvements. Pursuant to these ground leases, we, as tenant, perform the functions traditionally performed by owners: collect
rent from our subtenants, maintain the properties and pay related expenses. We do not have a right to acquire the fee interests in
these properties. The ground leases, including unilateral extension rights available to us, expire on July 31, 2050, for 1350
Broadway, December 31, 2063, for 1400 Broadway and June 10, 2077, for 111 West 33rd Street. If we are found to be in
breach of any of these ground leases, the fee owner may terminate such lease, and we could lose the right to use the properties.
In addition, unless we purchase the underlying fee interest in these properties or extend the terms of the ground leases on the
current terms, we will lose our right to operate these properties, or continue to operate them at lower profitability. Additionally,
we will not share in any increase in value of the land or improvements and will not receive any revenue from the property
beyond the term of our ground leases. If the government acquires the properties under its eminent domain power, we would
only be entitled to a portion of any compensation awarded. It may be more expensive for us to renew our ground leases, to the
extent renewal is available at all.
We are exposed to risks associated with property development.
We have engaged, continue to engage, and may in the future engage in development activities with respect to our
properties (including our Metro Tower potential development site). See Part I, ITEM 1, “Business – Overview” for more
information. Development subjects us to risks beyond our control, which could have a material adverse effect on our financial
condition, including, without limitation, the availability and pricing of financing; availability and timing of zoning and other
approvals; occupancy rates and rents; construction costs and delays, whether due to weather, labor conditions, material
shortages or otherwise, and timely lease-up. We will fail to recover expenses and management time already incurred if we
abandon any then pending development.
Significant inflation could adversely affect our business and financial results.
Increased inflation has and may in the future adversely affect us by increasing costs of properties, development and
renovation. In a highly inflationary environment, we may be unable to raise rental rates at or above the rate of inflation, which
could reduce our profit margins. In addition, our cost of labor and materials has and may in the future further increase. While
increases in most operating expenses at our properties can be passed on to our office and retail tenants, the terms of some of our
leases may limit our ability to charge our tenants for all or a portion of such increased expenses. Our inability to pass on such
increased operating expenses may reduce cash flow available to service our debt and make distributions.
We may not be able to control our operating costs, or our expenses may remain constant or increase even if income from
our properties decreases.
Certain costs associated with real estate investment, such as real estate taxes, insurance and maintenance costs,
generally are not reduced when a property is not fully occupied, rental rates decrease or other circumstances cause a reduction
in income. The terms of our leases may also limit our ability to charge our tenants for all or a portion of these expenses.
Additionally, inflation has impacted and will continue to impact property operating expenses and construction costs.
We are exposed to risks from third-party property management services.
While we perform property management services for the majority of our properties, we use a third-party property
management company to service our multifamily properties. If such third-party property management company does not
perform in accordance with our contractual agreements and desired standards, we could be exposed to additional risks, such as
costs and reputational harm.
Risks Related to Our Non-Real Estate Operations
The Observatory operations at the Empire State Building are not traditional real estate operations, and may be negatively
impacted by competition, adverse weather, and changes in tourist trends.
For fiscal years ended December 31, 2021, 2022 and 2023, we derived revenues of approximately $41.5 million,
$106.0 million and $129.4 million from our Observatory operations. Our revenues declined significantly in 2020, 2021 and
2022, compared to 2019, as a result of the pandemic and government mandated closures and a slow ramp-up in visitor volume
after reopening in July 2020, in large part due to travel restrictions. Any future health or other economic crises, geopolitical
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events (including global hostilities) or currency exchange rate fluctuations could negatively impact tourist trends and visitor
demand for our Observatory, which could have a material adverse effect on our business, results of operations, cash flow and
financial condition. We are also susceptible to reductions in visitor demand due to adverse weather. We compete against
existing observatories in New York City at the World Trade Center, Rockefeller Center, Hudson Yards, and One Vanderbilt, all
of which may divert visitors and negatively impact our revenue.
The broadcasting operations at the Empire State Building are not traditional real estate operations, and competition and
changes in the broadcasting of signals over air may subject us to additional risks.
We license the use of the Empire State Building broadcasting mast to third-party television and radio broadcasters.
During the year ended December 31, 2023, we derived approximately $14.7 million of revenue (excluding tenant
reimbursement income) from such broadcasting licenses and related leases, as compared with about $21 million at its peak.
Competition from other broadcasting operations has had a negative impact on revenues from our broadcasting operations, and
lease renewals have yielded reduced revenue, and higher operating expenses and capital expenditures. Our broadcast licensees
also face a range of competition from advances in technologies and alternative methods of content delivery in their respective
industries, as well as changes in consumer behavior, which may reduce the demand for over-the-air broadcast licenses. Recent
government regulations may materially and adversely affect our broadcast revenue by reducing the demand for broadcast
licenses through making more spectrum available for wireless broadband service providers.
The impairment of a significant portion of goodwill could negatively affect our results of operations and financial condition.
Our balance sheet included goodwill of approximately $491.5 million at December 31, 2023, consisting primarily of
goodwill associated with our acquisition of the controlling interest in Empire State Building Company L.L.C. and 501 Seventh
Avenue Associates L.L.C. On an annual basis and whenever circumstances indicate the carrying value or goodwill may be
impaired, we are required to assess any such impairment and charge to operating earnings the resulting non-cash impairment.
For example, during the pandemic, the closure of our Observatory caused us to perform such an assessment quarterly. See
“Financial Statements – Note 4 Deferred Costs, Acquired Lease Intangibles and Goodwill” in this Annual Report on Form 10-K
for further information. An impairment could have a material adverse effect on our results of operations and financial condition.
Risks Relating to Acquisitions and Dispositions
We may be unable to identify and successfully complete acquisitions, and even if acquisitions are identified and completed,
they may expose us to additional risks.
We plan to acquire new properties as we are presented with attractive opportunities, but we may face significant
competition from other investors, particularly private investors who can incur more leverage. We may incur significant costs
and divert management attention in connection with potential acquisitions, including ones that we are unable to complete. If we
successfully identify an acquisition target and close the transaction, we may spend more than budgeted to make necessary
improvements to the relevant properties and be exposed to unknown liabilities, such as environmental contamination or claims
from former tenants, vendors or employees.
We may acquire properties through tax deferred contribution transactions, which could result in securityholder dilution and
limit our ability to sell such assets.
In the future we may acquire properties through tax deferred contribution transactions in exchange for partnership
interests in our operating partnership, which may result in dilution to securityholders, reduction of tax depreciation we could
deduct over the tax life of the acquired properties (as compared with an acquisition paid in cash), and requirements to protect
the contributors’ tax deferral through restrictions on our disposition of the acquired properties and/or maintenance and
allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an
asset at a time, or on terms, that would be favorable absent such restrictions.
If we are unable to sell, dispose of or refinance one or more properties in the future, we may be unable to realize our
investment objectives.
Real estate investments are relatively difficult to sell quickly. Return of capital and realization of gains from an
investment generally will occur upon disposition or refinancing. In addition, the Code imposes restrictions on the ability of a
REIT to dispose of properties that are not applicable to other types of real estate companies. We may be unable to realize our
investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time.
We may incur taxable capital gain on the disposition of assets due to the failure of use or compliance with a Section 1031
exchange program.
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From time to time we may dispose of properties in transactions that are intended to qualify as “like kind exchanges”
under Section 1031 of the Code. It is possible that the qualification of a transaction as a like-kind exchange could be
successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits would
increase. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax,
possibly including interest and penalties. As a result, we may be required to borrow funds to pay additional dividends or taxes,
and any payment of taxes could cause us to have less cash available to distribute to our shareholders. In addition, if a like-kind
exchange was later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in
question, including any information reports we sent our shareholders. We could also be subject to significant indemnity
obligations if the applicable property was subject to a tax protection agreement.
Risks Relating to Our Indebtedness and Liquidity
Our debt, the cost of our debt and limitations in our loan documents could adversely affect us.
As of December 31, 2023, we had total debt outstanding of approximately $2.2 billion inclusive of total mortgages of
approximately $877.4 million with no maturity before November 2024. See “Financial Statements – Note 5 Debt” in this
Annual Report on Form 10-K for further information. Our organizational documents do not limit the debt we may incur, and we
may incur significant additional debt to finance future acquisition and development activities. Our current and potential levels
of debt, and the limitations in our loan documents could have significant adverse consequences to our cash flow and our ability
to service and refinance our debt. We may be forced to dispose of one or more of our properties, possibly on disadvantageous
terms. We may default on our debt obligations, in which case the lenders may accelerate our debt obligations and foreclose on
any mortgaged properties. Our default on one debt with cross-default provisions could result in a default on other debt. In
addition, our revolving credit facility and related term loan bear interest at a variable rate. We may incur indebtedness in the
future that also bears interest at a variable rate or may be required to refinance our debt at higher rates. If any one of these
events were to occur, our results of operations, cash flow, financial condition, and ability to service debt and to make
distributions could be adversely affected.
Our debt includes restrictions on our financial and operational flexibility and distributions.
Our debt instruments may restrict our financial and operational flexibility. For example, our lockbox and cash
management agreements may require income from our properties to be deposited directly into lockbox accounts controlled by
our lenders from which we receive cash after funding of defined operating and capital costs. As a result, we may be forced to
borrow additional funds in order to make distributions. Additionally, many of our debt instruments contain financial covenants
that impact how we run our business, including required ratios for debt-to-assets, adjusted EBITDA to consolidated fixed
charges or debt service. The partnership agreement of our operating partnership may restrict our ability to pay dividends if we
fail to pay the cumulative distributions on preferred units. See Part II, ITEM 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources” for more information.
Mortgages expose us to foreclosure and loss of our investment in a mortgaged property.
Mortgage and other secured debt increases our risk of property losses because defaults may result in foreclosure. For
tax purposes, a foreclosure generally is treated as a sale of the property for a purchase price equal to the outstanding debt. If
such debt exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but not receive any cash.
Foreclosures could also trigger our obligations under tax protection agreements with certain legacy investors to indemnify them
for certain taxes upon sale of specific properties where they had embedded phantom taxable income (or the failure to maintain
certain levels of indebtedness). See “Financial Statements – Note 11 Related Party Transactions – Tax Protection Agreements”
in this Annual Report on Form 10-K for more information.
High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties,
which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can
make.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we
place mortgage debt on properties, we may be unable to refinance the properties when the loans become due at comparable
terms. This may result in reduced cash flows and hinder our ability to make distributions, and to raise more capital by issuing
more stock or by borrowing more money. In addition, to the extent we are unable to refinance loans, we will have fewer debt
guarantee opportunities available to offer under our tax protection agreements, which could trigger our related indemnification
obligation.
Our growth depends on external sources of capital that are outside of our control.
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Because of the distribution requirements to maintain our status as a REIT (See Part I, ITEM 1, “Business - Our Tax
Status”), we may not be able to fund future capital needs, including any acquisition financing, from operating cash flow and
may need to rely on third-party sources. Our access to third-party sources of capital depends, in part, on general economic and
market conditions, including the cost and availability of credit, government action or inaction and its effect on the state of the
capital markets, the market’s perception of our growth potential, as well as our then current financial condition. Absent needed
capital, we may not be able to acquire or develop properties when opportunities exist, satisfy our debt obligations or make cash
distributions to our securityholders necessary to maintain our qualification as a REIT.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic had, and any future public health crisis could have, serious adverse effects on our and our
tenants’ businesses, results of operations, cash flows and financial condition, and on local, national, and global economic
activity.
The COVID-19 pandemic impacted the entire U.S., including New York and Connecticut where our properties are
located. Any future public health crisis could have significant impacts on how people live, work, and travel in ways that have
affected and may in the future affect our properties. Recovery from pandemic travel impacts is not yet completed, our visitor
volume at the Empire State Building Observatory has not yet fully returned, and we cannot predict when we may achieve
visitor volume comparable to 2019 when approximately two-thirds of our visitors were international. During 2020, 2021, 2022
and 2023, visitor volume was 0.5 million, 0.8 million, 2.2 million and 2.6 million, respectively, compared to 3.5 million in
2019. Our change in operations of the Empire State Building Observatory to focus on capacity controls to maximize the
customer experience, require reservations to control overcrowding and staffing costs, and our increase of per visitor pricing
may cause our future Observatory results to differ from previous Observatory results.
Amongst the impacts the COVID-19 pandemic had, and any future public health crisis could have, is a material
adverse effect on our business, results of operations, cash flows and financial condition due to, among other factors:
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downturn in national and/or local economies that decreases prospects, demand, occupancy and rental rates for our
office, multifamily and retail space, all with an adverse impact on the value or price of our assets;
delays, cost increases and/or cancellations of planned capital projects;
potential impairment of our ability to comply with existing debt agreements, to pay down, refinance, or extend
maturing debt, and to incur new debt;
changes in the number of domestic and international tourists to our markets;
volatility and downward pressure on the market price of our Class A common stock and publicly traded partnership
units, which may also reduce our access to capital and/or our equity currency for new acquisitions; and
reduction of our cash flows and our ability to pay dividends, with potential impairment of REIT qualification, and
business continuity.
Risks Relating to Disaster Recovery and Business Continuity
Natural disasters and physical climate risk could adversely impact our area and business.
Our properties are concentrated in the New York metropolitan area. Natural disasters and physical climate risk
including earthquakes, storms, storm surges, tornados, floods, extreme temperatures, and hurricanes, could cause significant
damage or limit access to our properties and the surrounding area. Physical climate risk, including rising sea levels, storm
surges, and extreme temperature fluctuations, could adversely impact the coastal metropolitan areas in which we operate. These
conditions could result in declining demand for our commercial and multifamily properties, compromise our ability to operate
the buildings, make insurance less affordable or available, and increase the cost of energy and utilities at our properties. Also,
certain of our properties could not be rebuilt to their existing height or size under current land use laws. In that event, we may
have to upgrade such property to meet code requirements. Our disaster recovery and business continuity plans may not be
adequate to address these risks.
Some of our potential losses may not be covered by insurance.
Our insurance may not be adequate to cover all losses to which we are subject. Business interruption insurance
generally does not include coverage for damages from a pandemic. In addition, our insurance policies include substantial self-
insurance and deductibles and co-payments for certain events. See Part I, ITEM 1, “Business – Insurance” for further
information. If we experience a loss that is uninsured or exceeds our policy limits, we could incur significant costs and loss of
capital or property. If the damaged property is subject to recourse debt, we would continue to be liable for the debt, regardless
of the property condition. Our debt instruments contain customary covenants to maintain insurance, including terrorism
insurance. While we do not believe it is likely, our lenders or ground lessors could take the position that a total or partial
exclusion for losses due to terrorist acts is a breach that would accelerate debt repayment or recapture ground lease positions. In
addition, if they were to prevail in requiring additional coverage, it could result in substantially higher premiums. In the future,
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we may be unable to obtain insurance with insurers that satisfy the rating requirements in our agreements, which could give rise
to a default under such agreements and/or impair our ability to refinance.
We may incur significant costs to comply with environmental laws, and environmental contamination may impair our ability
to lease and/or sell real estate.
Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of
real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or
petroleum products at, on, in, under or from such property, including costs for investigation or remediation, natural resource
damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may
be joint and several. Some of our properties have been or may be impacted by contamination arising from current or prior uses
of the property or adjacent properties for commercial, industrial or other purposes. Such contamination may arise from spills of
petroleum or hazardous substances or releases from tanks used to store such materials. For example, a portion of the Metro
Tower site is currently used for automobile parking and was formerly leased to a fueling facility, and we have post-closing
obligations related to our Westport properties sold in 2023 related to remediation of storage tank and soil contamination. See
Part I, ITEM 1, "Business - Environmental Matters" for further information.
We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we
arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with
environmental laws in doing so. The presence of contamination or the failure to remediate contamination on our properties may
adversely affect our ability to attract and/or retain tenants, and our ability to develop or sell or borrow against those properties.
In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for
similar reasons. Environmental laws also may create liens on contaminated sites in favor of the government for damages and
costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws
may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and
regulations. Noncompliance with these laws and regulations could subject us or our tenants to liability. These liabilities could
affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of
compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated
expenditures. We sometimes require our tenants to comply with environmental and health and safety laws and regulations and
to indemnify us for any related liabilities in our leases with them. But in the event of the bankruptcy or inability of any of our
tenants to satisfy such obligations, we may be required to satisfy such obligations.
In addition, we may become subject to new compliance requirements and/or new costs or taxes associated with natural
resource or energy usage and related emissions (such as a carbon tax), which could increase our operating costs. See "We may
incur significant costs to comply with environmental laws, in particular New York City’s Local Law 97" in this section.
As the owner or operator of real property, we may also incur liability based on various building conditions. For
example, environmental site assessments and investigations have identified asbestos or asbestos-containing material (“ACM”)
in certain of our properties, and it is possible that other properties that we currently own or operate or those we acquire or
operate in the future contain, may contain, or may have contained, ACM. See “Financial Statements – Note 9 Commitments and
Contingencies – Asset Retirement Obligations” in this Annual Report on Form 10-K for more information. Environmental and
health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners,
operators or employers for non-compliance with those requirements. These requirements include special precautions, such as
removal, abatement or air monitoring, if ACM would be disturbed during maintenance, redevelopment or demolition of a
building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property
damage sustained as a result of releases of ACM into the environment. Additionally, our properties may contain or develop
harmful mold or suffer from other indoor air quality issue, such as inadequate ventilation and contamination, which could lead
to liability for adverse health effects or property damage or costs for remediation. Any liability or increased cost from the
environmental risks mentioned in this section could materially and adversely affect our operations.
We acquire real estate from time to time, which carries the risk that a property we acquire may subject us to potential
environmental liability as a result of the condition of the land or actions taken on the property before we acquired it. This
potential environmental liability may be unknown to us at the time we acquire the property and as a result can be impossible to
predict.
We may incur significant costs to comply with environmental laws, in particular New York City’s Local Law 97.
We may become subject to new compliance requirements and/or new costs or taxes associated with natural resource or
energy or utility usage and related emissions (such as a “carbon tax”), which could increase our operating costs. In particular, as
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the owner of large commercial and multifamily buildings in New York City, we are subject to Local Law 97 passed by the New
York City Council in April 2019, which for each such building establishes annual limits for greenhouse gas emissions, requires
yearly emissions reports beginning in May 2025 for full calendar year 2024, and imposes penalties for emissions above such
limits. While we are actively working to reduce our carbon emissions, there can be no assurance that we will be able to operate
within the limits of Local Law 97, or that the costs of compliance and/or penalties will not be material. Based upon our present
understanding of the law and calculations related thereto, we expect to pay no fine on any building in our commercial portfolio
in the 2024-2029 first period of enforcement.
Risks Relating to Human Capital Management
The departure of any of our key personnel could materially and adversely affect us.
Our success depends on the efforts of key personnel, particularly Anthony E. Malkin, our Chairman and Chief
Executive Officer, whose leadership and national industry reputation benefits us in many ways. He has led the acquisition,
operation and repositioning of our assets for more than two decades. Other members of our senior management team also have
strong industry reputations and experience, which aid us in attracting, identifying and taking advantage of opportunities. The
loss of the services of one or more members of our senior management team could materially and adversely affect us.
Our Chairman and Chief Executive Officer has outside business interests that take his time and attention away from us,
which could materially and adversely affect us.
Under his employment agreement, Mr. Malkin has agreed to (a) devote a majority of his business time and attention to
our business and (b) during, and for a time after, his employment with us to refrain from competition with us. Mr. Malkin is
also permitted to devote time to his other investments to the extent such activities do not materially interfere with the
performance of his duties to us. He owns interests in properties and businesses, including properties and businesses that were
not contributed to us in the formation transactions, some of which are now supervised by our Company. As a result, Mr. Malkin
and his affiliates have had, and may in the future have, management and fiduciary obligations that could conflict with his
responsibilities to our Company. For example, in February 2023 we closed on the disposition of our retail assets located at
69-97 and 103-107 Main Street in Westport, Connecticut, to an entity affiliated with Mr. Malkin. See “Financial Statements –
Note 11 Related Party Transactions” in this Annual Report on Form 10-K for further information. We may choose to moderate
or omit enforcement of our rights under his employment agreement to maintain our relationship with him given his knowledge
of our business, relationships with our customers, and significant equity ownership in us, and this could have a material adverse
effect on our business.
Our failure to maintain satisfactory labor relations could materially and adversely affect us.
As of December 31, 2023, we have collective bargaining agreements that cover 429 employees, or 64% of our
workforce, that service our portfolio. Our inability to negotiate acceptable renewals as existing agreements expire could result
in strikes or work stoppages and disrupt our operations. In any such event for any extended period of time, we would likely
engage temporary replacement workers, which would result in increased operating costs.
Risks Relating to Legal Compliance, Sustainability and Cybersecurity
We face risks associated with our tenants being designated “Prohibited Persons” by OFAC and similar requirements.
The Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) maintains a list of persons
designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging
in transactions in the U.S. and thereby restricts our doing business with such persons. In addition, our leases, loans and other
agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of
such agreements. If a tenant or other party with whom we conduct business is designated a Prohibited Person, we may be
required to terminate the arrangement or face penalties. Any such termination could result in a loss of revenue or otherwise
negatively affect our business.
We may incur significant costs to comply with the ADA and similar laws.
Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations must meet federal
requirements related to access and use by disabled persons. We have incurred and could again in the future be required to incur
costs to bring any non-compliant property into compliance and to make modifications to our properties upon any renovation,
any of which could involve substantial costs and material adverse effect on our results of operations and financial condition.
See Part I, ITEM 1, “Business – Americans with Disabilities Act” for more information.
We may become subject to litigation, which could have a material adverse effect on our financial condition.
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In the past we have been, and in the future we may become, subject to litigation, including claims relating to our
operations, offerings, and otherwise in the ordinary course of business. Some of these claims may result in significant defense
costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend
to defend ourselves vigorously; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the
future. Certain litigation or its resolution may affect the availability or cost of our insurance coverage, which could adversely
impact our financial condition, expose us to increased uninsured risks, and/or adversely impact our ability to attract officers and
directors. See “Financial Statements – Note 9 Commitments and Contingencies” in this Annual Report on Form 10-K.
Increasing attention to sustainability matters may impact our business.
Increasing attention to sustainability matters, including those related to climate change, and increasing societal,
investor and legislative pressure on companies to address sustainability matters may result in increased costs, greater litigation
risks, negative impacts on our access to capital markets, and damage to our reputation. For example, policy and other responses
to climate change, such as climate and energy legislation and carbon mandates, enhanced environmental reporting
requirements, increasingly stringent building and energy codes, as well as technology and market changes from the transition to
a low-carbon economy has and may continue to impact our business and results of operations.
In addition, organizations that provide information to investors on corporate governance and related matters have
developed ratings processes for evaluating companies on their approach to sustainability matters, including climate change and
transitional and physical climate-related risks. Such ratings are used by some investors to inform their investment and voting
decisions. Unfavorable sustainability ratings may lead to negative investor sentiment toward us and to the diversion of
investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.
We publicly announced our achievement of carbon neutrality in 2022 and our commitment to a 2030 net zero carbon
emissions target for the Empire State Building and a 2035 net zero carbon emissions target for the balance of our portfolio,
defined as the goal of 80% operational emissions reduction in partnership with the grid. We have implemented numerous
comprehensive sustainability-focused initiatives focused on energy, emissions, water, and waste reduction along with indoor
environmental quality, well-being, and healthy buildings. These aspirations, targets and objectives reflect our current plans and
aspirations and are not guarantees that we will be able to achieve them. In addition, these efforts are impacted by our tenants’
willingness and ability to collaborate in reporting sustainability metrics and meeting sustainability goals. Our efforts to
accomplish and accurately report on these goals and objectives present operational, regulatory, reputational, financial, legal, and
other risks, any of which could have a material negative impact on us, including on our reputation and stock price.
The standards for tracking, rating, and reporting on sustainability matters are relatively new, have not been harmonized
and continue to evolve rapidly at a global scale. Our selection of disclosure frameworks that seek to align with various
voluntary reporting standards may change from time to time and may result in a lack of comparative data from period to period.
In addition, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and
reporting sustainability metrics, our interpretation of reporting standards may differ from those of others, and such standards
may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such
goals. Our failure or perceived failure to pursue or fulfill our announced aspirations and targets or to satisfy various reporting
standards within the timelines we announce, or at all, could have a negative impact on investor sentiment, ratings outcomes for
evaluating our approach to sustainability matters, stock price, and cost of capital and expose us to government enforcement
actions and private litigation, among other possible material adverse impacts.
Cyberattacks and any failure to comply with related laws could negatively impact us.
We rely extensively on technology, both internal and outsourced, to process transactions and manage our business,
making our business increasingly at risk from cyberattacks. These threats, which continue to increase in number, intensity and
sophistication, include malware, ransomware, computer viruses, phishing, unauthorized access, and other vectors used by
hackers, terrorists, foreign governments, and other actors. Cyber threats and attacks on our Company have included and could
in the future include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt our
operations or the operations of our tenants and residents, destroy property, or steal confidential information. There is no
guarantee that our controls or measures to prevent or mitigate such attacks will be successful. A cyberattack could compromise
the confidential information of our employees, tenants, residents, customers, and vendors, and disrupt our business operations
and relationships. Such a security breach could require us to expend significant resources to remediate any damage that result.
Additionally, such a breach may subject us to litigation, damages, penalties, fines, governmental investigations and enforcement
actions or termination of leases. These consequences could damage our reputation with tenants, residents, customers, and
investors, any of which could have a material adverse effect on our business. Any compromise of our security could also result
in a violation of applicable privacy laws (e.g., Observatory customer data, Company employee data, or residential data at
multifamily properties), which could result in negative legal consequences as well as significant damage to our financial
condition, reputation, business, records, and confidence of our business partners in our business relationships. New laws and
regulations related to data privacy and security pose increasingly complex compliance challenges and costs across multiple
jurisdictions, which could negatively impact our business, financial condition and results of operations.
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The adoption of, or changes, in rent control or rent stabilization regulations and eviction regulations in our markets could
have an adverse effect on our operations and property values.
A growing number of state and local governments have enacted and may continue to consider enacting and/or
expanding rent control or rent stabilization regulations, which have limited and could continue to limit in broadening ways our
ability to raise rents or charge certain fees, either of which could have a retroactive effect. We continue to see increases in
governments considering or being urged by advocacy groups to consider rent forgiveness, rent control or rent stabilization
regulations or expand coverage of existing regulations in our markets. These regulations may also make changes to and/or
expand eviction and other tenants’ rights regulations that may limit our ability to enforce residents’ or tenants’ contractual
rental obligations (such as eviction moratoriums), pursue collections or charge certain fees, which could have an adverse impact
on our operations and property values.
Government housing regulations may limit opportunities at the multifamily properties in which we invest, and failure to
comply with resident qualification requirements may result in financial penalties or loss of benefits.
We own, and may acquire additional equity interests in properties that benefit from governmental programs intended
to provide housing to individuals with low or moderate incomes. These governmental programs typically provide mortgage
insurance, favorable financing terms, tax credits or rental assistance payments to property owners. As a condition of the initial
receipt and potential extensions of assistance under these programs, the properties must comply with various requirements,
which typically limit rents to pre-approved amounts and impose restrictions on resident incomes. Failure to comply with these
requirements and restrictions may result in financial penalties or loss of benefits. In addition, we will typically need to obtain
the approval of the applicable government agency in order to acquire or dispose of a significant interest in or manage such
property. We may not always receive such approval.
Risks Related to Our Organization and Structure
If our board revokes our REIT election or we fail to remain qualified as a REIT, we may be required to pay U.S. federal
income taxes at corporate rates, which may cause adverse consequences to our securityholders.
Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for U.S.
federal income tax purposes, our Board may revoke our REIT election, without stockholder approval, if the Board determines
that it is no longer in our best interest to continue to qualify as a REIT or we may fail to remain so qualified. Qualifications are
governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative
interpretations and depend on various facts and circumstances that are not entirely within our control. In addition, legislation,
new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the U.S.
federal income tax consequences of qualifying as a REIT. If, with respect to any taxable year, we fail to maintain our
qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct distributions to shareholders in
computing our taxable income and would have to pay U.S. federal income tax on our taxable income at regular corporate rates
and thus reduce funds available for distribution and debt service, and we would not be required to make distributions until we
re-qualified as a REIT which would not be permitted for the four taxable years following our disqualification, unless we gained
relief under relevant statutory provisions. Refer to Part I, ITEM 1, “Business – Our Tax Status” for more information.
Failure to qualify as a domestically controlled REIT could subject our non-U.S. securityholders to adverse U.S. federal
income tax consequences.
While we intend to continue to qualify as a “domestically controlled” REIT for purposes of the Foreign Investment in
Real Property Tax Act of 1980, we cannot assure that result, as our Class A common stock is publicly traded, QIA (a non-U.S.
holder) owns approximately 18.45% of our common stock and other non-U.S. holders may now or in the future hold additional
shares. If we were to fail to qualify, gain realized by a foreign investor (other than a “qualified shareholder,” a “qualified
foreign pension fund” or a “qualified controlled entity”) on a sale of our common stock would be subject to FIRPTA unless (a)
our common stock was traded on an established securities market and the foreign investor did not at any time during a specific
testing period directly or indirectly own more than 10% of the value of our outstanding common stock, or (b) another
exemption from FIRPTA were applicable.
Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.
If we fail to comply with the income and asset requirements for a REIT at the end of any calendar quarter, we must
correct the failure within 30 days after the end of the calendar quarter or qualify for certain other statutory relief provisions to
avoid losing our REIT qualification and suffering adverse tax consequences. Refer to Part I, ITEM 1, “Business – Our Tax
Status” for more information. In order to satisfy the gross income or asset tests applicable to REITs under the Code, we may be
required to forego investments that we otherwise would make or liquidate otherwise attractive investments. This could have the
effect of reducing our income and amounts available for distribution.
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The REIT distribution requirements could require us to borrow funds during unfavorable market conditions or subject us to
tax, which would reduce the cash available for distribution to our securityholders.
We intend to distribute our taxable net income to our securityholders in a manner intended to satisfy the REIT 90%
distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. Refer to Part I, ITEM 1,
“Business – Our Tax Status” for more information. Any failure to do so will incur substantial entity level tax and/or
disqualification as a REIT with the adverse tax consequences and limits on re-qualification described above in this "Risk
Factors" section. In addition, our taxable income may exceed our net income as determined by GAAP. As a result of the
foregoing, we may generate less cash flow than taxable income in a particular year, and we may incur U.S. federal income tax
and the 4% nondeductible excise tax on that income if we do not distribute such income to securityholders in that year. In that
event, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or
make a taxable distribution of our shares in order to satisfy such REIT requirements and avoid such taxes.
If our operating partnership is treated as a corporation for U.S. federal income tax purposes, we will cease to qualify as a
REIT.
In order for our publicly traded operating partnership to be treated and taxed as a partnership for U.S. federal income
tax purposes, 90% or more of its gross income must consist of certain passive type income such as rent, interest, dividends, etc.
If our operating partnership were to fail to meet the gross income requirement for treating a publicly traded partnership as a
partnership or the IRS were to successfully challenge our operating partnership’s status as a partnership, we would fail to meet
the gross income tests and certain of the asset tests applicable to REITs and, therefore, cease to qualify as a REIT and our
operating partnership would become subject to U.S. federal, state and local income tax. The payment by our operating
partnership of income tax would reduce significantly the amount of cash available to our operating partnership to satisfy
obligations to make principal and interest payments on its debt and to make distributions to its partners, including us.
If we are unable to continue to lease the Empire State Building Observatory to a TRS or to maintain our broadcast licenses,
in each case in a manner consistent with the IRS ruling that we have received, we would be required to restructure our
operations in a manner that could adversely affect the value of our stock.
We rely upon private letter rulings from the IRS that income from our Observatory and broadcast facilities is
qualifying rent for our REIT qualification. See Part I, ITEM 1, “Business – Our Tax Status.” We are entitled to rely upon these
private letter rulings only to the extent that we did not misstate or omit a material fact in the ruling request and that we continue
to operate in accordance with the material facts described in such request, and no assurance can be given that we will always be
able to do so. If we were not able to treat the rent that our operating partnership receives from Observatory TRS as qualifying
income for purposes of the REIT gross income tests, we would be required to restructure the manner in which we operate the
Observatory, which would likely require us to cede operating control of the Observatory by leasing the Observatory to an
affiliate or third-party operator. If we were not able to treat the license fees that our operating partnership will receive from the
license agreements described above as qualifying income for purposes of the REIT gross income tests, we would be required to
enter into the license agreements described above through a TRS, which would cause the license fees to be subject to U.S.
federal income tax and accordingly reduce the amount of our cash flow available to be distributed to our securityholders. In
either case, if we are not able to appropriately restructure our operations in a timely manner, we would likely realize significant
income that does not qualify for the REIT gross income tests, which could cause us to fail to qualify as a REIT.
Our TRSs are subject to U.S. federal, state and local income tax, there are limits on our ability to own TRSs, and a failure to
comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would
not be qualifying assets or income if held or earned directly by a REIT. A corporation of which a TRS directly or indirectly
owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than
20% of the value of a REIT’s assets may consist of securities of one or more TRSs. TRSs are subject to U.S. federal, state and
local income taxation, as applicable. The rules also impose a 100% excise tax on certain transactions between a TRS and its
parent REIT that are not conducted on an arm’s-length basis.
We have jointly elected with each of Observatory TRS and Holding TRS, for each of Observatory TRS and Holding
TRS to be treated as a TRS under the Code for U.S. federal income tax purposes in 2013. Observatory TRS, Holding TRS, and
any other TRSs that we form pay U.S. federal, state and local income tax on their taxable income, and their after-tax net income
is available for distribution to us but is not required to be distributed to us unless necessary to maintain our REIT qualification.
Although we monitor the aggregate value of the securities of such TRSs and intend to conduct our affairs so that such securities
will represent less than 20% of the value of our total assets, and such securities taken together with other non-qualifying assets
will represent less than 25% of the value of our total assets, at the end of each calendar quarter, there can be no assurance that
we will be able to comply with the TRS limitations in all market conditions.
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Our state and local taxes could increase due to property tax rate changes, reassessment and/or changes in state and local tax
laws, which could materially and adversely affect us.
We are required to pay state and local taxes on our properties. From time to time changes in state and local tax laws or
regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and
municipalities in which we operate may lead to an increase in the frequency and size of such changes. In particular, the federal
government has recently limited the ability of individuals to deduct state and local taxes on their federal tax returns, potentially
leading many high-tax states to make significant changes to their own state and local tax laws. In addition, the pandemic has left
many state and local governments with reduced tax revenue, which may lead such governments to increase taxes or otherwise
make significant changes to their state and local tax laws. If such changes occur, we may be required to pay additional taxes on
our assets or income. The real property taxes on our properties may increase as property tax rates change or as our properties
are assessed or reassessed by taxing authorities. Therefore, the amount of property taxes we pay in the future may increase
substantially from what we have paid in the past. If the property taxes we pay increase, our financial condition could be
materially and adversely affected.
U.S. federal, state and local legislative, judicial or regulatory tax changes could have a material adverse effect on our
shareholders and us.
The present U.S. federal income tax treatment of REITs and their shareholders may be modified, possibly with
retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax
treatment of an investment in us. The U.S. federal income tax rules dealing with REITs are constantly under review by persons
involved in the legislative process, the IRS and the U.S. Department of the Treasury, which results in statutory changes as well
as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect our
investors or us. Revisions in U.S. federal income tax laws and interpretations thereof could significantly and negatively affect
our ability to qualify as a REIT and the tax considerations relevant to an investment in us, or could cause us to change our
investments and commitments.
Our tax protection agreements could limit our ability either to sell certain properties or to engage in a strategic transaction,
or to reduce our level of indebtedness, which could materially and adversely affect us.
In connection with the formation transactions, we entered into a tax protection agreement with certain Malkin family
members, including Anthony E. Malkin and Peter L. Malkin, pursuant to which we have agreed to indemnify the Malkin Group
and one additional third-party investor in Metro Center, and in connection with our sale of a 9.9% fully diluted interest in our
Company to QIA in 2016, we agreed, subject to certain minimum thresholds and conditions, to indemnify QIA, in each case,
against certain tax liabilities that may arise from certain property transactions. See “Financial Statements – Note 11 Related
Party Transactions – Excluded Properties and Businesses” in this Annual Report on Form 10-K for further information. If we
were to trigger such tax indemnification obligations, we would be required to pay the resulting tax liability to the Malkin
Group, the additional third-party investor in Metro Center and/or QIA, as applicable. These obligations may restrict our ability
to engage in a strategic transaction, require us to maintain more or different debt, and/or inhibit our disposing of a property that
we might judge to be otherwise be in the best interest of the securityholders.
Holders of our Class B common stock have a significant vote in matters submitted to a vote of our securityholders.
As part of our formation, we sought to give each contributing investor an option to hold equity interests which would
allow such investor to vote on Company matters in proportion to such investor’s economic ownership in the consolidated entity,
whether such investor elected taxable Class A common stock or tax-deferred operating partnership units. Thus, the original
investors were offered the opportunity to contribute their interests to us in exchange for a mix of one share of Class B common
stock and 49 operating partnership units for each 50 operating partnership units to which an investor was otherwise entitled.
Each outstanding share of Class B common stock, when accompanied by 49 operating partnership units, entitles the holder
thereof to 50 votes on all matters on which Class A common securityholders are entitled to vote, including the election of
directors. Holders of our Class B common stock may have interests that differ from holders of our Class A common stock and
may accordingly vote in ways that may not be consistent with the interests of holders of our Class A common stock. This
significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of
our Company, or could deprive holders of our Class A common stock of an opportunity to receive a premium for their Class A
common stock as part of a sale of our Company.
The concentration of our voting power may adversely affect the ability of new investors to influence our policies.
As of December 31, 2023, our Chairman and Chief Executive Officer, Anthony E. Malkin, together with the Malkin
Group, has the right to vote 40,859,706 shares of our common stock, which represents approximately 19.3% of the voting
power of our outstanding common stock. Consequently, Mr. Malkin has the ability to influence the outcome of matters
presented to our securityholders, including the election of our board and approval of significant corporate transactions,
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including business combinations, consolidations and mergers and the determination of our day-to-day corporate and
management policies.
As of December 31, 2023, QIA had a 11.03% fully diluted interest in us, which represented 18.45% of the outstanding
Class A common stock. Pursuant to the terms of our stockholders agreement with QIA, QIA generally has the right (but not the
obligation) to maintain its fully diluted economic interest in us by purchasing additional shares of our Class A common stock
when we or our operating partnership issue additional common equity securities from time to time. While QIA has agreed to
limit its voting power on all matters presented to our securityholders to no more than 9.9% of total number of votes entitled to
be cast, QIA has also agreed to vote its shares in favor of the election of all director nominees recommended by our board. The
interests of Mr. Malkin and QIA could conflict with or differ from your interests as a holder of our common stock, and these
large securityholders may exercise their right as securityholders to restrict our ability to take certain actions that may otherwise
be in the best interests of our securityholders. This concentration of voting power might also have the effect of delaying or
preventing a change of control that our securityholders may view as beneficial.
Tax consequences to holders of operating partnership units upon a sale or refinancing of our properties may cause the
interests of certain members of our senior management team to differ from your own.
As a result of the unrealized built-in gain attributable to a property at the time of contribution, some holders of
operating partnership units, including our Chairman and Chief Executive Officer, Anthony E. Malkin, and our Chairman
Emeritus, Peter L. Malkin, may suffer different and more adverse tax consequences than holders of our Class A common stock
upon the sale or refinancing of the properties owned by our operating partnership, including disproportionately greater
allocations of items of taxable income and gain upon a realization event. As those holders will not receive a correspondingly
greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing, transaction
structure and other material terms of any sale, exchange or refinancing of certain properties, or whether to sell, exchange or
refinance such properties at all. As a result, the effect of certain transactions on Messrs. Malkin may influence their decisions
affecting these properties and may cause such members of our senior management team to attempt to delay, defer or prevent a
transaction that might otherwise be in the best interests of our other securityholders, or to structure such transactions in ways
that would mitigate the above tax consequences to Messrs. Malkin. Additionally, in connection with the formation transactions,
we entered into a tax protection agreement with Messrs. Malkin pursuant to which we have agreed to indemnify the Malkin
Group and one additional third-party investor in Metro Center against certain tax liabilities if those tax liabilities arise from a
transaction involving one of four properties. Refer to “Financial Statements – Note 11 Related Party Transactions – Excluded
Properties and Businesses” in this Annual Report on Form 10-K for more information. As a result of entering into the tax
protection agreement, Messrs. Malkin may have an incentive to cause us to enter into transactions from which they may
personally benefit.
Conflicts of interest exist or could arise in the future between the interests of our securityholders and OP unit holders.
Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on
the one hand, and our operating partnership or any partner thereof, on the other. For example, a potential acquisition or
disposition opportunity could be opportunistic to the REIT while tax disadvantageous to certain OP holders. Our directors and
officers have duties to our Company and its shareholders under applicable Maryland law in connection with their management
of our Company. At the same time, we, as the general partner in our operating partnership, have fiduciary duties and obligations
to our operating partnership and its limited partners under Delaware law and the partnership agreement of our operating
partnership in connection with the management of our operating partnership. If there is a conflict between the interests of such
stockholders and the interests of such limited partners, such operating agreement provides that our Company will fulfill its
fiduciary duties as general partner to such limited partners by acting in the best interest of such stockholders.
Our rights and the rights of our securityholders to take action against our directors and officers are limited, which could
limit your recourse in the event of actions not in your best interest.
Our charter limits the liability of our present and former directors and officers to us and our securityholders for money
damages to the maximum extent permitted under Maryland law. Under current Maryland law, our present and former directors
and officers will not have any liability to us or our securityholders for money damages other than liability resulting from (1)
actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty by the
director or officer that was established by a final judgment and is material to the cause of action. Additionally, the partnership
agreement of our operating partnership provides for certain limitations on liability and indemnification obligations for us and
our directors and officers and certain present and former members, managers, shareholders, directors, limited partners, general
partners, officers or controlling persons of our predecessor. As a result, we and our securityholders may have limited rights
against all such persons, which could limit your recourse in the event of actions not in your best interest.
Limits on changes in control may discourage takeover attempts beneficial to securityholders.
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Provisions in our charter and the partnership agreement of our operating partnership, may delay or prevent a change of
control over the Company or a tender offer, even if such action might be beneficial to the Company’s stockholders.
Additionally, our board could establish a class or series of preferred stock that could, depending on the terms of such series,
delay, defer or prevent a transaction or a change of control.
To facilitate maintenance of the Company’s qualification as a REIT and to otherwise address concerns relating to
concentration of stock ownership, our charter generally prohibits any person from directly or indirectly owning more than 9.8%
in value or number of shares, whichever is more restrictive, of the outstanding shares of our capital stock or more than 9.8% in
value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock. Our charter also
provides that no person can directly or indirectly own shares of our capital stock to the extent such ownership would result in us
owning (directly or indirectly) an interest in one of our tenants if the income derived by us from such tenant would reasonably
be expected to equal or exceed the lesser of 1% of our gross income or an amount that would cause us to fail to satisfy any of
the REIT gross income tests. Shares owned in violation of the ownership limit will be subject to the loss of rights to
distributions and voting and other penalties. These ownership limitations could have the effect of discouraging a takeover or
other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing
market price or which holders might believe to be otherwise in their best interests.
Our board may waive, in its sole discretion, or modify the ownership limit with respect to one or more persons if it is
satisfied that ownership in excess of this limit will not jeopardize the Company’s status as a REIT for U.S. federal income tax
purposes. For example, we have entered into such a waiver with QIA, which permits QIA to own up to 15% of the outstanding
shares of our Class A common stock and an aggregate amount of Class A common stock equal to a 9.9% fully diluted economic
interest in the Company (inclusive of all outstanding common OP units and LTIP units), which currently equals approximately
18.45% of our outstanding Class A common stock, all subject to a supplementary waiver which may adjust the foregoing limits
to the extent QIA’s ownership percentage increases solely as a result the Company’s share buybacks.
Certain provisions in the partnership agreement of our operating partnership may also delay or make more difficult
unsolicited acquisitions of us or changes of our control, including, among others: redemption rights of qualifying parties;
transfer restrictions on operating partnership units; our ability, as general partner, in some cases, to amend the partnership
agreement and to cause the operating partnership to issue units with terms that could delay, defer or prevent a merger or other
change of control of us or our operating partnership without the consent of the limited partners; the right of the limited partners
to consent to transfers of the general partnership interest and mergers or other transactions involving us under specified
circumstances; and a redemption premium payable to the holders of our operating partnership’s preferred units if our operating
partnership decides, at its option, to redeem preferred units for cash upon the occurrence of certain fundamental transactions,
such as a change of control.
Risks Related to our Common Stock and Traded OP Units
Our cash available for distribution may not be sufficient to make distributions at expected levels, and the market price of
shares of our Class A common stock and traded OP units could be adversely affected by our level of cash distributions.
We intend to make distributions to holders of shares of our common stock and holders of operating partnership units.
All dividends and distributions will be made at the discretion of our board and will depend on our earnings, financial condition,
maintenance of REIT qualification and other factors as our board may deem relevant from time to time. If sufficient cash is not
available for distribution from our operations, we may have to fund distributions from working capital or to borrow to provide
funds for such distribution, or to reduce the amount of such distribution. We cannot assure you that our distributions will be
made or sustained. Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely
would adversely affect the market price of our Class A common stock and traded OP units.
Changes in market conditions could adversely affect the market price of our Class A Common Stock and traded OP Units.
As with other publicly traded equity securities, the value of our Class A Common Stock and traded OP units depends
on various market conditions, which may change from time to time. In addition to the current economic environment and future
volatility in the securities and credit markets, the following market conditions may affect the value of our Class A Common
Stock and traded OP units:
•
•
•
the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities,
including securities issued by other real estate-based companies;
our financial performance; and
general stock market conditions.
The market value of our common stock is based on a number of factors, including, but not limited to, the market’s
perception of the current and future value of our assets, our growth potential and our current and potential future earnings and
distributions.
24
The future exercise of registration rights may adversely affect the market price of our common stock.
In August 2016, we entered into a registration rights agreement with QIA in connection with its purchase of our Class
A common stock, which requires us, subject to certain conditions, to maintain an effective shelf registration statement with the
SEC providing for the resale of QIA’s shares. The current registration statement filed on July 31, 2023, registers up to
29,894,869 shares. If QIA decides to sell all or a substantial portion of its shares, or there is market perception that it may
intend to do so, it could have a material adverse impact on the market price of our Class A common stock.
Future issuances of debt or equity securities or preferred units may be dilutive to current securityholders and may materially
adversely affect the market price of our traded securities.
In the future, we may issue debt or equity securities or make other borrowings. Our board, without stockholder
approval, has the power under our charter to cause the Company to issue additional shares of capital stock or debt securities,
and our operating partnership may also issue additional operating partnership units without the consent of our securityholders.
Upon liquidation, holders of our debt securities, preferred units and other loans and preferred shares will receive a distribution
of our available assets before holders of shares of our common stock. We are not required to offer any such additional debt or
equity securities to existing securityholders on a preemptive basis. Therefore, additional shares of our common stock issuances,
directly or through convertible or exchangeable securities (including operating partnership units), warrants or options, will
dilute the holdings of our existing common securityholders and such issuances or the perception of such issuances may reduce
the market price of shares of our common stock. Additionally, our preferred units or shares, if issued, would likely have a
preference on distribution payments, periodically or upon liquidation, which could limit our ability to make distributions to
holders of shares of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2023, we did not have any unresolved comments from the staff of the SEC.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We regularly assess risks from cybersecurity threats, monitor our information systems for potential vulnerabilities and
test those systems pursuant to our cybersecurity policies and procedures, which are integrated into the Company’s overall risk
management framework. To protect our information systems from cybersecurity threats, we use various security tools that help
us identify, escalate, investigate, resolve, and recover from security incidents in a timely manner.
We partner with third parties to implement and assess the effectiveness of our cybersecurity prevention and response
systems and processes. We have a Managed Security Services provider (MSSP) that provides a 24 x 7 x 365 Security
Operations Center (SOC) and works with our information technology (IT) team to employ a variety of monitoring technologies
to detect and be alerted to potential cyber threats, as well as establish and implement procedures for the mitigation and
remediation of any cybersecurity incidents. We conduct an annual penetration test, regular phishing tests, and annual
cybersecurity training for our employees.
Additionally, the management team of the Company has developed a cyber incident response plan to deploy in the
event of a cyber threat. This plan is reviewed and updated at least annually and tested from time to time through tabletop
exercises involving management and other key personnel, and may also include participation from the Board and outside
experts. As part of regular business continuity planning, department heads are required to consider key technology systems used
by their respective teams and the impact to the Company and other stakeholders in the event that such systems become
compromised or unavailable. Additionally, we monitor and identify cybersecurity risks posed by third-party vendors who
provide software and/or hardware to the Company or otherwise have access to our Company systems and have a cyber review
process that is part of vendor onboarding.
To date, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially
affected and we believe are not reasonably likely to materially affect the Company, including our business strategy, results of
operations or financial condition. Refer to the risk factor captioned “Cyberattacks and any failure to comply with related laws
could negatively impact us.” in Part I, ITEM 1A. “Risk Factors” for additional description of cybersecurity risks and potential
related impacts on the Company.
25
Governance
Our Board of Directors oversees our risk management process, including with respect to cybersecurity risks, directly
and through its committees. The Audit Committee of the Board oversees our risk management program, which focuses on the
most significant risks we face in the short-, intermediate-, and long-term timeframe. Audit Committee meetings include
discussions of specific risk areas throughout the year, including, among others, those relating to cybersecurity, and reports on
our enterprise risk profile on a quarterly basis. Our Chief Technology Officer is responsible for leading the assessment and
management of cybersecurity risks and reports at least quarterly or more frequently as needed to the Audit Committee on
cybersecurity strategy and risks.
26
ITEM 2. PROPERTIES
Summary of Office, Retail, and Multifamily Portfolio
As of December 31, 2023, our office and retail portfolio was comprised of approximately 8.6 million rentable square
feet of office space and 0.7 million rentable square feet of retail space and was approximately 86.3% occupied and 90.6%
leased, yielding approximately $536.0 million of annualized rent. We have 11 office properties and our retail properties are
comprised of retail space at the base of our New York City office and multifamily properties, and five standalone retail
properties predominantly located in Manhattan. All properties are located in dynamic retail corridors with convenient access to
mass transportation, a diverse tenant base and high pedestrian traffic. Our real estate segment includes all activities related to
the ownership, management, operation, acquisition, repositioning and disposition of all of our real estate assets other than the
86th and 102nd floor observatories at the Empire State Building, which are operated by our Observatory segment.
The tables below present an overview as of December 31, 2023.
Property Name
Location or Sub-Market
Office - Manhattan
Rentable
Annualized
Rent per
Square
Feet (1)
Percent
Occupied (2)
Percent
Leased (3)
Annualized
Rent (4)
Occupied
Number of
Square Foot (5) Leases (6)
The Empire State Building
Penn Station -Times Sq. South 2,713,783
84.6 %
91.8 % $ 149,146,291
$
64.98
One Grand Central Place
Grand Central
1,241,235
85.2 %
90.7 %
64,495,396
1400 Broadway (7)
Penn Station -Times Sq. South
917,281
100.0 %
100.0 %
51,543,523
111 West 33rd Street (8)
Penn Station -Times Sq. South
639,496
94.2 %
95.7 %
40,779,657
250 West 57th Street
Columbus Circle - West Side
472,707
80.6 %
84.5 %
23,990,288
501 Seventh Avenue
Penn Station -Times Sq. South
461,209
88.4 %
88.4 %
20,432,035
1359 Broadway
Penn Station -Times Sq. South
456,004
83.5 %
91.4 %
22,376,656
1350 Broadway (9)
Penn Station -Times Sq. South
372,599
85.5 %
86.4 %
19,076,631
1333 Broadway
Penn Station -Times Sq. South
296,349
84.4 %
94.4 %
14,545,148
Office - Manhattan
7,570,663
87.3 %
92.1 %
406,385,625
Office - Greater New York Metropolitan Area
First Stamford Place (10)
Stamford, CT
781,731
78.7 %
82.3 %
26,691,177
Metro Center
Stamford, CT
281,510
70.9 %
70.9 %
10,914,848
Office - Greater New York Metropolitan Area
1,063,241
76.6 %
79.3 %
37,606,025
61.01
56.19
67.68
62.98
50.09
58.75
59.90
58.12
61.47
43.38
54.71
46.15
144
148
20
21
28
19
32
50
13
475
48
20
68
Total/Weighted Average Office Properties
8,633,904
86.0 %
90.5 %
443,991,650
59.79
543
Retail Properties
112 West 34th Street (8)
Penn Station -Times Sq. South
93,057
100.0 %
100.0 %
24,825,569
The Empire State Building
Penn Station -Times Sq. South
90,670
71.9 %
76.4 %
7,032,389
One Grand Central Place
Grand Central
68,733
99.4 %
99.4 %
8,977,805
1333 Broadway
Penn Station -Times Sq. South
67,001
100.0 %
100.0 %
10,155,485
250 West 57th Street
Columbus Circle - West Side
65,526
91.4 %
91.4 %
9,111,860
10 Union Square
Union Square
58,006
91.9 %
91.9 %
8,181,304
266.78
107.93
131.41
151.57
152.07
153.49
4
10
12
4
7
10
27
1542 Third Avenue
Upper East Side
56,135
100.0 %
100.0 %
2,542,042
1010 Third Avenue
Upper East Side
38,235
100.0 %
100.0 %
3,460,188
501 Seventh Avenue
Penn Station -Times Sq. South
35,859
50.8 %
59.6 %
1,310,333
45.28
90.50
71.94
1350 Broadway (9)
Penn Station -Times Sq. South
30,710
77.8 %
77.8 %
5,962,833
249.70
1359 Broadway
Penn Station -Times Sq. South
29,247
83.0 %
100.0 %
1,668,652
561 10th Avenue (11)
Hudson Yards
28,266
100.0 %
100.0 %
2,007,748
77 West 55th Street
Midtown
25,388
100.0 %
100.0 %
1,978,407
1400 Broadway (7)
Penn Station -Times Sq. South
17,879
78.2 %
78.2 %
1,538,836
298 Mulberry Street (12)
NoHo
10,365
100.0 %
100.0 %
1,802,507
Williamsburg Retail (13)
Brooklyn
6,538
100.0 %
100.0 %
1,158,422
345 East 94th Street (14)
Upper East Side
3,700
100.0 %
100.0 %
263,134
68.73
71.03
77.93
110.07
173.90
177.18
71.12
4
2
5
5
5
3
3
6
1
3
1
Total/Weighted Average Retail Properties
725,315
90.4 %
92.1 %
91,977,514
140.27
85
Portfolio Total
9,359,219
86.3 %
90.6 % $ 535,969,164
$
66.32
628
(1) Excludes (i) 189,148 square feet of space across the Company's portfolio attributable to building management use and tenant amenities and (ii)
83,190 square feet of space attributable to the Company's Observatory.
(2) Based on leases signed and commenced as of December 31, 2023.
(3) Includes occupied space plus leases signed but not commenced as of December 31, 2023.
(4) Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.
(5) Represents annualized rent under leases commenced as of December 31, 2023 divided by occupied square feet.
(6) Represents the number of leases at each property or on a portfolio basis. If a tenant has more than one lease, whether or not at the same property, but
with different expirations, the number of leases is calculated equal to the number of leases with different expirations.
(7) Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to the Company, of
approximately 40 years (expiring December 31, 2063).
(8) Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to the Company, of
approximately 54 years (expiring June 10, 2077).
(9) Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to the Company, of
approximately 27 years (expiring July 31, 2050).
(10)First Stamford Place consists of three buildings.
(11)Does not include the square footage related to the 417 residential units at this property.
(12)Does not include the square footage related to the 96 residential units at this property.
(13)Does not include the square footage related to the 6 residential units at this property.
(14)Does not include the square footage related to the 208 residential units at this property.
Tenant Diversification
As of December 31, 2023, our office and retail portfolios were leased to a diverse tenant base consisting of
approximately 628 leases. Our tenants represent a broad array of industries as follows:
Diversification by Industry
Arts and entertainment
Broadcast
Consumer goods
Finance, insurance, real estate
Government entity
Healthcare
Legal services
Non-profit
Professional services (not including legal services)
Retail
28
Percent (1)
3.2 %
1.0 %
15.8 %
16.9 %
2.1 %
1.8 %
5.2 %
4.2 %
9.2 %
18.2 %
Technology, media and advertising
Others
Total
(1) Based on annualized rent.
18.0 %
4.4 %
100.0 %
The following table sets forth information regarding the 20 largest tenants in our commercial portfolio based on
annualized rent as of December 31, 2023.
Institutional Capital Network, Inc.
One Grand Central Place
Feb. 2024 - Oct. 2035
10.6 years
Tenant
LinkedIn
Flagstar Bank
Centric Brands Inc.
PVH Corp.
Sephora
Target
Coty Inc.
Macy's
Urban Outfitters
Li & Fung
Footlocker
Property
Empire State Building
1400 Broadway
Empire State Building
501 Seventh Avenue
112 West 34th Street
Lease
Expiration (1)
Aug. 2036
Aug. 2039
Oct. 2028
Oct. 2028
Jan. 2029
112 West 34th St., 10 Union Sq.
Jan. 2038
Empire State Building
111 West 33rd Street
1333 Broadway
Jan. 2030
May 2030
Sept. 2029
1359 Broadway, ESB
Oct. 2027 - Oct. 2028
112 West 34th Street
Sept. 2031
Dec. 2025
Feb. 2029
Weighted
Average
Remaining
Lease
Term (2)
12.7 years
15.7 years
4.8 years
4.8 years
5.1 years
14.1 years
6.1 years
6.4 years
5.8 years
4.5 years
7.8 years
2.0 years
5.2 years
Nov. 2029
Apr. 2029
Feb. 2035
Jan. 2038
Aug. 2034
5.9 years
5.3 years
11.2 years
14.1 years
10.7 years
Total
Occupied
Square
Feet (3)
Percent of
Portfolio
Rentable
Square
Feet (4)
Annualized
Rent (5)
$ 33,465,435
18,285,046
11,952,833
11,519,383
10,533,585
9,341,224
8,497,458
8,451,562
8,185,595
7,954,806
7,745,828
7,578,004
7,000,733
6,351,680
6,267,495
6,096,096
5,959,656
5,932,832
5,384,628
4,941,165
Percent of
Portfolio
Annualized
Rent (6)
6.2 %
3.4 %
2.2 %
2.1 %
2.0 %
1.7 %
1.6 %
1.6 %
1.5 %
1.5 %
1.4 %
1.4 %
1.3 %
1.2 %
1.2 %
1.1 %
1.1 %
1.1 %
1.0 %
0.9 %
35.5 %
5.4 %
3.3 %
2.4 %
2.5 %
0.1 %
0.9 %
1.7 %
1.4 %
0.6 %
1.6 %
0.4 %
1.3 %
1.1 %
1.0 %
0.9 %
1.1 %
1.2 %
1.1 %
0.9 %
0.4 %
501,409
313,109
221,365
237,281
11,334
81,340
156,187
131,117
56,730
149,061
34,192
119,226
105,143
94,331
86,492
104,386
107,680
102,898
87,943
Federal Deposit Insurance Corp.
Empire State Building
HNTB Corporation
Empire State Building
The Michael J. Fox Foundation
111 West 33rd Street
Shutterstock
Fragomen
Empire State Building
1400 Broadway
Burlington Merchandising Corp.
1400 Broadway
ASCAP
Duane Reade
Total
250 West 57th Street
Empire State Building, 1350
Broadway
May 2025 - Sept. 2027
2.5 years
39,142
2,740,366
29.3 %
$ 191,445,044
(1) Expiration dates are per lease and do not assume exercise of renewal or extension options. For tenants with more than two leases, the lease expiration
is shown as a range.
(2) Represents the weighted average remaining lease term, based on annualized rent.
(3) Based on leases signed and commenced as of December 31, 2023.
(4) Represents the percentage of rentable square feet of the Company's office and retail portfolios in the aggregate.
(5) Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.
(6) Represents the percentage of annualized rent of the Company's office and retail portfolios in the aggregate.
Lease Expirations
The following table sets forth new and renewal leases entered into at our properties, the weighted average
annualized cash rent per square foot for new and renewal leases executed during the year, the previous weighted average
annualized cash rent prior to the renewal or re-leasing of these leases and the percent increase (decrease) in mark-to-market
rent.
New and renewal leases entered into during the year (square feet)
Year Ended December 31,
2022
1,118,579
2021
1,005,630
2023
950,746
Weighted average annualized cash rent per square foot for new and renewal leases executed
during the year
$
65.30
$
59.42
$
57.55
Weighted average annualized cash rent per square foot for previous leases
$
61.25
$
58.58
$
58.04
Increase (decrease) in mark-to-market rent
6.6 %
1.4 %
(0.8) %
29
The following tables set forth a summary schedule of expirations for leases in place as of December 31, 2023 plus
available space for each of the ten calendar years beginning with the year ended December 31, 2023 at the office and retail
properties in our commercial portfolio. The information set forth in the table assumes that tenants exercise no renewal
options and all early termination rights.
Office and Retail Portfolio
Year of Lease Expiration
Available
Signed leases not commenced
Fourth quarter 2023(4)
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Thereafter
Total
Manhattan Office Properties (5)
Year of Lease Expiration
Available
Signed leases not commenced
Fourth quarter 2023(4)
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Thereafter
Total
Number
of Leases
Expiring (1)
Rentable
Square
Feet
Expiring (2)
Percent of
Portfolio
Rentable
Square Feet
Expiring
Percent of
Annualized Annualized
Annualized
Rent Per
Rentable
Rent (3)
Rent
Square Foot
875,777
402,268
143,627
509,671
594,946
628,943
713,569
945,077
981,952
745,546
174,491
368,694
329,711
—
28
15
89
85
72
87
63
50
38
23
29
29
48
9.4 % $
4.3 %
—
—
1.5 %
7,522,786
5.4 % 30,075,202
6.4 % 40,363,625
6.7 % 37,384,704
7.6 % 47,192,095
10.1 % 52,486,474
— % $
— %
1.4 %
5.6 %
7.5 %
7.0 %
8.8 %
9.8 %
10.5 % 73,521,837
13.7 %
8.0 % 50,024,340
9.3 %
—
—
52.38
59.01
67.84
59.44
66.14
55.54
74.87
67.10
1.9 % 20,214,026
3.8 %
115.85
3.9 % 26,223,606
3.5 % 21,332,708
4.9 %
4.0 %
71.13
64.70
66.65
66.32
1,944,947
20.8 % 129,627,759
24.2 %
656
9,359,219
100.0 % $ 535,969,162
100.0 % $
Number
of Leases
Expiring (1)
Rentable
Square
Feet
Expiring (2)
Percent of
Portfolio
Rentable
Square Feet
Expiring
Percent of
Annualized
Annualized
Rent Per
Rentable
Rent
Square Foot
Annualized
Rent (3)
—
20
12
76
67
57
71
47
35
27
12
21
15
35
597,862
362,213
124,643
431,339
495,292
485,929
600,450
854,943
738,291
599,150
86,541
334,698
141,599
7.9 % $
4.8 %
—
—
1.6 %
7,044,490
5.7 % 25,204,397
6.5 % 32,205,906
6.4 % 29,511,170
7.9 % 36,782,006
— % $
— %
1.7 %
6.2 %
7.9 %
7.3 %
9.1 %
11.3 % 47,465,773
11.7 %
9.8 % 44,821,337
11.0 %
7.9 % 37,243,747
1.1 %
6,076,449
4.4 % 23,105,190
1.9 %
8,587,282
9.2 %
1.5 %
5.7 %
2.1 %
1,717,713
22.8 % 108,337,878
26.6 %
495
7,570,663
100.0 % $ 406,385,625
100.0 % $
—
—
56.52
58.43
65.02
60.73
61.26
55.52
60.71
62.16
70.21
69.03
60.65
63.07
61.47
30
Greater New York Metropolitan Area Office Properties
Year of Lease Expiration
Available
Signed leases not commenced
Fourth quarter 2023(4)
2024
2025
2026
2027
2028
2029
2030
2031
2032(6)
2033
Thereafter
Total
Retail Properties
Year of Lease Expiration
Available
Signed leases not commenced
Fourth quarter 2023(4)
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Thereafter
Total
Number
of Leases
Expiring (1)
Rentable
Square
Feet
Expiring (2)
Percent of
Portfolio
Rentable
Square Feet
Expiring
Annualized
Rent (3)
Percent of
Annualized
Rent
Annualized
Rent Per
Rentable
Square Foot
—
220,593
20.7 % $
27,802
2,540
52,728
76,903
71,784
58,730
84,915
—
—
2.5 %
0.2 %
63,701
5.0 %
2,222,975
7.2 %
3,597,773
6.8 %
3,508,404
5.5 %
2,801,695
8.0 %
3,735,230
— % $
— %
0.2 %
5.9 %
9.6 %
9.3 %
7.5 %
9.9 %
128,271
12.1 %
5,907,668
15.7 %
78,033
16,560
—
151,754
92,628
7.3 %
3,562,425
1.6 %
843,885
— %
6,180
14.3 %
7,494,005
8.8 %
3,862,084
9.5 %
2.2 %
— %
19.9 %
10.3 %
3
2
7
13
8
10
11
5
4
2
1
3
2
71
1,063,241
100.0 % $ 37,606,025
100.0 % $
—
—
25.08
42.16
46.78
48.87
47.70
43.99
46.06
45.65
50.96
—
49.38
41.69
46.15
Rentable
Square
Percent of
Portfolio
Rentable
Feet
Expiring (2)
Square Feet
Expiring
Annualized
Rent (3)
Number
of Leases
Expiring (1)
Percent of
Annualized
Annualized
Rent Per
Rentable
Rent
Square Foot
—
5
1
6
5
7
6
5
57,322
12,253
16,444
25,604
22,751
71,230
54,389
5,219
7.9 % $
1.7 %
—
—
— % $
— %
—
—
2.3 %
414,595
0.5 %
25.21
3.5 %
2,647,830
2.9 %
103.41
3.1 %
4,559,946
5.0 %
200.43
9.8 %
4,365,130
4.7 %
61.28
7.5 %
7,608,394
8.3 %
139.89
0.7 %
1,285,471
1.4 %
246.31
10
115,390
15.9 % 22,792,832
24.8 %
197.53
7
9
7
11
11
90
68,363
71,390
33,996
36,358
9.4 %
9,218,168
10.0 %
134.84
9.8 % 13,293,692
14.5 %
186.21
4.7 %
3,112,236
3.4 %
91.55
5.0 %
5,251,421
5.7 %
144.44
134,606
18.7 % 17,427,798
18.8 %
129.47
725,315
100.0 % $ 91,977,514
100.0 % $
140.27
(1)
(2)
If a tenant has more than one lease, whether or not at the same property, but with different expirations, the number of leases is calculated equal to the
number of leases with different expirations.
Excludes (i) 189,148 rentable square feet across the Company's portfolio attributable to building management use and tenant amenities and (ii)
31
83,190 square feet of space attributable to the Company's Observatory.
Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.
Represents leases that are included in occupancy as of December 31, 2023 and expire on December 31, 2023.
Excludes (i) retail space in our Manhattan office properties and (ii) the Empire State Building broadcasting licenses and Observatory operations.
Represents a telecom lease with no square footage.
(3)
(4)
(5)
(6)
Portfolio Transaction Activity
On February 1, 2023, we closed on the sale of 69-97 and 103-107 Main Street in Westport, Connecticut at a gross
asset valuation of $40.0 million. Refer to "Financial Statements - Note 11 Related Party Transactions" in this Annual Report
on Form 10-K.
On April 5, 2023, we closed on the sale of 500 Mamaroneck Avenue in Harrison, New York at a gross asset valuation
of $53.0 million.
On September 14, 2023, we closed on the acquisition of a Williamsburg retail property located on the corner of North
6th Street and Wythe Avenue in Brooklyn, New York, for a purchase price of $26.4 million.
Refer to "Financial Statements - Note 3 Acquisitions and Dispositions" in this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Refer to “Financial Statements - Note 9 Commitments and Contingencies” in this Annual Report on Form 10-K for a
description of any pending legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A common stock is listed on the New York Stock Exchange (the "NYSE"), under the symbol "ESRT." Our
Class B common stock is not listed on any exchange and is not traded. Each share of Class B common stock may be converted
to one share of Class A common stock at any time.
Our operating partnership has four series of partnership units ("OP Units") - Series PR OP Units, Series ES OP Units,
Series 60 OP Units and Series 250 OP Units. The Series ES OP Units, Series 60 OP Units and Series 250 OP Units (together,
the "traded OP units") are listed on the NYSE Arca, Inc. exchange ("NYSE Arca") under the symbols "ESBA," "OGCP," and
"FISK," respectively. The Series PR OP Units are not listed on any exchange and are not traded.
On February 22, 2024, the last sales price for our Class A common stock on the NYSE was $9.96 per share.
Holders
As of February 22, 2024, we had 570 registered holders of our Class A common stock and 550 registered holders of
our Class B common stock. As of February 22, 2024, we had approximately 574 registered holders of Series PR OP Units,
1,225 registered holders of Series ES OP Units, 357 registered holders of Series 60 OP Units and 279 registered holders of
Series 250 OP Units. Certain shares of common stock and OP Units are held in "street" name and accordingly, the number of
beneficial owners of such shares of common stock and OP Units is not known or included in the foregoing totals.
Dividends
We intend to pay regular quarterly dividends to holders of our Class A common stock and Class B common stock, at
least to the extent of our taxable income or as required to maintain our qualification as a REIT. Any distributions we pay in the
32
future will depend upon our taxable income, actual results of operations, economic conditions and other factors that could differ
materially from our current expectations. Our actual results of operations will be affected by a number of factors, including the
revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their
obligations and unanticipated expenditures.
We declared dividends of $0.035 per share for each quarter of 2023, which equates to an annualized rate of $0.14 per
share.
Our board will continue our regular review of dividend and capital allocation policies. Distributions declared by us
will be authorized by our board in its sole discretion out of funds legally available therefore and will be dependent upon a
number of factors, including restrictions under applicable law, our capital requirements and the distribution requirements
necessary to maintain our qualification as a REIT. See ITEM 1A, "Risk Factors," and ITEM 7, "Management's Discussion and
Analysis of Financial Conditions and Results of Operations," of this Annual Report on Form 10-K, for information regarding
the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to make
distributions to our securityholders.
Earnings and profits, which determine the tax treatment of distributions to securityholders, will differ from income
reported for financial reporting purposes due to the differences for federal income tax purposes, including, but not limited to,
treatment of loss on extinguishment of debt, revenue recognition, compensation expense, and basis of depreciable assets and
estimated useful lives used to compute depreciation. Dividends paid in 2023 of $0.14 per share are classified for income tax
purposes 89.2% as taxable ordinary dividends eligible for the Section 199A deduction and 10.8% as a return of capital.
Stockholder Return Performance
The following graph is a comparison of the cumulative total stockholder return on our Class A common stock, the
Standard & Poor's 500 Index (the "S&P 500 Index"), the MSCI US REIT Index and the FTSE NAREIT Equity REIT Office
Index. The graph assumes that $100.00 was invested on December 31, 2018 and dividends were reinvested without the payment
of any commissions. There can be no assurance that the performance of our Class A common stock will continue in line with
the same or similar trends depicted in the graph below.
33
250
200
e
u
l
a
V
x
e
d
n
I
150
100
50
0
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
Period Ending
Empire State Realty Trust, Inc.
S&P 500 Index
MSCI US REIT Index
FTSE NAREIT Equity REIT Office Index
December 31,
2018
December 31,
2019
December 31,
2020
December 31,
2021
December 31,
2022
December 31,
2023
Empire State Realty Trust, Inc.
S&P 500 Index
MSCI US REIT Index
FTSE NAREIT Equity REIT
Office Index
$
$
$
$
100.00
100.00
100.00
$
$
$
100.92
131.49
125.84
100.00
$
131.42
$
$
$
$
69.12
155.68
116.31
107.19
$
$
$
$
66.68
200.37
166.39
130.77
$
$
$
$
51.47
164.08
125.61
$
$
$
75.33
207.21
142.87
81.58
$
83.23
The graph is not deemed incorporated by reference into any filing made under the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act regardless of any general statement regarding incorporation by reference in any
such filing, and is not otherwise deemed filed under the Securities Act or the Exchange Act.
Securities Authorized For Issuance Under Equity Compensation Plans
On May 16, 2019, our shareholders approved the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019
Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for grants to directors, employees and consultants of our
Company and operating partnership, including options, restricted stock, restricted stock units, stock appreciation rights,
performance awards, dividend equivalents and other equity-based awards, including LTIP units. An aggregate of approximately
11.0 million shares of our common stock are authorized for issuance under awards granted pursuant to the 2019 Plan.
Following adoption by our shareholders of the 2019 Plan, we agreed not to issue any new equity awards under the First
Amended and Restated Empire State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan ("2013
Plan", and collectively with the 2019 Plan, "the Plans"), which we adopted upon our IPO in 2013. The shares of Class A
common stock underlying any awards under the 2019 Plan and the 2013 Plan that are forfeited, canceled or otherwise
terminated, other than by exercise, will be added back to the shares of Class A common stock available for issuance under the
2019 Plan. For a further discussion of the Plans, see "Financial Statements - Note 10 Equity" in this Annual Report on Form 10-
K.
The following table presents certain information about our equity compensation plans as of December 31, 2023:
34
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column of this table)
N/A
N/A
—
N/A
N/A
—
4,162,516
(2)
—
4,162,516
Plan Category
Equity compensation plans approved by
securityholders (1)
Equity compensation plans not approved
by securityholders
Total
______________
(1)
(2)
These consist of the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan and the First Amended and Restated
Empire State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan.
The number of securities remaining available for future issuance consists of shares remaining available for issuance under the Empire State Realty
Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan adjusted for awards that have been forfeited, canceled or otherwise terminated,
other than by exercise under the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan and the First Amended
and Restated Empire State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan.
As of December 31, 2023, we have issued 1,147,005 shares of restricted stock and 15,052,177 LTIP units under the
Plans since 2013.
Recent Sales of Unregistered Securities Use of Proceeds from Registered Securities
Not applicable.
Repurchases of Equity Securities Stock and Publicly Traded Operating Partnership Unit Repurchase Program
Our Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the
Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units during the period from January 1,
2022 through December 31, 2023. Upon expiration of this program, the Board of Directors authorized the repurchase of up to
$500 million of our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating
partnership units during the period from January 1, 2024 through December 31, 2025. Under the program, we may purchase
our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units in
accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The
timing, manner, price and amount of any repurchases will be determined by us and will be subject to stock price, availability,
trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to acquire any
particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. At
December 31, 2023, we had used approximately $103.3 million of the authorized repurchase amount for the 2022-2023 period.
There were no repurchases of equity securities in the three-month period ended December 31, 2023 under this
repurchase program. See "Financial Statements - Note 10 Equity" in this Annual Report on Form 10-K. There have also been
no repurchases of equity securities yet under the new repurchase program.
ITEM 6. [RESERVED]
Not applicable.
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires or indicates, references in this section to "we," "our," and "us" refer to our Company and its
consolidated subsidiaries. The following discussion and analysis should be read in conjunction with our consolidated financial statements as of
December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 and the notes related thereto which are included in
this Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, and
Section 21E of the Exchange Act. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with
those safe harbor provisions. You can identify forward-looking statements by the use of forward-looking terminology such as “aims,"
"anticipates," "approximately," "believes," "contemplates," "continues," "estimates," "expects," "forecasts," "hope," "intends," "may," "plans,"
"seeks," "should," "thinks," "will," "would" or the negative of these words and phrases. In particular, statements pertaining to our capital
resources, portfolio performance, dividend policy and results of operations contain forward-looking statements. Likewise, all of our statements
regarding anticipated growth in our portfolio from operations, acquisitions and anticipated market conditions, demographics and results of
operations are forward-looking statements.
Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond
our control, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or
methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events
described will happen as described (or that they will happen at all).
Many important factors could cause actual results and future events to differ materially from those set forth or contemplated in the forward-
looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any
catastrophic events, including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme
weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) a failure of conditions or
performance regarding any event or transaction described herein; (iii) resolution of legal proceedings involving the Company; (iv) reduced
demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (v) changes in
our business strategy; (vi) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises,
geopolitical events, currency exchange rates, and/or competition from other observatories; (vii) defaults on, early terminations of, or non-
renewal of, leases by tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (ix)
declining real estate valuations and impairment charges; (x) termination of our ground leases; (xi) limitations on our ability to pay down,
refinance, restructure or extend our indebtedness or borrow additional funds; (xii) decreased rental rates or increased vacancy rates; (xiii)
difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget; (xiv) difficulties in
identifying and completing acquisitions; (xv) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvi) our
failure to qualify as a REIT; (xvii) incurrence of taxable capital gain on disposition of an asset due to failure of use or compliance with a 1031
exchange program; and (xviii) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of
governmental regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the Company's
future results, performance or transactions, see the section entitled “Risk Factors” of this Annual Report on Form 10-K.
While forward-looking statements reflect the Company's good faith beliefs, they do not guarantee future performance. Any forward-looking
statement speaks only as of the date on which it was made, and we assume no obligation to update or revise publicly any forward-looking
statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the
date of this Annual Report on Form 10-K, except as required by applicable law. Prospective investors should not place undue reliance on any
forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-
looking statements).
Overview
2023 Highlights
•
•
•
•
Net income attributable to the Company of $49.0 million.
Core FFO of $245.8 million.
Signed a total of 950,746 rentable square feet of new, renewal and expansion leases.
Completed the acquisition of a retail asset located in Williamsburg, Brooklyn in the third quarter.
36
•
Completed the dispositions of retail assets located in Westport, Connecticut in the first quarter, and an office asset located in Harrison,
New York in the second quarter.
Results of Operations
Overview
The discussion below relates to the financial condition and results of operations for the years ended December 31, 2023 and 2022. For
a discussion of our 2021 financial results as compared to our 2022 financial results, please see our Annual Report on Form 10-K for the fiscal
year ended December 31, 2022.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
The following table summarizes the historical results of operations for the years ended December 31, 2023 and 2022 (amounts in
thousands):
Years Ended December 31,
2023
2022
Change
%
Real Estate
Segment
Observatory
Segment
Total
Real Estate
Segment
Observatory
Segment
Total
Revenues:
Rental revenue
Observatory revenue
Lease termination fees
Third-party management and other
fees
Other revenues and fees
Total revenues
Operating expenses:
Property operating expenses
Ground rent expenses
General and administrative expenses
Observatory expenses
Real estate taxes
Depreciation and amortization
Total operating expenses
Operating income
Intercompany rent income (expense)
Other income (expense):
Interest income
Interest expense
Gain on sale/disposition of properties
Income before income taxes
Income tax expense
Net income
Net (income) loss attributable to non-
controlling interests:
Non-controlling interests in the
Operating Partnership
Non-controlling interests in other
partnerships
Private perpetual preferred unit
distributions
Net income attributable to common
shareholders
$
597,319 $
— $
597,319 $
591,048 $
— $
591,048 $
6,271
129,366
129,366
—
105,978
105,978
23,388
—
—
1,351
11,536
—
—
—
—
20,032
1,351
11,536
1,361
8,622
—
—
—
20,032
(20,032)
(100.0) %
610,206
129,366
739,572
621,063
105,978
727,041
167,324
157,935
157,935
(9,389)
167,324
9,326
63,939
—
—
—
—
35,265
127,101
189,762
557,452
52,754
80,514
—
149
35,414
93,952
—
31,036
—
—
—
—
187
31,223
74,755
9,326
63,939
35,265
127,101
189,911
592,866
146,706
9,326
61,765
123,057
216,707
568,790
52,273
65,005
(80,514)
—
(65,005)
—
1,361
8,622
9,326
61,765
31,036
123,057
216,894
600,013
127,028
(10)
2,914
12,531
—
(2,174)
(4,229)
(4,044)
26,983
7,147
19,678
—
1.1 %
22.1 %
(0.7) %
33.8 %
1.7 %
(5.9) %
— %
(3.5) %
(13.6) %
(3.3) %
12.4 %
1.2 %
15.5 %
— %
14,936
(101,484)
26,764
73,484
200
—
—
13,638
15,136
4,901
(101,484)
(101,206)
26,764
87,122
33,988
54,961
47
—
—
9,797
4,948
10,188
205.9 %
(101,206)
(278)
(0.3) %
33,988
64,758
(7,224)
(21.3) %
22,364
34.5 %
(552)
(2,163)
(2,715)
(584)
(962)
(1,546)
(1,169)
(75.6) %
72,932
11,475
84,407
54,377
8,835
63,212
21,195
33.5 %
(31,094)
(68)
(4,201)
—
—
—
(31,094)
(22,812)
(68)
243
(4,201)
(4,201)
—
—
—
(22,812)
(8,282)
(36.3) %
243
(311)
(128.0) %
(4,201)
—
— %
$
37,569 $
11,475 $
49,044 $
27,607 $
8,835 $
36,442 $
12,602
35.0 %
37
Real Estate Segment
Rental Revenue
The increase in rental revenue was primarily attributable to a $13.7 million increase in base rent from new or renewed tenants and
higher rents and higher tenant escalations, partially offset by a net $7.4 million decrease in revenue from our recent transaction activity as
disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Other Revenues and Fees
The increase in other revenues and fees relates to prior period real estate tax refunds and abatements, and bad debt recovery income
during the year ended December 31, 2023.
Property Operating Expenses
The increase in property operating expenses was primarily due to higher repair and maintenance costs, higher cleaning costs, and
higher payroll costs in 2023 relating to increased building utilization.
Real Estate Taxes
The increase in real estate taxes was primarily attributable to a $4.5 million increase in real estate tax expense due to higher assessed
values for multiple properties, partially offset by a net $0.5 million decrease from our recent transaction activity as disclosed in "Financial
Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Depreciation and Amortization
Depreciation and amortization is lower for the year ended December 31, 2023 than for the year ended December 31, 2022 because the
latter included accelerated depreciation from the disposition of 383 Main Avenue and depreciation expense on properties that were sold prior to
December 31, 2023.
Interest Income
The increase in interest income reflects higher interest rates on larger cash balances in the year ended December 31, 2023 compared to
the year ended December 31, 2022.
Gain on Sale/Disposition of Property
The gain on disposition activity for the year ended December 31, 2023 relates to the dispositions of 500 Mamaroneck in Harrison,
New York in April 2023 and 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023. The gain on disposition activity for
the year ended December 31, 2022 relates to the dispositions of 10 Bank Street in White Plains, New York in December 2022 and 383 Main
Avenue in Norwalk, Connecticut in April 2022.
Observatory Segment
Observatory Revenue
Observatory revenues were higher driven by increased visitation and revenue per visitor during the year ended December 31, 2023 as
compared to the year ended December 31, 2022.
Observatory Expenses
The increase in Observatory expenses was driven by increased operating hours, which increased variable costs such as marketing,
labor and maintenance costs.
Income Taxes
38
The increase in income tax expense was attributable to higher taxable income for the Observatory segment for the year ended
December 31, 2023.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund
and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make
distributions to our securityholders and fulfill other general business needs. Based on the historical experience of our management and our
business strategy, in the foreseeable future we anticipate we will generate positive cash flows from operations. In order to qualify as a REIT, we
are required under the Code to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without
regard to the deduction for dividends paid and excluding net capital gains. We expect to make quarterly distributions, as required, to our
securityholders.
While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are
beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with
new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs.
Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds
available from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of cash on hand,
cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit facility. We
expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital
expenditures from cash flows from operations, cash on hand, debt issuances, and available borrowing capacity under our unsecured revolving
credit facility. The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements. We expect to meet
our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations,
cash on hand, our unsecured revolving credit facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset
sales. Our properties require periodic investments of capital for individual lease related tenant improvements allowances, general capital
improvements and costs associated with capital expenditures. Our overall leverage will depend on our mix of investments and the cost of
leverage. Our charter does not restrict the amount of leverage that we may use. See ITEM 1A. "Risk Factors - Risks Relating to Our
Indebtedness and Liquidity" in this Annual Report on Form 10-K for more information.
At December 31, 2023, we had approximately $346.6 million available in cash and cash equivalents and there was $850.0 million
available under our unsecured revolving credit facility.
At December 31, 2023, we had approximately $2.2 billion of total consolidated indebtedness outstanding, with a weighted average
interest rate of 3.9% and a weighted average maturity of 5.4 years. As of December 31, 2023, excluding debt amortization, we have a debt
maturity of $77.7 million in November 2024, $315.0 million in 2025, $225.0 million in 2026, $319.0 million in 2027 and $1.3 billion
thereafter. As of December 31, 2023, interest expense obligations and debt amortization from 2024 through 2028 and thereafter amount to
$487.4 million and $51.6 million, respectively.
In connection with our three ground leases (i.e. long-term leaseholds of the land and the improvements) at 1350 Broadway, 111 West
33rd Street and 1400 Broadway, we also have contractual rent obligations totaling $68.3 million as of December 31, 2023, of which $7.5
million is due within the next five years.
Portfolio Transaction Activity
On February 1, 2023, we closed on the sale of 69-97 and 103-107 Main Street in Westport, Connecticut at a gross asset valuation of
$40.0 million. Refer to "Financial Statements - Note 11 Related Party Transactions" in this Annual Report on Form 10-K.
On April 5, 2023, we closed on the sale of 500 Mamaroneck Avenue in Harrison, New York at a gross asset valuation of $53.0
million.
On September 14, 2023, we closed on the acquisition of a Williamsburg retail property located on the corner of North 6th Street and
Wythe Avenue in Brooklyn, New York, for a purchase price of $26.4 million.
Refer to "Financial Statements - Note 3 Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Unsecured Revolving Credit and Term Loan Facilities
See "Financial Statements - Note 5 Debt" in this Annual Report on Form 10-K for a summary of our unsecured revolving credit and
term loan facilities.
Financial Covenants
39
As of December 31, 2023, we were in compliance with the following financial covenants related to our unsecured facilities:
Financial Covenant
Maximum total leverage
Maximum secured leverage
Minimum fixed charge coverage
Minimum unencumbered interest coverage
Maximum unsecured leverage
Required
< 60%
< 40%
> 1.50x
> 1.75x
< 60%
December 31, 2023
31.5 %
In Compliance
Yes
12.3 %
3.3x
5.7x
23.4 %
Yes
Yes
Yes
Yes
Mortgage Debt
As of December 31, 2023, mortgage notes payable, net, amounted to $877.4 million. The next mortgage debt maturity is November
2024. See "Financial Statements - Note 5 Debt" in this Annual Report on Form 10-K for more information on mortgage debt.
Senior Unsecured Notes
The terms of the senior unsecured notes include customary covenants, including limitations on liens, investment, distributions, debt,
fundamental changes, and transactions with affiliates and require certain customary financial reports. The terms also require compliance with
financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum
unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. The agreement also contains customary events of default
(subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or
warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, the occurrence of certain change of control
transactions and loss of real estate investment trust qualification. As of December 31, 2023, we were in compliance with the covenants under
the outstanding senior unsecured notes.
Leverage Policies
We expect to employ leverage in our capital structure in amounts determined from time to time by our Board of Directors. Although
our Board of Directors has not adopted a policy that limits the total amount of indebtedness that we may incur, we anticipate that our Board of
Directors will consider a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such
indebtedness that will be either fixed or floating rate. Our charter and bylaws do not limit the amount or percentage of indebtedness that we
may incur nor do they restrict the form in which our indebtedness will be taken (including, but not limited to, recourse or non-recourse debt and
cross-collateralized debt). Our overall leverage will depend on our mix of investments and the cost of leverage. Our Board of Directors may
from time to time modify our leverage policies in light of the then-current economic conditions, relative costs of debt and equity capital, market
values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of our common stock, growth
and acquisition opportunities and other factors. See ITEM 1A. "Risk Factors - Risks Relating to Our Indebtedness and Liquidity" in this Annual
Report on Form 10-K for more information.
Capital Expenditures
The following tables summarize our tenant improvement costs, leasing commission costs and our capital expenditures for each of the
periods presented (dollars in thousands, except per square foot amounts).
Office Properties(1)(5)
Total New Leases, Expansions, and Renewals
Number of leases signed(2)
Total square feet
Years Ended December 31,
2023
2022
2021
82
130
118
929,031
1,071,426
983,182
Leasing commission costs per square foot(3)
Tenant improvement costs per square foot(3)
Total leasing commissions and tenant improvement costs per square foot(3)
$
$
19.80 $
81.86
101.66 $
18.23 $
56.72
74.95 $
20.14
66.25
86.39
40
Retail Properties(4)(5)
Total New Leases, Expansions, and Renewals
Number of leases signed(2)
Total Square Feet
Years Ended December 31,
2023
2022
2021
8
14
11
21,715
47,153
22,448
Leasing commission costs per square foot(3)
Tenant improvement costs per square foot(3)
Total leasing commissions and tenant improvement costs per square foot(3)
$
$
54.62 $
38.57
62.30 $
55.13
57.27
61.75
93.19 $
117.43 $
119.02
_______________
(1)
Excludes an aggregate of 498,682, 499,012 and 507,276 rentable square feet of retail space in our Manhattan office properties in 2023, 2022 and 2021, respectively. Includes the Empire
State Building broadcasting licenses and Observatory operations.
Presents a renewed and expansion lease as one lease signed.
Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they
were actually paid.
Includes an aggregate of 498,682, 499,012 and 507,276 rentable square feet of retail space in our Manhattan office properties in 2023, 2022 and 2021, respectively. Excludes the Empire
State Building broadcasting licenses and Observatory operations.
The tables above exclude our multifamily properties.
(2)
(3)
(4)
(5)
Total Commercial Portfolio
Capital expenditures (1)
_______________
(1)
Includes all capital expenditures, excluding tenant improvements and leasing commission costs.
Years Ended December 31,
2023
2022
2021
$
55,385 $
38,445 $
24,279
As of December 31, 2023, we expect to incur additional costs relating to obligations under signed new leases of approximately $101.2
million for tenant improvements and leasing commissions. We intend to fund the tenant improvements and leasing commission costs through a
combination of operating cash flow, cash on hand and borrowings.
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund the capital
improvements through a combination of operating cash flow, cash on hand and borrowings.
Off-Balance Sheet Arrangements
As of December 31, 2023, we did not have any off-balance sheet arrangements.
Distribution Policy
We intend to distribute our net taxable income to our securityholders in a manner intended to satisfy REIT distribution requirements
and to avoid U.S. federal income tax liability.
Before we pay any distribution, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating
requirements and obligations to make payments of principal and interest, if any. However, under some circumstances, we may be required to
use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in
order to satisfy REIT distribution requirements.
We declared dividends of $0.035 per share for each quarter of 2023, which equates to an annualized rate of $0.14 per share. The Board
of Directors will continue its regular review of its dividend and capital allocation policies at each Board meeting.
Distribution to Equity Holders
Distributions and dividends have been made to equity holders in 2021, 2022 and 2023 as follows (amounts in thousands):
41
Year ended December 31, 2021
Year ended December 31, 2022
Year ended December 31, 2023
32,764
42,786
41,323
Stock and Publicly Traded Operating Partnership Unit Repurchase Program
Our Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the Operating Partnership’s
Series ES, Series 250 and Series 60 operating partnership units during the period from January 1, 2022 through December 31, 2023. Upon
expiration of this program, the Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the
Operating Partnership's Series ES, Series 250 and Series 60 operating partnership units during the period from January 1, 2024 through
December 31, 2025. Under the program, we may purchase our Class A common stock and the Operating Partnership’s Series ES, Series 250
and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately
negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject
to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to
acquire any particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. At
December 31, 2023, we had used approximately $103.3 million of the authorized repurchase amount for the 2022-2023 period.
The following table summarizes our purchases of equity securities for the year ended December 31, 2023 under the previous
repurchase program.
Period
Total Number of
Shares
Purchased
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
2,150,857
Maximum
Approximate
Dollar Value
Available for
Future Purchase
$500,000,000 (a)
Average Price
Paid per Share
6.09
Year ended December 31, 2023
2,150,857 $
(a) Represents the new board authorization for the January 1, 2024 - December 31, 2025 period. As of the date of this filing, we have used $0 of such $500 million authorization.
Cash Flows
Comparison of Year Ended December 31, 2023 to the Year Ended December 31, 2022
Net cash. Cash and cash equivalents and restricted cash were $407.0 million and $314.7 million as of December 31, 2023 and 2022,
respectively. The increase was primarily due to net proceeds from the disposition of 500 Mamaroneck in April 2023 and 69-97 and 103-107
Main Street in February 2023 and from less share repurchase activity during the year ended December 31, 2023. We also had less acquisition
activity in the year ended December 31, 2023 as compared with the year ended December 31, 2022.
Operating activities. Net cash provided by operating activities increased by $21.3 million to $232.5 million due to increased
Observatory operating income and changes in working capital.
Investing activities. Net cash used in investing activities decreased by $153.6 million to $77.3 million primarily due to the net
proceeds from the disposition of 500 Mamaroneck in April 2023 and 69-97 and 103-107 Main Street in February 2023. We also had less
acquisition activity in the year ended December 31, 2023 as compared with the year ended December 31, 2022.
Financing activities. Net cash used in financing activities decreased by $80.9 million to $62.9 million primarily due to lower
repurchases of common shares in 2023.
Net Operating Income
Net operating income ("NOI") is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and
compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not
affected by: (i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses
from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses,
loss on early extinguishment of debt, impairment charges and loss from derivative financial instruments, or (iv) general and administrative
expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from NOI because it is specific to
the particular financing capabilities and constraints of the owner. The cost of funds is eliminated because it is dependent on historical interest
rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may
change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are
eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the
properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably
42
captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of
changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of
real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period
to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the
operating results of other real estate companies that have not made similarly-timed purchases or sales. We believe that eliminating these costs
from net income is useful to investors because the resulting measure captures the actual revenue generated and actual expenses incurred in
operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, depreciation and
amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital
expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs.
NOI may fail to capture significant trends in these components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore
not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income
computed in accordance with GAAP and discussions elsewhere in this Management's Discussion and Analysis of Financial Condition and
Results of Operations regarding components of net income that are eliminated in the calculation of NOI. Other companies may use different
methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures
reported by other companies that do not define the measure exactly as we do.
The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI for the periods
presented (amounts in thousands):
Years Ended December 31,
2022
2023
2021
Net income (loss)
Add:
General and administrative expenses
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Income tax expense (benefit)
Impairment charges
Less:
Gain on sale/disposition of properties
Interest income
Third-party management and other fees
Net operating income
$
84,407
$
63,212
$
(13,037)
63,939
189,911
101,484
—
2,715
—
61,765
216,894
101,206
—
1,546
—
(26,764)
(15,136)
(1,351)
(33,988)
(4,948)
(1,361)
55,947
201,806
94,394
214
(1,734)
7,723
—
(704)
(1,219)
$
399,205
$ 404,326
$ 343,390
Other Net Operating Income Data
Straight line rental revenue
Net increase in rental revenue from the amortization of above and below-market
lease assets and liabilities
Amortization of acquired below-market ground leases
$
$
$
19,563
$
24,562
$
21,078
2,416
7,831
$
$
4,758
7,831
$
$
5,895
7,831
Funds from Operations ("FFO")
We present below a discussion of FFO. We compute FFO in accordance with the “White Paper” on FFO published by the National
Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP),
excluding impairment write-off of investments in depreciable real estate and investments in in-substance real estate investments, gains or
losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding
amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and
after adjustments for unconsolidated partnerships and joint ventures. FFO is a widely recognized non-GAAP financial measure for REITs
that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding
financial performance and providing a relevant basis for comparison among REITs. In addition, we believe FFO is useful to investors as it
captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains
43
residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when
trying to understand an equity REIT’s operating performance. We present FFO because we consider it an important supplemental measure of
our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation
of REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that
result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating
performance of our properties, all of which have real economic effect and could materially impact our results of operations, the utility of FFO
as a measure of performance is limited. There can be no assurance that FFO presented by us is comparable to similarly titled measures of
other REITs. FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income
(loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. FFO is not
indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for
comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the
computation of FFO may vary from one company to another.
Modified Funds From Operations ("Modified FFO")
Modified FFO adds back an adjustment for any above or below-market ground lease amortization to traditionally defined FFO. We
believe this is a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under
GAAP, which stems from the third quarter 2014 acquisition of two option properties following our formation transactions as they carry
significantly below market ground leases, the amortization of which is material to our overall results. We present Modified FFO because we
believe it is an important supplemental measure of our operating performance in that it adds back the non-cash amortization of below-market
ground leases. There can be no assurance that Modified FFO presented by us is comparable to similarly titled measures of other REITs.
Modified FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss)
determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Modified FFO is not
indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions.
Core Funds From Operations ("Core FFO")
Core FFO adds back to Modified FFO the following item: loss on early extinguishment of debt. The Company believes Core FFO is
an important supplemental measure of its operating performance because it excludes non-recurring items. There can be no assurance that Core
FFO presented by the Company is comparable to similarly titled measures of other REITs. Core FFO does not represent cash generated from
operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow
from operating activities determined in accordance with GAAP. Core FFO is not indicative of cash available to fund ongoing cash needs,
including the ability to make cash distributions. In future periods, we may also exclude other items from Core FFO that we believe may help
investors compare our results.
The following table presents a reconciliation of our net income (loss), the most directly comparable GAAP measure, to FFO, Modified
FFO and Core FFO for the periods presented (amounts in thousands):
44
Net income (loss)
Non-controlling interests in other partnerships
Private perpetual preferred unit distributions
Real estate depreciation and amortization
Impairment charges
Gain on sale/disposition of properties
$
84,407 $
(68)
(4,201)
184,633
—
63,212 $
243
(4,201)
210,522
—
(26,764)
(33,988)
2021
(13,037)
—
(4,201)
196,360
7,723
—
Years Ended December 31,
2022
2023
Funds from operations attributable to common stockholders and
non-controlled interests
Amortization of below-market ground leases
Modified funds from operations attributable to common
stockholders and non-controlled interests
Loss on early extinguishment of debt
Core funds from operations attributable to common stockholders
and non-controlled interests
238,007
7,831
235,788
186,845
7,831
7,831
245,838
243,619
194,676
—
—
214
$
245,838 $
243,619 $
194,890
Weighted average shares and Operating Partnership units
Basic
Diluted
263,226
265,633
268,337
269,948
277,420
277,420
Critical Accounting Estimates
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements, have been prepared in conformity with GAAP and with the rules and regulations
of the Securities and Exchange Commission (the "SEC"), represent our assets and liabilities and operating results. The consolidated financial
statements include our accounts and our partially owned and wholly owned subsidiaries as well as our Operating Partnership and its
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial
interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest,
board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the
partners/members. For variable interest entities ("VIE"), we consolidate the entity if we are deemed to have a variable interest in the entity and
through that interest we are deemed the primary beneficiary. The primary beneficiary of a VIE is the entity that has (i) the power to direct the
activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to
receive benefits from the VIE that could be significant to the VIE. The primary beneficiary is required to consolidate the VIE. The Operating
Partnership is a VIE of ESRT. As the Operating Partnership is already consolidated in the financial statements of ESRT, the identification of
this entity as a VIE has no impact on our consolidated financial statements. At December 31, 2022, the Operating Partnership was the primary
beneficiary of a variable interest in the intermediary entity which held title to 298 Mulberry Street, the multifamily asset acquired in December
2022. The intermediary entity was utilized to execute a like-kind exchange and subsequent to March 31, 2023, the like-kind exchange was
completed and the Operating Partnership took title to 298 Mulberry Street. Therefore, the Operating Partnership had no VIEs at December 31,
2023.
We will assess the accounting treatment for each investment we may have in the future. This assessment will include a review of each
entity’s organizational agreement to determine which party has what rights and whether those rights are protective or participating. For all
VIEs, we will review such agreements in order to determine which party has the power to direct the activities that most significantly impact the
entity’s economic performance and benefit. In situations where we or our partner could approve, among other things, the annual budget, or
leases that cover more than a nominal amount of space relative to the total rentable space at each property, we would not consolidate the
investment as we consider these to be substantive participation rights that result in shared power of the activities that would most significantly
impact the performance and benefit of such joint venture investment.
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not
attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate component of equity in the
45
consolidated balance sheets and in the consolidated statements of income by requiring earnings and other comprehensive income to be
attributed to controlling and non-controlling interests.
Goodwill
Goodwill is tested annually for impairment and more frequently if events and circumstances indicate that the asset might be impaired.
An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value and the
implied fair value of goodwill is less than the carrying amount of that goodwill. Non-amortizing intangible assets, such as trade names and
trademarks, are subject to an annual impairment test based on fair value and amortizing intangible assets are tested whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
We performed our annual goodwill testing in October 2023, where we bypassed the optional qualitative goodwill impairment
assessment and proceeded directly to a quantitative assessment of the Observatory reportable segment and engaged a third-party valuation
consulting firm to perform the valuation process. The quantitative analysis used a combination of the discounted cash flow method (a form of
the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach). Significant
assumptions under the former included revenue and cost projections, weighted average cost of capital, long-term growth rate and income tax
considerations while the latter included guideline company enterprise values, revenue multiples, EBITDA multiples and control premium rates.
Our methodology to review goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis
to determine whether impairment had occurred. The quantitative analysis performed concluded the fair value of the reporting unit exceeds its
carrying value. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control, and it is reasonably
likely that assumptions and estimates will change in future periods. We will continue to assess the impairment of the Observatory reporting unit
goodwill going forward.
Income Taxes
We elected to be subject to tax as a REIT under sections 856 through 860 of the Code commencing with the taxable year ended
December 31, 2013 and believe that our intended manner of operation will enable us to continue to meet the requirements for qualification and
taxation as a REIT. REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of
ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT,
we will generally not be subject to U.S. federal income tax to the extent that we meet the organizational and operational requirements and our
distributions equal or exceed REIT taxable income. For all periods subsequent to the effective date of our REIT election, we have met the
organizational and operational requirements and distributions have exceeded net taxable income. Accordingly, no provision has been made for
federal income taxes.
We have elected to treat ESRT Observatory TRS, L.L.C., our subsidiary that holds our Observatory operations, and ESRT Holdings
TRS, L.L.C., our subsidiary that holds our third-party management, restaurant, cafeterias, health clubs and certain cleaning operations, as
taxable REIT subsidiaries. Taxable REIT subsidiaries may participate in non-real estate activities and/or perform non-customary services for
tenants and their operations are generally subject to regular corporate income taxes. Our taxable REIT subsidiaries account for their income
taxes in accordance with GAAP, which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.
The calculation of the taxable REIT subsidiaries' tax provisions may require interpreting tax laws and regulations and could result in the use of
judgments or estimates which could cause its recorded tax liability to differ from the actual amount due. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. The taxable REIT subsidiaries periodically assess the realizability of deferred tax assets and the adequacy of deferred
tax liabilities, including the results of local, state, or federal tax audits or estimates and judgments used.
As of December 31, 2023, ESRT had $103.0 million of net operating loss ("NOL") carryforwards that may be used in the future to
reduce the amount otherwise required to be distributed by ESRT to meet REIT requirements. However, for federal income tax purposes, the
NOL will not be able to offset more than 80% of ESRT’s REIT taxable income and, therefore, may not be able to reduce the amount required
to be distributed by ESRT to meet REIT requirements to zero. The federal NOL may be carried forward indefinitely. Other limitations may
apply to ESRT’s ability to use its NOL to offset taxable income.
As of December 31, 2023, the Observatory TRS had a federal income tax receivable of $2.5 million. This receivable reflects an
anticipated refund resulting from the carryback of 2020 NOL to previous tax years. The Observatory TRS has $1.5 million of federal NOL
carryforward that may be used to offset future taxable income, if any. The federal NOL may be carried forward indefinitely.
We apply provisions for measuring and recognizing tax benefits associated with uncertain income tax positions. Penalties and interest,
if incurred, would be recorded as a component of income tax expense. As of December 31, 2023 and 2022, we do not have a liability for
uncertain tax positions. As of December 31, 2023, the tax years ended December 31, 2020 through December 31, 2023 remain open for an
audit by the Internal Revenue Service, state or local authorities.
46
Share-Based Compensation
Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant and recognized
as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three, four or five years, or (ii) the
period from the date of grant to the date the employee becomes retirement eligible, which may occur upon grant. An employee is retirement
eligible when the employee attains the (i) age of 65 for awards granted in 2020 and after and age of 60 for awards granted before 2020 and (ii)
the date on which the employee has first completed the requisite years of continuous service with us or our affiliates. Share-based compensation
for market-based equity awards and performance-based equity awards is measured at the fair value of the award on the date of grant and
recognized as an expense on a straight-line basis over three or four years. Additionally, for the performance-based equity awards, we assess, at
each reporting period, whether it is probable that the performance conditions will be satisfied. We recognize expense respective to the number
of awards we expect to vest at the conclusion of the measurement period. Changes in estimate are accounted for in the period of change through
a cumulative catch-up adjustment. Any forfeitures of share-based compensation awards are recognized as they occur.
The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected
volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other
Operating Partnership units or achieve performance thresholds. We believe that the assumptions and estimates utilized are appropriate based on
the information available to management at the time of grant.
Accounting Standards Update
See "Financial Statements - Note 2 Summary of Significant Accounting Policies" in this Annual Report on Form 10-K for information
about recently issued and recently adopted accounting standards.
47
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market
interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We are exposed to
interest rate changes primarily on our unsecured revolving credit facility and debt refinancings. Our objectives with respect to
interest rate risk are to limit the impact of interest rate changes on operations and cash flows, and to lower our overall
borrowing costs. To achieve these objectives, we may borrow at fixed rates and may enter into derivative financial instruments
such as interest rate swaps or caps in order to mitigate our interest rate risk. We do not enter into derivative or interest rate
transactions for speculative purposes.
Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we may mitigate the risk of
interest rate volatility through the use of hedging instruments, such as interest rate swap agreements and interest rate cap
agreements. Our primary objectives when undertaking hedging transactions and derivative positions will be to reduce our
floating rate exposure and to fix a portion of the interest rate for anticipated financing and refinancing transactions. This in turn
will reduce the risk that the variability of cash flows will impose on floating rate debt. However, we can provide no assurances
that our efforts to manage interest rate volatility will successfully mitigate the risks of such volatility on our commercial
portfolio. We are not subject to foreign currency risk.
As of December 31, 2023, we have interest rate SOFR swap and cap agreements with an aggregate notional value of
$573.2 million and which mature between October 1, 2024 and November 1, 2033. These "variable to fixed" interest rate swaps
have been designated as cash flow hedges and are deemed highly effective with fair values of $11.8 million that is included in
prepaid expenses and other assets and ($0.1 million) that is included in accounts payable and accrued expenses on the
consolidated balance sheet as of December 31, 2023.
As of December 31, 2023, the weighted average interest rate on the $2.2 billion of fixed-rate indebtedness outstanding
was 3.9% per annum, each with maturities at various dates through March 17, 2035.
As of December 31, 2023, the fair value of our outstanding debt was approximately $2.0 billion which was
approximately $194.0 million less than the book value as of such date. Interest risk amounts were determined by considering
the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in
overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take
actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, these analyses assume no changes in our financial structure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements beginning on Page F-1 of this Annual Report on Form 10-K are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is
processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations and that
such information is accumulated and communicated to management, including our Chief Executive Officer, our President, and
our Executive Vice President, Chief Financial Officer & Chief Accounting Officer, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of December 31, 2023, the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of management, including our Chief Executive Officer, our President, and our Chief
48
Financial Officer & Chief Accounting Officer, regarding the effectiveness of our disclosure controls and procedures at the end
of the period covered by this report. Based on the foregoing, our Chief Executive Officer, our President, and our Chief
Financial Officer & Chief Accounting Officer concluded, as of that time, that our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by us in reports filed or submitted under the Exchange Act (i) is
processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is
accumulated and communicated to our management, including our Chief Executive Officer, our President, and our Chief
Financial Officer & Chief Accounting Officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
No significant changes to our internal control over financial reporting were identified in connection with the evaluation
referenced above that occurred during the period covered by this report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
(a) Management's Report on Internal Control Over Financial Reporting
Management of Empire State Realty Trust, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the
supervision and with the participation of our management, including our Chief Executive Officer, President and Chief Financial
Officer & Chief Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting as of December 31, 2023 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this
assessment, we used the criteria set forth in the framework in Internal Control–Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). Based on our evaluation under
the COSO criteria, our management concluded that our internal control over financial reporting was effective as of
December 31, 2023 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, an independent registered public accounting firm that audited our Financial Statements included
in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2023,
which appears in paragraph (b) of this ITEM 9A.
(b) Attestation report of the independent registered public accounting firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Empire State Realty Trust, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Empire State Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Empire State Realty Trust, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2023 consolidated financial statements of the Company and our report dated February 28, 2024 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
49
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
February 28, 2024
ITEM 9B. OTHER INFORMATION
(a) None.
(b) During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of
the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement
(as such terms are defined in Item 408 of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by ITEM 10 will be set forth in our definitive proxy statement for our 2023 Annual Meeting
of Stockholders (which is scheduled to be held on May 9, 2024), to be filed pursuant to Regulation 14A under the Securities
and Exchange Act of 1934, as amended, or our Proxy Statement, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by ITEM 11 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by ITEM 12 will be set forth in our Proxy Statement and is incorporated herein by reference.
The information under ITEM 5 of this Form 10-K under the heading “Securities Authorized For Issuance Under
Equity Compensation Plans” is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
50
The information required by ITEM 13 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by ITEM 14 will be set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
1. The consolidated financial statements are set forth in ITEM 8 of this Annual Report on Form 10-K.
2. The following financial statement schedules should be read in conjunction with the financial statements included in
ITEM 8 of this Annual Report on Form 10-K.
Schedule III-Real Estate and Accumulated Depreciation as of December 31, 2023 on page F-42.
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been
included in the financial statements or notes thereto.
(b) The exhibits required by Item 601 of Regulation S-K (§229.601 of this chapter) are listed below:
Exhibit No. Description
Exhibit Index
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
Articles of Amendment and Restatement of Empire State Realty Trust, Inc., incorporated by reference to
Exhibit 3.1 to Amendment No. 8 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the
SEC on September 27, 2013.
Fourth Amended and Restated Bylaws of Empire State Realty Trust, Inc., incorporated by reference to Exhibit
3.1 to the Registrant's Form 8-K filed with the SEC on August 11, 2023.
Specimen Class A Common Stock Certificate of Empire State Realty Trust, Inc., incorporated by reference to
Exhibit 4.1 to Amendment No. 3 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the
SEC on November 2, 2012.
Specimen Class B Common Stock Certificate of Empire State Realty Trust, Inc., incorporated by reference to
Exhibit 4.2 to Amendment No. 3 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the
SEC on November 2, 2012.
Description of Empire State Realty Trust, Inc. Securities Registered Under Section 12 of the Securities
Exchange Act of 1934.
Contribution Agreement among Empire Realty Trust, Inc., Empire Realty Trust, L.P. and certain members of
the Malkin Group listed on the signature pages thereto, dated November 28, 2011, incorporated by reference to
Exhibit 10.8 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the SEC on February 13,
2012.
Amended and Restated Contribution Agreement among Empire Realty Trust, Inc., Empire Realty Trust, L.P.
and certain entities affiliated with the Helmsley estate listed on the signature pages thereto, dated July 2, 2012,
incorporated by reference to Exhibit 10.11 to Amendment No. 7 to the Registrant's Form S-11 (Registration
No. 333-179485), filed with the SEC on September 19, 2013.
Form of Contribution Agreement among Empire Realty Trust, Inc., Empire Realty Trust, L.P. and each of the
private existing entities that contributed properties in the consolidation, incorporated by reference to Exhibit
10.10 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
Form of Contribution Agreement among Empire State Realty Trust, Inc., Empire Realty OP, L.P. and each of
the public existing entities that contributed properties in the consolidation, incorporated by reference to Exhibit
10.11 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
51
10.5
10.6
10.7+
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22+
10.23+
10.24
10.25
Representation, Warranty and Indemnity Agreement among Empire Realty Trust, Inc., Empire Realty Trust,
L.P., Anthony E. Malkin, Cynthia M. Blumenthal and Scott D. Malkin, dated November 28, 2011,
incorporated by reference to Exhibit 10.13 to the Registrant's Form S-11 (Registration No. 333-179485), filed
with the SEC on February 13, 2012.
Form of Merger Agreement among Empire Realty Trust, Inc., Empire Realty Trust, L.P. and each of the
predecessor management companies, incorporated by reference to Exhibit 10.12 to the Registrant's Form S-11
(Registration No. 333-179485), filed with the SEC on February 13, 2012.
First Amended and Restated Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2013 Equity
Incentive Plan (as amended and restated as of April 4, 2016), incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-Q filed with the SEC on May 5, 2016.
Amended and Restated Agreement of Limited Partnership of Empire State Realty OP, L.P., dated October 1,
2013, incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed with the SEC on November
12, 2013.
Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Empire State
Realty OP, L.P., dated August 26, 2014, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-
K filed with the SEC on August 26, 2014.
Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Empire State
Realty OP, L.P., dated December 6, 2019, incorporated by reference to Exhibit 10.1 to the Registrant’s Form
8-K filed with the SEC on December 12, 2019.
Registration Rights Agreement among Empire State Realty Trust, Inc. and the persons named therein, dated
October 7, 2013, incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed with the SEC on
November 12, 2013.
Tax Protection Agreement among Empire State Realty Trust, Inc., Empire State Realty OP, L.P., and the
parties named therein, dated October 7, 2013, incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-Q filed with the SEC on November 12, 2013.
Indemnification Agreement among Empire State Realty Trust, Inc. and Peter L. Malkin, dated October 7,
2013, incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q filed with the SEC on November
12, 2013.
Indemnification Agreement among Empire State Realty Trust, Inc. and Anthony E. Malkin, dated October 7,
2013, incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-Q filed with the SEC on November
12, 2013.
Indemnification Agreement among Empire State Realty Trust, Inc. and Thomas P. Durels, dated October 7,
2013, incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-Q filed with the SEC on November
12, 2013.
Indemnification Agreement among Empire State Realty Trust, Inc. and Thomas N. Keltner, Jr., dated October
7, 2013, incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-Q filed with the SEC on
November 12, 2013.
Form of Empire State Realty Trust, Inc. Independent Director Indemnification Agreement, incorporated by
reference to Exhibit 10.22 to the Registrant's Form 10-K filed with the SEC on February 28, 2018.
Indemnification Agreement among Empire State Realty Trust, Inc. and Christina Chiu, dated April 20, 2020
incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q filed with the SEC on May 6, 2020.
Change in Control Severance Agreement between Empire State Realty Trust, Inc. and Christina Chiu, dated
April 13, 2020 incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-Q filed with the SEC on
May 6, 2020.
Indemnification Agreement among Empire State Realty Trust, Inc. and Stephen V. Horn, dated February 20,
2024.
Change in Control Severance Agreement between Empire State Realty Trust, Inc. and Stephen V. Horn, dated
February 20, 2024.
Amended and Restated Employment Agreement between Empire State Realty Trust, Inc. and Anthony E.
Malkin, dated October 6 2021, incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed
with the SEC on October 6, 2021.
Amended and Restated Change in Control Severance Agreement between Empire State Realty Trust, Inc. and
Thomas P. Durels, dated April 5, 2016, incorporated by reference to Exhibit 10.35 to the Registrant's Form 10-
Q filed with the SEC on May 5, 2016.
Note Purchase Agreement, dated March 27, 2015, among Empire State Realty OP, L.P., Empire State Realty
Trust, Inc. and the purchasers named therein, incorporated by reference to Exhibit 10.1 to the Registrant's
Form 8-K filed with the SEC on March 30, 2015.
Registration Rights Agreement among Empire State Realty Trust, Inc. and the persons named therein, dated
July 15, 2014, incorporated by reference to Exhibit 10.4 to the Registrant's Form 8-K filed with the SEC on
July 21, 2014.
52
10.26
10.27
10.28
10.29
10.30
10.31+
10.32+
10.33+
10.34+
10.35
10.36+
10.37+
10.38+
10.39+
10.40+
10.41
10.42
21.1*
23.1*
31.1*
31.2*
32.1*
Form of Asset and Property Management Agreement, incorporated by reference to Exhibit 10.18 to
Amendment No. 6 to the Registrant's Form S-11 (Registration No. 333-179485), filed with the SEC on
September 6, 2013.
Form of Services Agreement, incorporated by reference to Exhibit 10.19 to Amendment No. 6 to the
Registrant's Form S-11 (Registration No. 333-179485), filed with the SEC on September 6, 2013.
Stockholders Agreement dated as of August 23, 2016, by and between Empire State Realty Trust, Inc. and Q
REIT Holding LLC, incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC
on August 23, 2016.
Registration Rights Agreement dated as of August 23, 2016, by and between Empire State Realty Trust, Inc.
and Q REIT Holding LLC, incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed with
the SEC on August 23, 2016.
Note Purchase Agreement, dated December 13, 2017, among Empire State Realty OP, L.P., Empire State
Realty Trust, Inc. and the purchasers named therein, incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K filed with the SEC on December 14, 2017.
Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan, incorporated by
reference to Exhibit A to the Company's Definitive Proxy Statement filed with the SEC on April 4, 2019.
Form of Restricted Stock Agreement (Time Based), incorporated by reference to Exhibit 99.1 to the
Registration Statement on Form S-8 (Registration No. 333-231544), filed with the SEC on May 16, 2019.
Form of LTIP Agreement (Performance- Based), incorporated by reference to Exhibit 99.2 to the Registration
Statement on Form S-8 (Registration No. 333-231544), filed with the SEC on May 16, 2019.
Form of LTIP Agreement (Time-Based), incorporated by reference to Exhibit 99.3 to the Registration
Statement on Form S-8 (Registration No. 333-231544), filed with the SEC on May 16, 2019.
Empire State Realty OP, L.P.,Empire State Realty Trust, Inc. $100,000,000 3.61% Series G Senior Notes due
March 17, 2032, $75,000,000 3.73% Series H Senior Notes due March 17, 2035 Note Purchase Agreement
dated March 17, 2020 incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the
SEC on March 23, 2020.
First Amended and Restated Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity
Incentive Plan As Amended and Restated as of July 13, 2020 incorporated by reference to Exhibit 10.6 to
Empire State Realty Trust, Inc. Form 10-Q filed with the SEC on August 10, 2020.
Form of LTIP Agreement (Executive Officer, Time Based) incorporated by reference to Exhibit 10.1 to the
Empire State Realty Trust, Inc. Form 10-Q filed with the SEC on August 5, 2021.
Form of LTIP Agreement (Executive Officer, Performance Based) incorporated by reference to Exhibit 10.1 to
the Empire State Realty Trust, Inc. Form 10-Q filed with the SEC on August 5, 2021.
Form of LTIP Agreement (Executive Officer or Director, Immediate Vest) incorporated by reference to
Exhibit 10.1 to the Empire State Realty Trust, Inc. Form 10-Q filed with the SEC on August 5, 2021.
Form of LTIP Agreement (Director, Time-Based) incorporated by reference to Exhibit 10.1 to the Empire
State Realty Trust, Inc. Form 10-Q filed with the SEC on August 5, 2021.
Second Amendment, dated as of August 29, 2022, to that certain Credit Agreement, dated as of March 19,
2020, among Empire State Realty Trust, Inc., Empire State Realty OP, L.P., the subsidiary guarantors party
thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent
incorporated by reference to Exhibit 10.62 to the Empire State Realty Trust Form 10-Q filed with the SEC on
November 3, 2022.
Third Amendment, dated as of August 29, 2022, to that certain Amended and Restated Credit Agreement,
dated August 29, 2017, among Empire State Realty Trust, Inc., Empire State Realty OP, L.P. , the subsidiary
guarantors party thereto, the lenders party thereto, and Bank of America, N.A. , as administrative agent
incorporated by reference to Exhibit 10.62 to the Empire State Realty Trust Form 10-Q filed with the SEC on
November 3, 2022.
Subsidiaries of Registrant
Consent of Ernst & Young LLP
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
53
Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Compensation Clawback Policy of Empire State Realty Trust, Inc.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Document
XBRL Taxonomy Extension Definitions Document
XBRL Taxonomy Extension Labels Document
XBRL Taxonomy Extension Presentation Document
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information
contained in Exhibits 101.)
32.2*
97.1
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
Notes:
* Filed herewith.
+ Indicates management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an
exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
EMPIRE STATE REALTY TRUST, INC.
Date: February 28, 2024
By:/s/ Stephen V. Horn
Stephen V. Horn
Executive Vice President, Chief Financial
Officer & Chief Accounting Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Anthony E. Malkin
Anthony E. Malkin
/s/ Christina Chiu
Christina Chiu
/s/ Stephen V. Horn
Stephen V. Horn
/s/ Thomas J. DeRosa
Thomas J. DeRosa
/s/ Steven J. Gilbert
Steven J. Gilbert
/s/ S. Michael Giliberto
S. Michael Giliberto
/s/ Patricia S. Han
Patricia S. Han
/s/ Grant H. Hill
Grant H. Hill
/s/ R. Paige Hood
R. Paige Hood
/s/ James D. Robinson IV
James D. Robinson IV
/s/ Christina Van Tassell
Christina Van Tassell
/s/ Hannah Yang
Hannah Yang
Title
Chairman of the Board of Directors and Chief
Executive Officer
(Principal Executive Officer)
President
Executive Vice President, Chief Financial Officer &
Chief Accounting Officer
(Principal Financial and Accounting Officer)
Date
February 28, 2024
February 28, 2024
February 28, 2024
Director
February 28, 2024
Lead Independent Director
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
Director
Director
Director
Director
Director
Director
Director
55
EMPIRE STATE REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and
2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December
31, 2023, 2022 and 2021
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023,
2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and
2021
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation
PAGE
F-1
F-3
F-4
F-5
F-6
F-7
F-9
F-42
56
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Empire State Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Empire State Realty Trust, Inc. (the Company) as of
December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders'
equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial
statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 28, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
F-1
Valuation of goodwill – observatory
Description of
the Matter
At December 31, 2023, the Company’s goodwill related to the observatory reporting unit was
$227.5 million as disclosed in Note 4 to the consolidated financial statements. As discussed
in Note 2 to the consolidated financial statements, goodwill is tested for impairment at least
annually or more frequently if there are indicators of impairment.
How We
Addressed the
Matter in Our
Audit
The Company performed its annual impairment testing as of October 1, 2023 and engaged a
third-party valuation specialist to perform valuation procedures.
Auditing management’s goodwill impairment test was complex due to the highly judgmental
nature of the assumptions used. The fair value estimates were sensitive to significant
assumptions such as revenue and cost projections and the weighted average cost of capital,
which are affected by expectations about future market and economic conditions.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company’s goodwill impairment process, including controls over
management’s review of the significant assumptions described above.
To test the implied fair value of the Company’s observatory reporting unit, we performed
audit procedures that included, among other procedures, assessing the methodologies and
testing the significant assumptions and underlying data used by the Company. We utilized
internal valuation specialists in assessing the fair value methodologies applied and evaluating
the reasonableness of certain assumptions selected by management. We compared the
significant assumptions used by management to current industry and economic trends, recent
historical performance, and other relevant factors, and performed sensitivity analyses of
significant assumptions to evaluate the changes in the fair value of the observatory reporting
unit that would result from changes in the assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
New York, New York
February 28, 2024
F-2
Empire State Realty Trust, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share amounts)
ASSETS
December 31,
2023
December 31,
2022
Commercial real estate properties, at cost:
Land
Development costs
Building and improvements
Less: accumulated depreciation
Commercial real estate properties, net
Assets held for sale
Cash and cash equivalents
Restricted cash
Tenant and other receivables
Deferred rent receivables
Prepaid expenses and other assets
Deferred costs, net
Acquired below-market ground leases, net
Right of use assets
Goodwill
Total assets
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net
Senior unsecured notes, net
Unsecured term loan facilities, net
Unsecured revolving credit facility
Accounts payable and accrued expenses
Acquired below-market leases, net
Ground lease liabilities
Deferred revenue and other liabilities
Tenants’ security deposits
Liabilities related to assets held for sale
Total liabilities
Commitments and contingencies
Equity:
Empire State Realty Trust, Inc. stockholders' equity:
Preferred stock, $0.01 par value per share, 50,000 shares authorized, none issued or outstanding
Class A common stock, $0.01 par value per share, 400,000 shares authorized, 162,062 and
160,139 shares issued and outstanding in 2023 and 2022, respectively
Class B common stock, $0.01 par value per share, 50,000 shares authorized, 984 and 990 shares
issued and outstanding in 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained deficit
Total Empire State Realty Trust, Inc.'s stockholders' equity
Non-controlling interests in Operating Partnership
Non-controlling interests in other partnerships
Private perpetual preferred units:
Series 2019 preferred units, $13.52 per unit liquidation preference, 4,664 issued and outstanding
in 2023 and 2022
Series 2014 preferred units, $16.62 per unit liquidation preference, 1,560 issued and outstanding
in 2023 and 2022
Total equity
Total liabilities and equity
$
$
$
366,357 $
8,178
3,280,657
3,655,192
(1,250,062)
2,405,130
—
346,620
60,336
39,836
255,628
98,167
172,457
321,241
28,439
491,479
4,219,333 $
877,388 $
973,872
389,286
—
99,756
13,750
28,439
70,298
35,499
—
2,488,288
—
1,621
10
1,060,969
6,026
(83,108)
985,518
700,180
15,407
365,540
8,166
3,177,743
3,551,449
(1,137,267)
2,414,182
35,538
264,434
50,244
24,102
240,188
98,114
187,570
329,073
28,670
491,479
4,163,594
883,705
973,659
388,773
—
80,729
17,849
28,670
76,091
25,084
5,943
2,480,503
—
1,601
10
1,055,184
7,048
(109,468)
954,375
683,310
15,466
21,936
21,936
8,004
1,731,045
4,219,333 $
8,004
1,683,091
4,163,594
$
The accompanying notes are an integral part of these financial statements
F-3
Empire State Realty Trust, Inc.
Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
For the Year Ended December 31,
2023
2022
2021
$
597,319 $
129,366
—
1,351
11,536
739,572
591,048 $
105,978
20,032
1,361
8,622
727,041
167,324
9,326
63,939
35,265
127,101
—
189,911
592,866
146,706
15,136
(101,484)
26,764
—
87,122
(2,715)
84,407
(4,201)
157,935
9,326
61,765
31,036
123,057
—
216,894
600,013
127,028
4,948
(101,206)
33,988
—
64,758
(1,546)
63,212
(4,201)
(31,094)
(68)
49,044 $
(22,812)
243
36,442 $
559,690
41,474
16,230
1,219
5,481
624,094
126,986
9,326
55,947
23,206
119,967
7,723
201,806
544,961
79,133
704
(94,394)
—
(214)
(14,771)
1,734
(13,037)
(4,201)
6,527
—
(10,711)
161,122
265,633
165,039
269,948
172,445
277,420
0.30 $
0.30 $
0.22 $
0.22 $
(0.06)
(0.06)
Revenues:
Rental revenue
Observatory revenue
Lease termination fees
Third-party management and other fees
Other revenue and fees
Total revenues
Operating expenses:
Property operating expenses
Ground rent expenses
General and administrative expenses
Observatory expenses
Real estate taxes
Impairment charges
Depreciation and amortization
Total operating expenses
Total operating income
Other income (expense):
Interest income
Interest expense
Gain on sale/disposition of properties
Loss on early extinguishment of debt
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Private perpetual preferred unit distributions
Net (income) loss attributable to non-controlling interests:
Non-controlling interests in the Operating Partnership
Non-controlling interests in other partnerships
Net income (loss) attributable to common stockholders
Total weighted average shares:
Basic
Diluted
Earnings (loss) per share attributable to common stockholders:
Basic
Diluted
$
$
$
The accompanying notes are an integral part of these financial statements
F-4
Empire State Realty Trust, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(amounts in thousands)
For the Year Ended December 31,
2022
2021
2023
Net income (loss)
Other comprehensive income (loss):
$
84,407 $
63,212 $
(13,037)
Unrealized gain on valuation of interest rate swap agreements
Amount reclassified into interest expense
Other comprehensive income (loss)
Comprehensive income (loss)
Net (income) loss attributable to non-controlling interests and private
perpetual preferred unitholders
Other comprehensive (income) loss attributable to non-controlling
interests
5,581
(7,819)
(2,238)
82,169
40,044
7,230
47,274
110,486
(35,363)
(26,770)
1,060
(19,573)
Comprehensive income (loss) attributable to common stockholders
$
47,866 $
64,143 $
348
11,653
12,001
(1,036)
2,326
(4,536)
(3,246)
The accompanying notes are an integral part of these financial statements
F-5
Empire State Realty Trust, Inc.
Consolidated Statements of Stockholders' Equity
(amounts in thousands)
Number
of Class A
Common
Shares
Class A
Common
Stock
Number
of Class B
Common
Shares
Class B
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Deficit
Total
Stockholders'
Equity
Non-
controlling
Interests
Private
Perpetual
Preferred
Units
Total Equity
Balance at December 31, 2020
170,555
$
1,705
1,010
$
10
$ 1,147,527
$
(28,320) $ (65,673) $
1,055,249
$ 646,118
$ 29,940
$ 1,731,307
Conversion of operating
partnership units and Class B
shares to Class A shares
3,512
35
(14)
Repurchases of common shares
(4,887)
(49)
Contributions to consolidated joint
venture interests
—
—
Equity compensation:
LTIP Units, net of forfeitures
Restricted stock, net of
forfeitures
Dividends and distributions
Net income (loss)
Other comprehensive income
—
41
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of operating
partnership units and Class B
shares to Class A shares
2,304
23
Repurchases of common shares
(11,571)
(116)
Contributions to consolidated joint
venture interests
—
—
Equity compensation:
LTIP Units, net of forfeitures
Restricted stock, net of
forfeitures
Dividends and distributions
Net income
Other comprehensive income
—
185
—
—
—
—
2
—
—
—
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
512
—
—
—
(100,869)
—
—
892
—
—
—
10,384
7
—
10,426
(10,426)
(7,539)
—
(39,116)
(46,704)
—
—
—
—
13,269
—
—
—
—
—
—
(46,704)
13,269
19,747
513
—
—
—
—
—
—
(90,176)
224
20,117
894
—
—
—
—
—
—
(18,110)
(10,711)
7,465
—
—
19,747
513
—
(18,110)
(10,453)
(4,201)
(32,764)
(10,711)
7,465
(6,527)
4,536
4,201
.
(13,037)
12,001
4,277
195
—
4,495
(4,495)
10,809
(90,176)
—
—
—
—
—
894
—
224
20,117
—
—
—
—
—
—
—
(23,109)
(23,109)
(15,476)
(4,201)
(42,786)
36,442
36,442
22,569
4,201
63,212
27,701
—
27,701
19,573
—
47,274
Balance at December 31, 2021
169,221
$
1,692
996
$
10
$ 1,150,884
$
(20,848) $ (133,610) $
998,128
$ 656,264
$ 29,940
$ 1,684,332
Balance at December 31, 2022
160,139
$
1,601
990
$
10
$ 1,055,184
$
7,048
$ (109,468) $
954,375
$ 698,776
$ 29,940
$ 1,683,091
Conversion of operating
partnership units and Class B
shares to Class A shares
3,762
Repurchases of common shares
(2,151)
Contributions to consolidated joint
venture interests
Equity compensation:
LTIP Units, net of forfeitures
Restricted stock, net of
forfeitures
Dividends and distributions
Net income
Other comprehensive loss
—
—
312
—
—
—
38
(21)
—
—
3
—
—
—
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17,477
(13,084)
—
—
1,392
—
—
—
156
—
—
—
—
—
—
—
—
—
—
—
17,671
(17,671)
(13,105)
—
—
187
—
18,631
1,395
—
—
—
—
—
—
—
(13,105)
187
18,631
1,395
(22,684)
(22,684)
(14,438)
(4,201)
(41,323)
49,044
49,044
31,162
4,201
84,407
(1,178)
—
(1,178)
(1,060)
—
(2,238)
Balance at December 31, 2023
162,062
$
1,621
984
$
10
$ 1,060,969
$
6,026
$ (83,108) $
985,518
$ 715,587
$ 29,940
$ 1,731,045
The accompanying notes are an integral part of these financial statements
F-6
Empire State Realty Trust, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
For the Year Ended December 31,
2022
2021
2023
Cash Flows From Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
84,407
$
63,212
$
(13,037)
Depreciation and amortization
Gain on sale/disposition of properties
Impairment charges
Amortization of non-cash items within interest expense
Amortization of acquired above- and below-market leases, net
Amortization of acquired below-market ground leases
Straight-lining of rental revenue
Equity based compensation
Loss on early extinguishment of debt
Increase (decrease) in cash flows due to changes in operating assets and liabilities:
Security deposits
Tenant and other receivables
Deferred leasing costs
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities
Acquisition of real estate property
Net proceeds from disposition of real estate
Additions to building and improvements
Development costs
Net cash used in investing activities
189,911
(26,764)
—
9,089
(2,415)
7,831
(19,563)
20,026
—
10,486
(15,643)
(17,669)
(5,186)
746
(2,765)
232,491
(26,910)
88,910
(139,328)
(12)
(77,340)
216,894
(33,988)
—
9,799
(4,759)
7,831
(24,562)
21,011
—
(828)
(5,306)
(36,909)
(2,263)
4,705
(3,664)
211,173
(115,593)
11,005
(126,268)
(35)
(230,891)
201,806
—
7,723
10,862
(5,896)
7,831
(21,078)
20,260
214
(1,052)
2,894
(16,090)
5,814
(99)
12,334
212,486
(117,540)
—
(95,037)
(165)
(212,742)
The accompanying notes are an integral part of these financial statements
F-7
Empire State Realty Trust, Inc.
Consolidated Statements of Cash Flows (continued)
(amounts in thousands)
For the Year Ended December 31,
2022
2021
2023
Cash Flows From Financing Activities
Repayment of mortgage notes payable
Contributions from consolidated joint ventures
Deferred financing costs
Repurchases of common shares
Private perpetual preferred unit distributions
Dividends paid to common stockholders
Distributions paid to non-controlling interests in the operating partnership
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash—beginning of period
Cash and cash equivalents and restricted cash—end of period
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period
Restricted cash at beginning of period
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents at end of period
Restricted cash at end of period
Cash and cash equivalents and restricted cash at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities:
Building and improvements included in accounts payable and accrued expenses
Write-off of fully depreciated assets
Derivative instruments at fair values included in prepaid expenses and other assets
Derivative instruments at fair values included in accounts payable and accrued expenses
Conversion of operating partnership units and Class B shares to Class A shares
Transfer of assets related to assets held for sale
Transfer of liabilities related to assets held for sale
Mortgage assumed in connection with sale of real estate
Debt assumed with the acquisition of real estate properties
Contribution from other partnerships
(8,632)
(7,504)
187
—
(13,105)
(4,201)
(22,684)
(14,438)
(62,873)
92,278
314,678
224
—
(90,176)
(4,201)
(23,109)
(15,476)
(140,242)
(159,960)
474,638
406,956
$
314,678 $
264,434
$
423,695 $
50,244
50,943
314,678
$
474,638 $
346,620
$
264,434 $
60,336
50,244
406,956
$
314,678 $
(4,091)
—
(9,486)
(46,704)
(4,201)
(18,110)
(10,453)
(93,045)
(93,301)
567,939
474,638
526,714
41,225
567,939
423,695
50,943
474,638
92,000
1,390
$
$
91,012 $
77,610
200 $
644
51,815
$
44,293 $
33,391
11,800
85
17,671
—
—
—
—
—
35,124
17,902
—
4,495
35,538
5,943
30,117
—
—
49,247
31,341
—
25,308
10,426
—
—
—
177,453
13,269
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these financial statements
F-8
Empire State Realty Trust, Inc.
Notes to Consolidated Financial Statements
1. Description of Business and Organization
As used in these consolidated financial statements, unless the context otherwise requires, “we,” “us,” "our," the
"Company,” and "ESRT" mean Empire State Realty Trust, Inc. and its consolidated subsidiaries.
Empire State Realty Trust, Inc. (NYSE: ESRT) is a NYC-focused REIT that owns and operates a portfolio of
modernized, amenitized, and well-located office, retail, and multifamily assets. The Company is a recognized leader in energy
efficiency and indoor environmental quality. ESRT’s flagship Empire State Building – the “World’s Most Famous Building” –
includes its Observatory, the #1 attraction in the U.S. in Tripadvisor’s Travelers’ Choice Awards: Best of the Best for two
consecutive years.
As of December 31, 2023, our portfolio was comprised of approximately 8.6 million rentable square feet of office
space, 0.7 million rentable square feet of retail space and 727 residential units. Our office portfolio included 11 properties
(including three long-term ground leasehold interests) encompassing approximately 8.6 million rentable square feet. Nine of
these office properties are located in midtown Manhattan and encompass approximately 7.6 million rentable square feet,
including the Empire State Building. The remaining two office properties encompass approximately 1.1 million rentable square
feet and are located in Stamford, Connecticut, with immediate access to mass transportation. Additionally, we have entitled land
adjacent to one of the Stamford office properties that can support the development of either office or residential per local
zoning. Our multifamily portfolio included 727 residential units in New York City.
We were organized as a Maryland corporation on July 29, 2011 and commenced operations upon completion of our
initial public offering and related formation transactions on October 7, 2013 (the "IPO"). Our operating partnership, Empire
State Realty OP, L.P. (the "Operating Partnership"), holds substantially all of our assets and conducts substantially all of our
business. As of December 31, 2023, we owned approximately 60.2% of the aggregate operating partnership units in the
Operating Partnership. We, as the sole general partner in the Operating Partnership, have responsibility and discretion in the
management and control of the Operating Partnership, and the limited partners in the Operating Partnership, in such capacity,
have no authority to transact business for, or participate in the management activities of, the Operating Partnership.
Accordingly, the Operating Partnership has been consolidated by us. We elected to be subject to tax as a REIT for U.S. federal
income tax purposes commencing with our taxable year ended December 31, 2013.
We have two entities that elected to be treated as taxable REIT subsidiaries, or TRSs, and are owned by our Operating
Partnership. The TRSs, through several wholly owned limited liability companies, conduct third-party services businesses,
which include the Empire State Building Observatory, cleaning services, cafeterias, restaurant and health clubs, and asset and
property management services.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements prepared in conformity with accounting principles generally
accepted in the United States of America ("GAAP") and with the rules and regulations of the SEC, represent our assets and
liabilities and operating results. The consolidated financial statements include our accounts and our partially owned and wholly
owned subsidiaries as well as our Operating Partnership and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling
financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors
such as ownership interest, board representation, management representation, authority to make decisions, and contractual and
substantive participating rights of the partners/members. For variable interest entities ("VIE"), we consolidate the entity if we
are deemed to have a variable interest in the entity and through that interest we are deemed the primary beneficiary. The
primary beneficiary of a VIE is the entity that has (i) the power to direct the activities that most significantly impact the entity's
economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could
be significant to the VIE. The primary beneficiary is required to consolidate the VIE. The Operating Partnership is a VIE of
ESRT. As the Operating Partnership is already consolidated in the financial statements of ESRT, the identification of this entity
F-9
as a VIE has no impact on our consolidated financial statements. At December 31, 2022, the Operating Partnership was the
primary beneficiary of a variable interest in the intermediary entity which held title to 298 Mulberry Street, the multifamily
asset acquired in December 2022. The intermediary entity was utilized to execute a like-kind exchange and subsequent to
March 31, 2023, the like-kind exchange was completed and the Operating Partnership took title to 298 Mulberry Street.
Therefore, the Operating Partnership had no VIEs at December 31, 2023.
We will assess the accounting treatment for each investment we may have in the future. This assessment will include a
review of each entity’s organizational agreement to determine which party has what rights and whether those rights are
protective or participating. For all VIEs, we will review such agreements in order to determine which party has the power to
direct the activities that most significantly impact the entity’s economic performance and benefit. In situations where we or our
partner could approve, among other things, the annual budget, or leases that cover more than a nominal amount of space
relative to the total rentable space at each property, we would not consolidate the investment as we consider these to be
substantive participation rights that result in shared power of the activities that would most significantly impact the performance
and benefit of such joint venture investment.
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a
subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate
component of equity in the consolidated balance sheets and in the consolidated statements of income by requiring earnings and
other comprehensive income to be attributed to controlling and non-controlling interests.
Accounting Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to use
estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses. Significant items subject to such estimates and
assumptions include allocation of the purchase price of acquired real estate properties among tangible and intangible assets,
determination of the useful life of real estate properties and other long-lived assets, valuation and impairment analysis of
commercial real estate properties, goodwill, right-of-use assets and other long-lived and indefinite-lived assets, estimate of
tenant expense reimbursements, valuation of the allowance for doubtful accounts, and valuation of derivative instruments,
ground lease liabilities, senior unsecured notes, mortgage notes payable, unsecured revolving credit and term loan facilities, and
equity based compensation. These estimates are prepared using management’s best judgment, after considering past, current,
and expected events and economic conditions. Actual results could differ from those estimates.
Revenue Recognition
Rental Revenue
Rental revenue includes base rents that each tenant pays in accordance with the terms of its respective lease and is
reported on a straight-line basis over the non-cancellable term of the lease which includes the effects of rent steps and rent
abatements under the leases. In general, we commence rental revenue recognition when the tenant takes possession of the
leased space or controls the physical use of the leased space and the leased space is substantially ready for its intended use. We
account for all of our leases as operating leases. Deferred rent receivables, including free rental periods and leasing
arrangements allowing for increased base rent payments, are accounted for in a manner that provides an even amount of fixed
lease revenues over the respective non-cancellable lease terms. Differences between rental income recognized and amounts due
under the respective lease agreements are recognized as an increase or decrease to deferred rent receivables.
In addition to base rent, our tenants also generally will pay their pro rata share of increases in real estate taxes and
operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in
building operating expenses, the tenant will pay additional rent based upon increases in an index such as the Consumer Price
Index over the index value in effect during a base year, or contain fixed percentage increases over the base rent to cover
escalations.
We recognize rental revenue of acquired in-place above- and below-market leases at their fair values over the terms of
the respective leases, including, for below-market leases, fixed option renewal periods, if any.
Lease termination fees are recognized when the fees are determinable, tenant vacancy has occurred, collectability is
reasonably assured, we have no continuing obligation to provide services to such former tenants and the payment is not subject
to any conditions that must be met or waived.
F-10
Observatory Revenue
Revenues from the sale of Observatory tickets are recognized upon admission or ticket expirations. Deferred revenue
related to unused and unexpired tickets as of December 31, 2023 and 2022 was $1.7 million and $1.4 million, respectively, and
is included in deferred revenue and other liabilities on the consolidated balance sheets.
Gains on Sale/Disposition of Real Estate
We record a gain on sale of real estate pursuant to provisions under Accounting Standards Codification (ASC) 610-20,
Gains and Losses from the Derecognition of Nonfinancial Assets. Under ASC 610-20, we must first determine whether the
transaction is a sale to a customer or non-customer. We do not sell real estate within the ordinary course of our business and
therefore, expect that sale transactions will not be contracts with customers. We will next determine whether we would have a
controlling financial interest in the property after the sale. If we determine that we do not have a controlling financial interest in
the real estate, we would evaluate whether a contract exists under ASC 606 Revenue from Contracts with Customers and
whether the buyer has obtained control of the asset that was sold. We recognize the full gain on sale of real estate when the
derecognition criteria under ASC 610-20 have been met.
Third-Party Management and Other Fees
We earn revenue arising from contractual agreements with related party entities for asset and property management
services. This revenue is recognized as the related services are performed under the respective agreements in place.
Other Revenues and Fees
Other revenues and fees includes parking income, legal, tax and insurance settlements, demand response energy use
earnings and sales from our restaurant at the Empire State Building.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred. The expense for the years ended December 31, 2023, 2022,
and 2021 was $10.9 million, $10.8 million and $7.9 million, respectively, and is included within operating expenses in our
consolidated statements of operations.
Real Estate Properties and Related Intangible Assets
Land and buildings and improvements are recorded at cost less accumulated depreciation and amortization. The
recorded cost includes cost of acquisitions, development and construction and tenant allowances and improvements.
Expenditures for ordinary repairs and maintenance are charged to property operating expense as incurred. Significant
replacements and betterments which improve or extend the life of the asset are capitalized. Tenant improvements which
improve or extend the life of the asset are capitalized. If a tenant vacates its space prior to the contractual termination of its
lease, the unamortized balance of any tenant improvements are written off if they are replaced or have no future value. For
developed properties, direct and indirect costs that clearly relate to projects under development are capitalized. Costs include
construction costs, professional services such as architectural and legal costs, capitalized interest and direct payroll costs. We
begin capitalization when the project is probable. The assets relating to the project are stated at cost and are not depreciated.
Once construction is completed and the assets are placed in service, the assets are reclassified to the appropriate asset class and
depreciated in accordance with the useful lives as indicated below. Capitalization of interest ceases when the asset is ready for
its intended use, which is generally near the date that a certificate of occupancy is obtained. There was no capitalized interest
for the years ended December 31, 2023 and 2022.
Depreciation and amortization are computed using the straight-line method for financial reporting purposes. Buildings
and improvements are depreciated over the shorter of 39 years, the useful life, or the remaining term of any leasehold interest.
Tenant improvement costs, which are included in building and improvements in the consolidated balance sheets, are
depreciated over the shorter of (i) the related remaining lease term or (ii) the life of the improvement. Corporate and other
equipment is depreciated over three to seven years.
Acquisitions of properties are accounted for utilizing the acquisition method and accordingly the purchase cost is
allocated to tangible and intangible assets and liabilities based on their fair values. The fair value of tangible assets acquired is
determined by valuing the property as if it were vacant, applying methods similar to those used by independent appraisers of
income-producing property. The resulting value is then allocated to land, buildings and improvements, and tenant
F-11
improvements based on our determination of the fair value of these assets. The assumptions used in the allocation of fair values
to assets acquired are based on our best estimates at the time of evaluation.
Fair value is assigned to above-market and below-market leases based on the difference between (a) the contractual
amounts to be paid by the tenant based on the existing lease and (b) our estimate of current market lease rates for the
corresponding in-place leases, over the remaining terms of the in-place leases. Capitalized above-market lease amounts are
amortized as a decrease to rental revenue over the remaining terms of the respective leases. Capitalized below-market lease
amounts are amortized as an increase to rental revenue over the remaining terms of the respective leases. If a tenant vacates its
space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized
balance of the related intangible will be written off.
The aggregate value of other acquired intangible assets consists of acquired ground leases and acquired in-place leases
and tenant relationships. The fair value allocated to acquired in-place leases consists of a variety of components including, but
not necessarily limited to: (a) the value associated with avoiding the cost of originating the acquired in-place leases (i.e. the
market cost to execute a lease, including leasing commissions, if any); (b) the value associated with lost revenue related to
tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period (i.e. real estate taxes, insurance
and other operating expenses); (c) the value associated with lost rental revenue from existing leases during the assumed lease-
up period; and (d) the value associated with any other inducements to secure a tenant lease.
We assess the potential for impairment of our long-lived assets, including real estate properties, annually or whenever
events occur or a change in circumstances indicate that the recorded value might not be fully recoverable. We determine
whether impairment in value has occurred by comparing the estimated future undiscounted cash flows expected from the use
and eventual disposition of the asset to its carrying value. If the undiscounted cash flows do not exceed the carrying value, the
real estate is adjusted to fair value and an impairment loss is recognized. Assets held for sale are recorded at the lower of cost or
fair value less costs to sell and depreciation expense is no longer recorded.
During the fourth quarter 2021, we concluded that the cost basis of 383 Main Avenue, Norwalk, Connecticut exceeded
its fair value when we reduced our hold period given our intent to transfer property ownership to the lender. As such, we
incurred a $7.7 million impairment charge in the year ended December 31, 2021. Our methodology to calculate the fair value of
the property involved a combination of the discounted cash flow method, utilizing Level 3 unobservable inputs such as market
capitalization rates obtained from external sources, and the market-based approach utilizing recent sales comparables. In April
2022, we transferred this asset back to the lender in a consensual foreclosure. Refer to Note 3 Acquisitions and Dispositions.
We do not believe that the value of any of our other properties and intangible assets were impaired during the years ended
December 31, 2023, 2022 and 2021.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, government money markets, demand deposits with financial
institutions and short-term liquid investments with original maturities of three months or less when purchased. Cash and cash
equivalents held at major commercial banks may at times exceed the Federal Deposit Insurance Corporation limit. To date, we
have not experienced any losses on our invested cash.
Restricted Cash
Restricted cash consists of amounts held for tenants in accordance with lease agreements such as security deposits and
amounts held by lenders and/or escrow agents to provide for future real estate tax expenditures and insurance expenditures,
tenant vacancy related costs and debt service obligations.
Short-term Investments
Short-term investments include time deposits with original maturities of greater than three months and remaining
maturities of less than one year.
Tenant and Other Receivables
Tenant and other receivables, other than deferred rent receivable, are generally expected to be collected within one
year.
Deferred Leasing Costs
F-12
Deferred leasing costs consist of fees incurred to initiate and renew leases, are amortized on a straight-line basis over
the related lease term and the expense is included in depreciation and amortization in our consolidated statements of income.
Upon the early termination of a lease, unamortized deferred leasing costs are charged to expense.
Deferred Financing Costs
Fees and costs incurred to obtain long-term financing have been deferred and are amortized as a component of interest
expense in our consolidated statements of income over the life of the respective long-term financing on the straight-line method
which approximates the effective interest method. Unamortized deferred financing costs are expensed when the associated debt
is refinanced or repaid before maturity. Costs incurred in seeking debt, which do not close, are expensed in the period in which
it is determined that the financing will not close.
Equity Method Investments
We account for investments under the equity method of accounting where we do not have control but have the ability
to exercise significant influence. Under this method, investments are recorded at cost, and the investment accounts are adjusted
for our share of the entities’ income or loss and for distributions and contributions. Equity income (loss) is allocated based on
the portion of the ownership interest that is controlled by us. The agreements may designate different percentage allocations
among investors for profits and losses; however, our recognition of the entity’s income or loss generally follows the entity’s
distribution priorities, which may change upon the achievement of certain investment return thresholds.
To the extent that we contributed assets to an entity, our investment in the entity is recorded at cost basis in the assets
that were contributed to the entity. Upon contributing assets to an entity, we make a judgment as to whether the economic
substance of the transaction is a sale. In accordance with the provisions of ASC 610-20, we will recognize a full gain on both
the retained and sold portions of real estate contributed or sold to an entity by recognizing our new equity method investment
interest at fair value.
To the extent that the carrying amount of these investments on our combined balance sheets is different than the basis
reflected at the entity level, the basis difference would be amortized over the life of the related asset and included in our share
of equity in net income of the entity.
On a periodic basis, we assess whether there are any indicators that the carrying value of our investments in entities
may be impaired on an other than temporary basis. An investment is impaired only if management’s estimate of the fair value
of the investment is less than the carrying value of the investment on an other than temporary basis. To the extent impairment
has occurred, the loss shall be measured as the excess of the carrying value of the investment over the fair value of the
investment.
As of December 31, 2023 and 2022, we had no equity method investments.
Goodwill
Goodwill is tested annually for impairment and more frequently if events and circumstances indicate that the asset
might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the
reporting unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. Non-
amortizing intangible assets, such as trade names and trademarks, are subject to an annual impairment test based on fair value
and amortizing intangible assets are tested whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable.
Fair Value
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the
assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, the FASB guidance establishes a fair value hierarchy that distinguishes between
market participant assumptions based on market data obtained from sources independent of the reporting entity (observable
inputs that are classified within levels one and two of the hierarchy) and the reporting entity's own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The methodologies used for valuing financial instruments have been categorized into three broad levels as follows:
F-13
Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on other observable market parameters, including:
•
•
•
Quoted prices in active markets for similar instruments;
Quoted prices in less active or inactive markets for identical or similar instruments;
Other observable inputs (such as risk free interest rates, yield curves, volatilities, prepayment speeds, loss severities,
credit risks and default rates); and
• Market corroborated inputs (derived principally from or corroborated by observable market data).
Level 3 - Valuations based significantly on unobservable inputs, including:
•
•
Valuations based on third-party indications (broker quotes or counterparty quotes) which were, in turn, based
significantly on unobservable inputs or were otherwise not supportable; and
Valuations based on internal models with significant unobservable inputs.
These levels form a hierarchy. We follow this hierarchy for our financial instruments measured or disclosed at fair
value on a recurring and nonrecurring basis and other required fair value disclosures. The classifications are based on the lowest
level of input that is significant to the fair value measurement.
We use the following methods and assumptions in estimating fair value disclosures for financial instruments.
Cash and cash equivalents, restricted cash, short term investments, tenant and other receivables, prepaid expenses and
other assets, deferred revenue, tenant security deposits, accounts payable and accrued expenses carrying values approximate
their fair values due to the short term maturity of these instruments.
The fair value of derivative instruments is determined using widely accepted valuation techniques, including
discounted cash flow analysis on the expected cash flows of each derivative. Although the majority of the inputs used to value
our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives
utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our
counterparties. The impact of such credit valuation adjustments, determined based on the fair value of each individual contract,
was not significant to the overall valuation. As a result, all of our derivatives were classified as Level 2 of the fair value
hierarchy.
The fair value of our mortgage notes payable, senior unsecured notes (Series A, B, C, D, E, F, G and H), unsecured
term loan facilities and unsecured revolving credit facility which are determined using Level 3 inputs are estimated by
discounting the future cash flows using current interest rates at which similar borrowings could be made by us.
Derivative Instruments
We are exposed to the effect of interest rate changes and manage these risks by following policies and procedures
including the use of derivatives. To manage exposure to interest rates, derivatives are used primarily to fix the rate on debt
based on floating-rate indices. We record all derivatives on the balance sheet at fair value. We incorporate credit valuation
adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk
in the fair value measurements. We measure the credit risk of our derivative instruments that are subject to master netting
agreements on a net basis by counterparty portfolio. For derivatives that qualify as cash flow hedges, we report the gain or loss
on the derivative designated as a hedge as part of other comprehensive income (loss) and subsequently reclassify the gain or
loss into income in the period that the hedged transaction affects income.
Income Taxes
We elected to be subject to tax as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, (the "Code"), commencing with the taxable year ended December 31, 2013 and believe that our intended manner of
operations will enable us to continue to meet the requirements for qualification and taxation as a REIT. REITs are subject to a
number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable
income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT, we will
generally not be subject to U.S. federal income tax to the extent that we meet the organizational and operational requirements
and our distributions equal or exceed REIT taxable income. For all periods subsequent to the effective date of our REIT
F-14
election, we have met the organizational and operational requirements and distributions have exceeded net taxable income.
Accordingly, no provision has been made for federal income taxes.
We have elected to treat ESRT Observatory TRS, L.L.C., our subsidiary that holds our Observatory operations, and
ESRT Holdings TRS, L.L.C., our subsidiary that holds our third-party management, restaurant, cafeterias, health clubs and
certain cleaning operations, as taxable REIT subsidiaries. Taxable REIT subsidiaries may participate in non-real estate activities
and/or perform non-customary services for tenants and their operations are generally subject to regular corporate income taxes.
Our taxable REIT subsidiaries accounts for its income taxes in accordance with GAAP, which includes an estimate of the
amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences
of events that have been recognized in our consolidated financial statements or tax returns. The calculation of the taxable REIT
subsidiaries' tax provisions may require interpreting tax laws and regulations and could result in the use of judgments or
estimates which could cause its recorded tax liability to differ from the actual amount due. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The taxable REIT subsidiaries periodically assess the realizability of deferred tax
assets and the adequacy of deferred tax liabilities, including the results of local, state, or federal statutory tax audits or estimates
and judgments used.
We apply provisions for measuring and recognizing tax benefits associated with uncertain income tax positions.
Penalties and interest, if incurred, would be recorded as a component of income tax expense. As of December 31, 2023 and
2022, we do not have a liability for uncertain tax positions. As of December 31, 2023, the tax years ended December 31, 2020
through December 31, 2023 remain open for an audit by the Internal Revenue Service, state or local authorities.
Share-Based Compensation
Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant
and recognized as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three,
four or five years, or (ii) the period from the date of grant to the date the employee becomes retirement eligible, which may
occur upon grant. An employee is retirement eligible when the employee attains the (i) age of 65 for awards granted in 2020
and after and age of 60 for awards granted before 2020 and (ii) the date on which the employee has first completed the requisite
years of continuous service with us or our affiliates. Share-based compensation for market-based equity awards and
performance-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense
on a straight-line basis over three or four years. Additionally, for the performance-based equity awards, we assess, at each
reporting period, whether it is probable that the performance conditions will be satisfied. We recognize expense respective to
the number of awards we expect to vest at the conclusion of the measurement period. Changes in estimate are accounted for in
the period of change through a cumulative catch-up adjustment. Any forfeitures of share-based compensation awards are
recognized as they occur.
The determination of fair value of these awards is subjective and involves significant estimates and assumptions
including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards
will achieve parity with other Operating Partnership units or achieve performance thresholds. We believe that the assumptions
and estimates utilized are appropriate based on the information available to management at the time of grant.
Per Share Data
Basic and diluted earnings per share are computed based upon the weighted average number of shares outstanding
during the respective period.
Segment Reporting
We have identified two reportable segments: (1) Real Estate and (2) Observatory. Our real estate segment includes all
activities related to the ownership, management, operation, acquisition, repositioning and disposition of our real estate assets.
Our Observatory segment operates the 86th and 102nd floor observatories at the Empire State Building. These two lines of
businesses are managed separately because each business requires different support infrastructures, provides different services
and has dissimilar economic characteristics such as investments needed, stream of revenues and different marketing strategies.
We account for intersegment sales and rent as if the sales or rent were to third parties, that is, at current market prices.
Recently Issued or Adopted Accounting Standards
During March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic
848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives
and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities
F-15
occur. During the first quarter 2020, we elected to apply the hedge accounting expedients related to probability and the
assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged
transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the
presentation of derivatives consistent with past presentation. In December 2022, the FASB issued ASU 2022-06, Reference
Rate Reform (Topic 848) Deferral of the Sunset Date of Topic 848 which deferred the sunset date of ASU 2022-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. As of December 31,
2023, we have transitioned all of our LIBOR-indexed debt and derivatives to SOFR and applied the practical expedient allowed
under the guidance.
During November 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.
2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve the disclosures about
reportable segments and add more detailed information about a reportable segment’s expenses. The amendments in the ASU
require public entities to disclose on an annual and interim basis significant segment expenses that are regularly provided to the
chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, other segment
items and a description of its composition by reportable segment, the title and position of the CODM, and an explanation of
how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to
allocate resources. The ASU does not change the definition of a segment, the method for determining segments, the criteria for
aggregating operating segments into reportable segments, or the current specifically enumerated segment expenses that are
required to be disclosed. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and
interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are evaluating the
impact of adopting this new accounting standard on our consolidated financial statements.
3. Acquisitions and Dispositions
Property Acquisitions
On September 14, 2023, we closed on the acquisition of a retail property in Williamsburg, Brooklyn, located on the
corner of North 6th Street and Wythe Avenue for a purchase price of $26.4 million. The property has three retail tenants and
six residential units and was fully leased as of December 31, 2023. The transaction was executed as an exchange under
Section 1031 of the Internal Revenue Code of 1986, as amended. The purchase price is the fair value at the date of
acquisition.
On December 20, 2022, we closed on the acquisition of a multifamily asset located at 298 Mulberry Street in
Manhattan for a purchase price of $114.9 million. In addition to the 96 residential units, the property also contains retail
space leased to CVS and a garage. The purchase price is the fair value at the date of acquisition.
On December 22, 2021, we acquired 90% of two multifamily assets located in Manhattan, the Victory (561 10th
Avenue) and 345 East 94th Street. The total transaction value was $307.0 million, inclusive of $134.0 million of debt on the
Victory, that matures in 2033 and has an effective interest rate of 3.85%, and $52.0 million of debt on 345 East 94th Street, that
matures in 2030 and has an effective interest rate of 3.56%. The previous owner retained a 10% equity stake. We asset manage
the properties and have control over all decision making through our voting interests in each entity. We currently use a third-
party manager, but we have the right to assume day-to-day property management for no additional consideration. The fair value
of the non-controlling interest was equivalent to 10% of the gross purchase price less the pro-rata share of the debt assumed.
The purchase price of the non-controlling interest is its fair value at the date of acquisition.
The Victory is a 417 unit, 45-story apartment building with an 11,000 square foot retail space leased to CVS through
2040. It is a participant in an extendable 421a tax abatement program.
345 East 94th Street is a 208 unit, 30-story, apartment building. It is a participant in an extendable 421a tax abatement
program.
The following table summarizes properties acquired during the years ended December 31, 2023, 2022 and 2021
(amounts in thousands):
F-16
Property
Williamsburg Retail, Brooklyn
298 Mulberry Street, Manhattan
The Victory
345 East 94th St.
Date Acquired
9/14/2023
12/20/2022
12/21/2021
12/21/2021
$
$
Land
Building and
Improvements
4,851 $
40,935 $
91,437
44,228
20,936 $
69,508 $
124,997
55,766
Assets
Liabilities
Total*
1,573 $
5,300 $
(300) $
27,060
(150) $
115,593
13,573
(19,895) $
210,112
4,824
(5,491) $
99,327
Intangibles
*Includes total capitalized transaction costs of $3.8 million.
Property Dispositions
The following table summarizes properties disposed of during the years ended December 31, 2023 and 2022 (amounts
in thousands):
Property
500 Mamaroneck Avenue, Harrison, New York*
69-97 and 103-107 Main Street, Westport, Connecticut
10 Bank Street, White Plains, New York
Date of Disposal
4/5/2023
2/1/2023
12/7/2022
$
$
$
Sales Price
Gain on Disposition
53,000 $
40,000 $
42,000 $
11,075
15,689
6,818
383 Main Avenue, Norwalk, Connecticut**
*The gain is net of approximately $4.5 million of post-closing costs we accrued related to expected contaminated soil remediation costs and our commitment to
reimburse the buyer for a delay in rent commencement from a tenant impacted by the soil remediation efforts. Subsequent to December 31, 2023, we funded the buyer
for these costs and we have no further obligations or contingencies that relate to this property.
**We transferred the property, which was encumbered by a $30.0 million mortgage, back to the lender in a consensual foreclosure and recognized a non-cash
gain upon the disposition.
30,000 $
4/1/2022
$
27,170
There were no property dispositions for the year ended December 31, 2021.
4. Deferred Costs, Acquired Lease Intangibles and Goodwill
Deferred costs, net, consisted of the following at December 31, 2023 and 2022 (amounts in thousands):
Leasing costs
Acquired in-place lease value and deferred leasing costs
Acquired above-market leases
Less: accumulated amortization
Total deferred costs, net, excluding net deferred financing costs
$
2023
2022
$
224,295
$
158,267
23,918
406,480
(236,900)
169,580
$
218,707
160,683
27,833
407,223
(223,246)
183,977
At December 31, 2023 and 2022, $2.9 million and $5.0 million, respectively, of net deferred financing costs associated
with the unsecured revolving credit facility was included in deferred costs, net on the consolidated balance sheets.
Amortization expense related to deferred leasing and acquired deferred leasing costs was $23.6 million, $25.4 million,
and $28.6 million, for the years ended December 31, 2023, 2022, and 2021, respectively. Amortization expense related to
acquired lease intangibles was $7.4 million, $11.8 million and $10.5 million for the years ended December 31, 2023, 2022 and
2021, respectively.
Amortizing acquired intangible assets and liabilities consisted of the following at December 31, 2023 and 2022
(amounts in thousands):
Acquired below-market ground leases
Less: accumulated amortization
Acquired below-market ground leases, net
2023
2022
396,916
(75,675)
321,241
$
$
396,916
(67,843)
329,073
$
$
F-17
Acquired below-market leases
Less: accumulated amortization
Acquired below-market leases, net
2023
2022
(55,155)
$
41,405
(13,750)
$
(64,656)
46,807
(17,849)
$
$
Rental revenue related to the amortization of below market leases, net of above market leases was $2.4 million, $4.8
million and $5.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. The remaining weighted-average
amortization period as of December 31, 2023 is 22.2 years, 3.4 years, 3.5 years and 2.9 years for below-market ground leases,
in-place leases and deferred leasing costs, above-market leases and below-market leases, respectively. We expect to recognize
amortization expense and rental revenue from the acquired intangible assets and liabilities as follows (amounts in thousands):
For the year ending:
2024
2025
2026
2027
2028
Thereafter
Future
Ground Rent
Amortization
Future
Amortization
Expense
Future Rental
Revenue
(Expense)
$
$
7,831
7,831
7,831
7,831
7,831
282,086
$
7,430
6,481
5,593
4,930
4,297
4,110
$
321,241
$
32,841
$
1,977
1,914
1,116
882
854
(124)
6,619
As of December 31, 2023, we had goodwill of $491.5 million. In 2013, we acquired the interests in Empire State
Building Company, L.L.C. and 501 Seventh Avenue Associates, L.L.C. for an amount in excess of their net tangible and
identified intangible assets and liabilities and as a result we recorded goodwill related to the transaction. Goodwill was allocated
$227.5 million to the Observatory operations of the Empire State Building, $250.8 million to Empire State Building, and $13.2
million to 501 Seventh Avenue.
We performed our annual goodwill testing in October 2023, where we bypassed the optional qualitative goodwill
impairment assessment and proceeded directly to a quantitative assessment of the Observatory reportable segment and engaged
a third-party valuation consulting firm to perform the valuation process. The quantitative analysis used a combination of the
discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company
method (a form of the market approach). Significant assumptions under the former included revenue and cost projections,
weighted average cost of capital, long-term growth rate and income tax considerations while the latter included guideline
company enterprise values, revenue multiples, EBITDA multiples and control premium rates. Our methodology to review
goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis to determine
whether impairment had occurred. The quantitative analysis performed concluded the fair value of the reporting unit exceeds its
carrying value. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control, and
it is reasonably likely that assumptions and estimates will change in future periods. We will continue to assess the impairment
of the Observatory reporting unit goodwill going forward.
5. Debt
Debt consisted of the following as of December 31, 2023 and 2022 (amounts in thousands):
Fixed rate mortgage debt
Metro Center
10 Union Square
1542 Third Avenue
First Stamford Place (3)
As of December 31, 2023
Principal Balance as
of December 31,
2023
Principal Balance as
of December 31,
2022
Stated
Rate
Effective
Rate(1)
Maturity
Date(2)
$
$
80,070
50,000
30,000
175,860
82,596
50,000
30,000
178,823
3.59 %
3.70 %
4.29 %
4.28 %
3.67 %
3.97 %
4.53 %
4.73 %
11/5/2024
4/1/2026
5/1/2027
7/1/2027
F-18
1010 Third Avenue and 77 West 55th
Street
250 West 57th Street
1333 Broadway
345 East 94th Street - Series A
345 East 94th Street - Series B
561 10th Avenue - Series A
561 10th Avenue - Series B
Total fixed rate mortgage debt
Senior unsecured notes: (4)
Series A
Series B
Series C
Series D
Series E
Series F
Series G
Series H
Unsecured revolving credit facility (4)
Unsecured term loan facility (4)
Unsecured term loan facility (4)
Total principal
Deferred financing costs, net
Unamortized debt discount
Total
______________
$
34,958
180,000
160,000
43,600
7,209
114,500
15,801
891,998
100,000
125,000
125,000
115,000
160,000
175,000
100,000
75,000
—
215,000
175,000
2,256,998
(9,488)
(6,964)
2,240,546
$
35,831
180,000
160,000
43,600
7,865
114,500
17,415
900,630
100,000
125,000
125,000
115,000
160,000
175,000
100,000
75,000
—
215,000
175,000
2,265,630
(11,748)
(7,745)
2,246,137
4.01 %
2.83 %
4.21 %
70.0% of SOFR plus 0.95%
SOFR plus 2.24%
70.0% of SOFR plus 1.07%
SOFR plus 2.45%
3.93 %
4.09 %
4.18 %
4.08 %
4.26 %
4.44 %
3.61 %
3.73 %
SOFR plus 1.30%
SOFR plus 1.20%
SOFR plus 1.50%
4.21 %
3.21 %
4.29 %
3.56 %
3.56 %
3.85 %
3.85 %
1/5/2028
12/1/2030
2/5/2033
11/1/2030
11/1/2030
11/1/2033
11/1/2033
3/27/2025
3.96 %
3/27/2027
4.12 %
3/27/2030
4.21 %
1/22/2028
4.11 %
3/22/2030
4.27 %
3/22/2033
4.45 %
3/17/2032
4.89 %
3/17/2035
5.00 %
3/31/2025
— %
4.22 %
3/19/2025
4.51 % 12/31/2026
(1)
(2)
(3)
(4)
The effective rate is the yield as of December 31, 2023 and includes the stated interest rate, deferred financing cost amortization and interest associated with
variable to fixed interest rate swap agreements.
Pre-payment is generally allowed for each loan upon payment of a customary pre-payment penalty.
Represents a $164.0 million mortgage loan bearing interest of 4.09% and a $11.9 million loan bearing interest at 6.25%.
At December 31, 2023, we were in compliance with all debt covenants.
Principal Payments
Aggregate required principal payments at December 31, 2023 are as follows (amounts in thousands):
Year
2024
2025
2026
2027
2028
Thereafter
Total principal maturities
Deferred Financing Costs
Amortization
Maturities
Total
$
8,861 $
6,893
7,330
6,461
3,556
77,675 $
315,000
225,000
319,000
146,092
86,536
321,893
232,330
325,461
149,648
1,141,130
18,523
51,624 $ 2,205,374 $ 2,256,998
1,122,607
$
Deferred financing costs, net, consisted of the following at December 31, 2023 and 2022 (amounts in thousands):
Financing costs
Less: accumulated amortization
Total deferred financing costs, net
2023
2022
$
$
43,473
(31,108)
12,365
$
$
43,473
(26,753)
16,720
F-19
Amortization expense related to deferred financing costs was $4.4 million, $4.9 million, and $4.5 million, for the years
ended December 31, 2023, 2022 and 2021, respectively, and was included in interest expense.
Unsecured Revolving Credit and Term Loan Facilities
On August 29, 2022, through our Operating Partnership, we entered into a third amendment to our amended and
restated credit agreement dated August 29, 2017 with Bank of America, N.A., as administrative agent and the other lenders
party thereto, which governs our senior unsecured revolving credit facility and term loan facility (collectively, the “BofA Credit
Facility”). The BofA Credit Facility is in the initial maximum principal amount of up to $1.065 billion, which consists of a
$850.0 million revolving credit facility that matures on March 31, 2025, and a $215.0 million term loan facility that matures on
March 19, 2025. The third amendment revised the terms of the BofA Credit Facility to (i) replace LIBOR with SOFR given the
phase out of LIBOR and (ii) permit the addition of multifamily assets as Unencumbered Eligible Property (as defined therein)
and add a capitalization rate for such assets. As of December 31, 2023, we had no borrowings under the revolving credit facility
and $215.0 million under the term loan facility.
On August 29, 2022, through our Operating Partnership, we entered into a second amendment to our credit agreement
dated March 19, 2020 with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party
thereto, which governs a senior unsecured term loan facility (the “Wells Term Loan Facility”). The Wells Term Loan Facility is
in the original principal amount of $175 million and matures on December 31, 2026. The second amendment revised the terms
of the Wells Term Loan Facility to (i) replace LIBOR with SOFR given the phase out of LIBOR and (ii) permit the addition of
multifamily assets as Unencumbered Eligible Property (as defined therein) and add a capitalization rate for such assets. We may
request the Wells Term Loan Facility be increased through one or more increases or the addition of new pari passu term loan
tranches, for a maximum aggregate principal amount not to exceed $225 million. As of December 31, 2023, our borrowings
amounted to $175.0 million under the Wells Term Loan Facility.
The terms of both the BofA Credit Facility and the Wells Term Loan Facility include customary covenants, including
limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain
customary financial reports. Both facilities also require compliance with financial ratios including a maximum leverage ratio, a
maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio,
and a maximum unsecured leverage ratio. The agreements governing both facilities also contain customary events of default
(subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants,
representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, invalidity of
loan documents, loss of real estate investment trust qualification, and occurrence of a change of control. As of December 31,
2023, we were in compliance with these covenants.
Senior Unsecured Notes
The terms of the senior unsecured notes include customary covenants, including limitations on liens, investment,
distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. It also
requires compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum
fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. The
agreements also contain customary events of default (subject in certain cases to specified cure periods), including but not
limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency
events, judgments, ERISA events, the occurrence of certain change of control transactions and loss of real estate investment
trust qualification. As of December 31, 2023, we were in compliance with these covenants.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of December 31, 2023 and 2022 (amounts in
thousands):
Accrued capital expenditures
Accounts payable and accrued expenses
Interest rate swap agreements liability
Accrued interest payable
2023
2022
$
51,815
$
44,169
85
3,687
44,293
32,927
—
3,509
Total accounts payable and accrued expenses
$
99,756
$
80,729
F-20
7. Financial Instruments and Fair Values
Derivative Financial Instruments
We use derivative financial instruments primarily to manage interest rate risk and such derivatives are not considered
speculative. These derivative instruments are typically in the form of interest rate swap and forward agreements, and the
primary objective is to minimize interest rate risks associated with investing and financing activities. The counterparties of
these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed
to credit risk in the event of non-performance by these counterparties; however, we currently do not anticipate that any of the
counterparties will fail to meet their obligations.
We have agreements with our derivative counterparties that contain a provision where if we either default or are
capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative
obligations. As of December 31, 2023, the fair value of derivatives in a net liability position, which includes accrued interest
but excludes any adjustment for nonperformance risk, related to these agreements was $0.1 million. If we had breached any of
these provisions at December 31, 2023, we could have been required to settle our obligations under the agreements at their
termination value of $0.1 million.
As of December 31, 2023 and 2022, we had interest rate swaps and caps with an aggregate notional value of $573.2
million and $574.8 million, respectively. The notional value does not represent exposure to credit, interest rate or market risks.
As of December 31, 2023, the fair values of our derivative instruments amounted to $11.8 million which is included in prepaid
expenses and other assets, and ($0.1 million) which is included in accounts payable and accrued expenses on the consolidated
balance sheet. As of December 31, 2022, the fair value of our derivative instruments amounted to $17.9 million which is
included in prepaid expenses and other assets on the consolidated balance sheet. These interest rate swaps have been designated
as cash flow hedges and hedge the variability in future cash flows associated with our existing variable-rate term loan facilities.
Interest rate caps not designated as hedges are not speculative and are used to manage our exposure to interest rate movements,
but do not meet the strict hedge accounting requirements.
As of December 31, 2023 and 2022, our cash flow hedges are deemed highly effective and for the years ended
December 31, 2023 and 2022, net unrealized gains (losses) of $(2.2) million and $47.3 million, respectively, are reflected in the
consolidated statements of comprehensive income (loss) relating to both active and terminated cash flow hedges of interest rate
risk. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest
expense as interest payments are made on the debt. We estimate that $5.6 million net gain of the current balance held in
accumulated other comprehensive income (loss) will be reclassified into interest expense within the next 12 months.
The table below summarizes the terms of agreement and the fair value of our derivative financial instruments as of
December 31, 2023 and 2022 (dollar amounts in thousands):
Derivative
Notional
Amount
Receive Rate
Pay Rate
Effective Date
Expiration Date
Asset
Liability
Asset
Liability
December 31, 2023
December 31, 2022
Interest rate swap
$ 36,820
Interest rate swap
103,790
Interest rate swap
10,710
70% of 1 Month
SOFR
70% of 1 Month
SOFR
70% of 1 Month
SOFR
2.5000 % December 1, 2021
November 1, 2030
$
64 $
—
$
256 $
2.5000 % December 1, 2021
November 1, 2033
—
(85)
1.7570 % December 1, 2021
November 1, 2033
Interest rate swap
15,942 1 Month SOFR
2.2540 % December 1, 2021
November 1, 2030
Interest rate cap
6,780
70% of 1 Month
SOFR
4.5000 % December 1, 2021
October 1, 2024
Interest rate cap
9,188 1 Month SOFR
5.5000 % December 1, 2021
October 1, 2024
Interest rate swap
175,000 SOFR Compound
2.5620 % August 31, 2022 December 31, 2026
5,637
Interest rate swap
107,500 SOFR Compound
2.6260 % August 19, 2022
March 19, 2025
2,384
Interest rate swap
107,500
SOFR OIS
Compound
2.6280 % August 19, 2022
March 19, 2025
2,383
546
782
—
4
365
643
1,070
8
26
8,040
3,766
3,762
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 11,800 $
(85) $ 17,936 $
F-21
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on
accumulated other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 (amounts in
thousands):
Effects of Cash Flow Hedges
December 31, 2023
December 31, 2022
December 31, 2021
Amount of gain recognized in other comprehensive income
(loss)
Amount of loss (gain) reclassified from accumulated other
comprehensive income (loss) into interest expense
$
5,581
$
40,044
$
348
7,819
(7,230)
(11,653)
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on the
consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021 (amounts in thousands):
Effects of Cash Flow Hedges
December 31, 2023
December 31, 2022
December 31, 2021
Total interest expense presented on the consolidated
statements of income in which the effects of cash flow
hedges are recorded
Amount of loss (gain) reclassified from accumulated other
comprehensive income (loss) into interest expense
$
(101,484)
(101,206)
7,819
(7,230)
(94,394)
(11,653)
Fair Valuation
The estimated fair values at December 31, 2023 and 2022 were determined by management, using available market
information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize
on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
The following tables summarize the carrying and estimated fair values of our financial instruments as of December 31,
2023 and 2022 (amounts in thousands):
Carrying
Value
December 31, 2023
Estimated Fair Value
Total
Level 1
Level 2
Level 3
Interest rate swaps included in prepaid
expenses and other assets
Interest rate swaps included in accounts
payable and accrued expenses
Mortgage notes payable
Senior unsecured notes - Series A, B, C, D,
E, F, G and H
Unsecured term loan facilities
$
11,800
$
11,800
$
—
$
11,800
$
85
85
877,388
774,280
973,872
389,286
882,242
390,000
—
—
—
—
85
—
—
—
—
—
774,280
882,242
390,000
Carrying
Value
December 31, 2022
Estimated Fair Value
Total
Level 1
Level 2
Level 3
Interest rate swaps included in prepaid
expenses and other assets
Mortgage notes payable
Senior unsecured notes - Series A, B, C, D,
E, F, G and H
Unsecured term loan facility
$
17,936
$
17,936
$
883,705
783,648
973,659
388,773
865,292
390,000
—
—
—
—
$
17,936
$
—
—
—
—
783,648
865,292
390,000
Disclosure about the fair value of financial instruments is based on pertinent information available to us as of
December 31, 2023 and 2022. Although we are not aware of any factors that would significantly affect the reasonable fair value
amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since
that date and current estimates of fair value may differ significantly from the amounts presented herein.
F-22
8. Leases
Lessor
We lease various commercial spaces to tenants over terms ranging from one to 22 years. Certain leases have renewal
options for additional terms. The leases provide for base monthly rentals and reimbursements for real estate taxes, escalations
linked to the consumer price index or common area maintenance known as operating expense escalation. Operating expense
reimbursements are reflected in our December 31, 2023, 2022 and 2021 consolidated statements of operations as rental revenue.
Rental revenue includes fixed and variable payments. Fixed payments primarily relate to base rent and variable
payments primarily relate to tenant expense reimbursements for certain property operating costs. The components of rental
revenue for the years ended December 31, 2023, 2022 and 2021 are as follows (amounts in thousands):
Rental revenue
Fixed payments
Variable payments
Total rental revenue
Year Ended December 31,
2023
2022
2021
$
$
529,965
$
531,740
$
67,354
59,308
597,319
$
591,048
$
500,847
58,843
559,690
As of December 31, 2023, we were entitled to the following future contractual minimum lease payments (excluding
operating expense reimbursements) on non-cancellable operating leases to be received which expire on various dates through
2040 (amounts in thousands):
2024
2025
2026
2027
2028
Thereafter
$
$
513,589
499,154
453,645
434,447
395,858
1,646,769
3,943,462
The above future minimum lease payments exclude tenant recoveries and the net accretion of above-market leases
and below-market lease intangibles. Some leases are subject to termination options generally upon payment of a termination
fee. The preceding table is prepared assuming such options are not exercised.
Lessee
We determine if an arrangement is a lease at inception. Our operating lease agreements relate to three ground lease
assets and are reflected in right-of-use assets of $28.4 million and lease liabilities of $28.4 million in our consolidated balance
sheets as of December 31, 2023. Right-of-use assets represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are
recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease
payments are excluded from the right-of-use assets and lease liabilities and are recognized in the period in which the
obligation for those payments is incurred.
The ground leases are due to expire between the years 2050 and 2077, inclusive of extension options, and have no
variable payments or residual value guarantees. As our leases do not provide an implicit rate, we determined our incremental
borrowing rate based on information available at the date of adoption of ASU No. 2016-02, Leases (Topic 842), in
determining the present value of lease payments. The weighted average incremental borrowing rate used to calculate the right-
of-use assets and lease liabilities as of December 31, 2023 was 4.5%. Rent expense for lease payments related to our operating
leases is recognized on a straight-line basis over the non-cancellable term of the leases. The weighted average remaining lease
term as of December 31, 2023 was 46.5 years.
As of December 31, 2023, the following table summarizes our future minimum lease payments discounted by our
incremental borrowing rates to calculate the lease liabilities of our leases (amounts in thousands):
F-23
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Present value discount
Ground lease liabilities
9. Commitments and Contingencies
Legal Proceedings
Litigation
$
$
1,518
1,518
1,503
1,482
1,482
60,795
68,298
(39,859)
28,439
Except as described below, as of December 31, 2023, we were not involved in any material litigation, nor, to our
knowledge, was any material litigation threatened against us or our properties, other than routine litigation arising in the
ordinary course of business such as disputes with tenants. We believe that the costs and related liabilities, if any, which may
result from such actions will not materially affect our consolidated financial position, operating results or liquidity.
As previously disclosed, in October 2014, 12 former investors (the "Claimants") in Empire State Building Associates
L.L.C. (“ESBA”), which prior to the initial public offering of our Company (the "Offering"), owned the fee title to the Empire
State Building, filed an arbitration with the American Arbitration Association against Peter L. Malkin, Anthony E. Malkin,
Thomas N. Keltner, Jr., and our subsidiary ESRT MH Holdings LLC, the former supervisor of ESBA, (the "Respondents").
The statement of claim (also filed later in federal court in New York for the expressed purpose of tolling the statute of
limitations) alleged breach of fiduciary duty and related claims in connection with the Offering and formation transactions and
sought monetary damages and declaratory relief. Claimants had opted out of a prior class action bringing similar claims that
was settled with court approval. Respondents filed an answer and counterclaims. In March 2015, the federal court action was
stayed on consent of all parties pending the arbitration. Arbitration hearings started in May 2016 and concluded in August 2018.
On August 26, 2020, the arbitration panel issued an award that denied all Claimants’ claims with one exception, on which it
awarded Claimants approximately $1.2 million, inclusive of seven years of interest through October 2, 2020. This amount was
recorded as an IPO litigation expense in the consolidated statement of operations for the year ended December 31, 2020.
Respondents believe that such award in favor of the Claimants is entirely without merit and sought to vacate that
portion of the award. On September 27, 2021, a federal district court denied Respondents' petition to vacate and entered
judgement in the aforementioned amount, inclusive of accumulated interest. Respondents appealed that ruling. On May 10,
2022, Respondents moved to dismiss the appeal and judgment on the grounds that a recent decision of the United States
Supreme Court held that the federal courts have no subject matter jurisdiction over the case. On April 20, 2023, the federal
appeals court granted the motion and the federal court action challenging the award was dismissed. On April 21, 2023, the
Respondents filed a petition to vacate in part and otherwise confirm in New York State court. On April 28, 2023, the Claimants
filed a petition to confirm in that same court. On July 31, 2023, the New York State court denied the Respondents’ petition to
vacate in part and confirmed the award. On January 22, 2024, that court entered judgment in favor of the Claimants (save for
one Claimant, whose petition to confirm is still pending in New York state court) in an amount of approximately $1.26 million,
inclusive of interest. The Respondents believe those rulings are incorrect and have appealed them. In addition, certain of the
Claimants in the federal court action brought to toll the statute of limitations sought to pursue claims in that case against
Respondents. Respondents believe that any such claims are meritless. The magistrate judge assigned to the action issued a
Report and Recommendation rejecting Claimants’ claims; the district judge will decide whether to adopt the Report and
Recommendation.
Pursuant to indemnification agreements which were made with our directors, executive officers and chairman emeritus
as part of our formation transactions, Anthony E. Malkin, Peter L. Malkin and Thomas N. Keltner, Jr. have defense and
indemnity rights from us with respect to this arbitration.
Unfunded Capital Expenditures
F-24
At December 31, 2023, we estimate that we will incur approximately $101.2 million of capital expenditures
(including tenant improvements and leasing commissions) on our properties pursuant to existing lease agreements. We expect
to fund these capital expenditures with operating cash flow, cash on hand and other borrowings. Future property acquisitions
may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements
will be met in a similar fashion.
Concentration of Credit Risk
Financial instruments that subject us to credit risk consist primarily of cash and cash equivalents, restricted cash, short-
term investments, tenant and other receivables and deferred rent receivables. At December 31, 2023, we held on deposit at
various major financial institutions cash and cash equivalents and restricted cash balances in excess of amounts insured by the
Federal Deposit Insurance Corporation.
Real Estate Investments
Our properties are located in Manhattan and Brooklyn, New York; and Stamford, Connecticut. The ability of the
tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting
the markets in which the tenants operate. We perform ongoing credit evaluations of our tenants for potential credit losses.
Tenant Credit Evaluations
Our investments in real estate properties are subject to risks incidental to the ownership and operation of commercial
real estate. These risks include, among others, the risks normally associated with changes in general economic conditions,
trends in the real estate industry, creditworthiness of tenants, competition of tenants and customers, changes in tax laws, interest
rate levels, the availability and cost of financing, and potential liability under environmental and other laws.
We may require tenants to provide some form of credit support such as corporate guarantees and/or other financial
guarantees and we perform ongoing credit evaluations of tenants. Although the tenants operate in a variety of industries, to the
extent we have a significant concentration of rental revenue from any single tenant, the inability of that tenant to make its
lease payments could have an adverse effect on our Company.
Major Customers and Other Concentrations
For the year ended December 31, 2023, other than four tenants who accounted for 6.8%, 2.5%, 2.1%, and 2.1% of
rental revenues, no other tenant in our portfolio accounted for more than 2.0% of rental revenues. For the year ended December
31, 2022, other than two tenants who accounted for 6.4% and 2.0% of rental revenues, no other tenant in our portfolio
accounted for more than 2.0% of rental revenues. For the year ended December 31, 2021, other than four tenants who
accounted for 4.6%, 3.3%, 2.8% and 2.1% of rental revenues, no other tenant in our commercial portfolio accounted for more
than 2.0% of rental revenues.
For the years ended December 31, 2023, 2022 and 2021, the three properties listed below each exceeded 10% of total
rental revenues.
Year Ended December 31,
2022
2021
2023
Empire State Building
One Grand Central Place
111 West 33rd Street
Asset Retirement Obligations
29.6 %
12.8 %
10.8 %
29.9 %
12.4 %
11.2 %
31.7 %
12.6 %
11.3 %
We are required to accrue costs that we are legally obligated to incur on retirement of our properties which result from
acquisition, construction, development and/or normal operation of such properties. Retirement includes sale, abandonment or
disposal of a property. Under that standard, a conditional asset retirement obligation represents a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be
within a company’s control and a liability for a conditional asset retirement obligation must be recorded if the fair value of the
obligation can be reasonably estimated. Environmental site assessments and investigations have identified asbestos or asbestos-
containing building materials in certain of our properties. As of December 31, 2023, management has no plans to remove or
alter these properties in a manner that would trigger federal and other applicable regulations for asbestos removal, and
accordingly, the obligations to remove the asbestos or asbestos-containing building materials from these properties have
F-25
indeterminable settlement dates. As such, we are unable to reasonably estimate the fair value of the associated conditional asset
retirement obligation. However ongoing asbestos abatement, maintenance programs and other required documentation are
carried out as required and related costs are expensed as incurred.
Other Environmental Matters
Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of
real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or
petroleum products at, on, in, under or from such property, including costs for investigation or remediation, natural resource
damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may
be joint and several. Some of our properties have been or may be impacted by contamination arising from current or prior uses
of the property or adjacent properties for commercial, industrial or other purposes. Such contamination may arise from spills of
petroleum or hazardous substances or releases from tanks used to store such materials. We also may be liable for the costs of
remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous
substances at such facilities, without regard to whether we comply with environmental laws in doing so. The presence of
contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and/or
retain tenants, and our ability to develop or sell or borrow against those properties. In addition to potential liability for cleanup
costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Environmental laws also
may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such
contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the
manner in which that property may be used or how businesses may be operated on that property.
Some of our properties are adjacent to or near other properties which are used for industrial or commercial purposes or
have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic
substances. Releases from these properties could impact our properties. In addition, some of our properties have previously
been used by former owners or tenants for commercial or industrial activities, e.g., gas stations and dry cleaners, and a portion
of the Metro Tower site is currently used for automobile parking and was formerly leased to a fueling facility that may release
petroleum products or other hazardous or toxic substances at such properties or to surrounding properties. While certain
properties contain or contained uses that could have or have impacted our properties, we are not aware of any liabilities related
to environmental contamination that we believe will have a material adverse effect on our operations.
We have post-closing obligations related to the 69-97 and 103-107 Main Street, Westport, Connecticut properties that
we sold in February 2023 to (i) close out a voluntary remediation program at 69-97 Main Street to address residual impacts of
prior presence of underground storage tanks and (ii) comply with a consent order issued by the Connecticut Department of
Environmental Protection to investigate soil conditions at 103-107 Main Street. We believe any expenses incurred to close out
and comply with the remediation program and consent order, respectively, will be immaterial to the results of our operations.
Our property situated at 500 Mamaroneck Avenue in Harrison, New York was the subject of a voluntary remedial
action work cleanup plan under an agreement with the New York State Department of Environmental Conservation, but we
sold this property in April 2023 and the obligations have been transferred to the buyer. Refer to Note 3 Acquisitions and
Dispositions.
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and
regulations. Noncompliance with these laws and regulations could subject us or our tenants to liability. These liabilities could
affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of
compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated
expenditures. We sometimes require our tenants to comply with environmental and health and safety laws and regulations and
to indemnify us for any related liabilities in our leases with them. But in the event of the bankruptcy or inability of any of our
tenants to satisfy such obligations, we may be required to satisfy such obligations. We are not presently aware of any instances
of material non-compliance with environmental or health and safety laws or regulations at our properties, and we believe that
we and/or our tenants have all material permits and approvals necessary under current laws and regulations to operate our
properties.
In addition, we may become subject to new compliance requirements and/or new costs or taxes associated with natural
resource or energy usage and related emissions (such as a carbon tax), which could increase our operating costs. In particular,
as the owner of large commercial buildings in New York City, we are subject to Local Law 97 passed by the New York City
Council in April 2019, which for each such building establishes annual limits for greenhouse gas emissions, requires yearly
emissions reports beginning in May 2025, and imposes penalties for emissions above such limits. Based upon our present
F-26
understanding of the law and calculations related thereto, we expect to pay no fine on any building in our commercial portfolio
in the 2024-2029 first period of enforcement.
As the owner or operator of real property, we may also incur liability based on various building conditions. For
example, environmental site assessments and investigations have identified asbestos or asbestos-containing material ("ACM")
in certain of our properties, and it is possible that other properties that we currently own or operate or those we acquire or
operate in the future contain, may contain, or may have contained ACM. Environmental and health and safety laws require that
ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-
compliance with those requirements. These requirements include special precautions, such as removal, abatement or air
monitoring, if ACM would be disturbed during maintenance, redevelopment or demolition of a building, potentially resulting in
substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of
releases of ACM into the environment. We are not presently aware of any material liabilities related to building conditions,
including any instances of material non-compliance with asbestos requirements or any material liabilities related to asbestos.
Our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to
liability for adverse health effects or property damage or costs for remediation. When excessive moisture accumulates in
buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not
addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem
from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as
pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety
of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or
other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or
remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the
presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our
tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air
quality issues at our properties.
As of December 31, 2023, with the exception of the Westport assets, management believes that there are no
obligations related to environmental remediation other than maintaining the affected sites in conformity with the relevant
authority’s mandates and filing the required documents. All such maintenance costs are expensed as incurred. However, we
cannot be certain that we have identified all environmental liabilities at our properties, that all necessary remediation actions
have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such
environmental liabilities arise.
Insurance Coverage
We carry insurance coverage on our properties of types and in amounts with deductibles that we believe are in line
with coverage customarily obtained by owners of similar properties.
Multiemployer Pension and Defined Contribution Plans
We contribute to a number of multiemployer defined benefit pension plans under the terms of collective bargaining
agreements that cover our union-represented employees. The risks of participating in these multiemployer plans are different
from single-employer plans in the following respects:
•
•
•
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees
of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne
by the remaining participating employers.
If we no longer employ union members, we may be required to pay those plans an amount based on the
underfunded status of the plan, referred to as a withdrawal liability.
We participate in various unions. The union in which we have significant employees and costs is 32BJ.
32BJ
We participate in the Building Service 32BJ ("Union") Pension Plan and Health Plan. The Pension Plan is a multi-
employer, non-contributory defined benefit pension plan that was established under the terms of collective bargaining
F-27
agreements between the Service Employees International Union, Local 32BJ, the Realty Advisory Board on Labor Relations,
Inc. and certain other employers. This Pension Plan is administered by a joint board of trustees consisting of union trustees and
employer trustees and operates under employer identification number 13-1879376. The Pension Plan year runs from July 1 to
June 30. Employers contribute to the Pension Plan at a fixed rate on behalf of each covered employee. Separate actuarial
information regarding such pension plans is not made available to the contributing employers by the union administrators or
trustees, since the plans do not maintain separate records for each reporting unit. On September 28, 2021, the actuary certified
that for the plan year beginning July 1, 2021, the Pension Plan was in critical status under the Pension Protection Act of 2006.
The Pension Plan trustees adopted a rehabilitation plan consistent with this requirement. However, on September 28, 2022 and
September 28, 2023, the actuary certified that for the plan year beginning July 1, 2022 and July 1, 2023, respectively, the
Pension Plan was in endangered status under the Pension Protection Act of 2006. The Pension Plan trustees adopted a funding
improvement plan consistent with this requirement. For the plan years ended June 30, 2021, 2022 and 2023, the Pension Plan
received contributions from employers totaling $290.1 million, $305.7 million and $317.9 million, respectively.
The Health Plan was established under the terms of collective bargaining agreements between the Union, the Realty
Advisory Board on Labor Relations, Inc. and certain other employers. The Health Plan provides health and other benefits to
eligible participants employed in the building service industry who are covered under collective bargaining agreements, or
other written agreements, with the Union. The Health Plan is administered by a Board of Trustees with equal representation by
the employers and the Union and operates under employer identification number 13-2928869. The Health Plan receives
contributions in accordance with collective bargaining agreements or participation agreements. Generally, these agreements
provide that the employers contribute to the Health Plan at a fixed rate on behalf of each covered employee. For the plan years
ended June 30, 2021, 2022 and 2023, the Health Plan received contributions from employers totaling $1.5 billion, $1.6 billion
and $1.9 billion, respectively.
Term of Collective Bargaining Agreements
Our collective bargaining agreement for Service Employees International Union Local 32BJ relating to commercial
properties in New York City was renewed and commenced effective January 1, 2024 through December 31, 2027. We are in
the process of negotiating a successor agreement to the collective bargaining agreement for Service Employees International
Union Local 32BJ relating to our operations in the greater New York metropolitan area. We are also a signatory to another
collective bargaining agreement for Service Employees International Union Local 32BJ with a term from April 21, 2022
through April 20, 2026 for our residential properties.
Contributions
Contributions we made to the multi-employer plans for the years ended December 31, 2023, 2022 and 2021 are
included in the table below (amounts in thousands):
Benefit Plan
Pension Plans (pension and annuity)*
Health Plans**
Other***
Total plan contributions
For the Year Ended December 31,
2022
2021
2023
$
$
3,671
8,812
434
12,917
$
$
2,958
8,618
460
12,036
$
$
2,165
6,214
305
8,684
*
Pension plans include $0.8 million, $0.8 million and $0.7 million for the years ended 2023, 2022 and 2021,
respectively, to multiemployer plans not discussed above.
** Health plans include $1.6 million, $1.5 million and $1.4 million for the years ended 2023, 2022 and 2021, respectively,
to multiemployer plans not discussed above.
*** Other consists of union costs which were not itemized between pension and health plans. Other includes $0.3 million,
$0.2 million and $0.2 million for the years ended 2023, 2022 and 2021, respectively, in connection with other
multiemployer plans not discussed above.
The increase in plan contributions in 2023 is mainly due to higher payroll levels with the increased building utilization
at our various properties. Benefit plan contributions are included in operating expenses in our consolidated statements of
operations.
10. Equity
Shares and Units
F-28
An operating partnership unit ("OP Unit") and a share of our common stock have essentially the same economic
characteristics as they receive the same per unit profit distributions of the Operating Partnership. On the one-year anniversary of
issuance, an OP Unit may be tendered for redemption for cash; however, we have sole and absolute discretion, and sufficient
authorized common stock, to exchange OP Units for shares of common stock on a one-for-one basis instead of cash.
As of December 31, 2023, there were 162,061,947 shares of Class A common stock, 984,317 shares of Class B
common stock and 107,900,200 OP Units outstanding. The REIT holds a 60.2% controlling interest in the OP. The other 39.8%
noncontrolling interest in the OP is diversified among various limited partners, some of whom include Company directors,
senior management and employees. We have two classes of common stock as a means to give our OP Unit holders voting rights
in the public company that correspond to their economic interest in the combined entity. A one-time option was created at our
formation transactions for any pre-IPO OP Unit holder to exchange one OP Unit out of every 50 OP Units they owned for one
Class B share, and such Class B share carries 50 votes per share.
Stock and Publicly Traded Operating Partnership Unit Repurchase Program
Our Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the
Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2022 through
December 31, 2023. Upon expiration of this program, the Board of Directors authorized the repurchase of up to $500 million of
our Class A common stock and the Operating Partnership's Series ES, Series 250 and Series 60 operating partnership units
during the period from January 1, 2024 through December 31, 2025. Under the program, we may purchase our Class A
common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units in accordance
with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner,
price and amount of any repurchases will be determined by us at our discretion and will be subject to stock price, availability,
trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to acquire any
particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. At
December 31, 2023, we had used approximately $103.3 million of the authorized repurchase amount for the 2022-2023 period.
The following table summarizes our purchases of equity securities for the year ended December 31, 2023 under the
previous repurchase program.
Period
Total Number of
Shares Purchased
Average Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
Year ended December 31, 2023
2,150,857 $
(a) Represents the new board authorization for the January 1, 2024 - December 31, 2025 period. As of the date of this filing, we have used $0 of such
$500 million authorization.
2,150,857
6.09
Maximum
Approximate
Dollar Value
Available for
Future Purchase
$500,000,000 (a)
Private Perpetual Preferred Units
As of December 31, 2023, there were 4,664,038 Series 2019 Preferred Units ("Series 2019 Preferred Units") and
1,560,360 Series 2014 Private Perpetual Preferred Units ("Series 2014 Preferred Units"). The Series 2019 Preferred Units have
a liquidation preference of $13.52 per unit and are entitled to receive cumulative preferential annual cash distributions of $0.70
per unit payable in arrears on a quarterly basis. The Series 2014 Preferred Units which have a liquidation preference of $16.62
per unit and are entitled to receive cumulative preferential annual cash distributions of $0.60 per unit payable in arrears on a
quarterly basis. Both series are not redeemable at the option of the holders and are redeemable at our option only in the case of
specific defined events.
Dividends and Distributions
F-29
The following table summarizes the dividends paid on our Class A common stock and Class B common stock for the
years ended December 31, 2023, 2022 and 2021:
Record Date
December 18, 2023
September 15, 2023
June 15, 2023
March 15, 2023
December 19, 2022
September 15, 2022
June 15, 2022
March 15, 2022
December 20, 2021
September 15, 2021
June 15, 2021
Payment Date
December 29, 2023
September 29, 2023
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Amount per Share
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
$0.035
Total dividends paid to common securityholders during 2023, 2022 and 2021 were $22.7 million, $23.1 million and
$18.1 million, respectively. Total distributions paid to OP unitholders, excluding inter-company distributions, during 2023,
2022 and 2021 totaled $14.4 million, $15.5 million and $10.5 million, respectively. Total distributions paid to Preferred
unitholders during 2023, 2022 and 2021 were $4.2 million, $4.2 million, and $4.2 million, respectively.
Earnings and profits, which determine the tax treatment of distributions to securityholders, will differ from income
reported for financial reporting purposes due to the differences for federal income tax purposes, including, but not limited to,
treatment of revenue recognition, compensation expense, and basis of depreciable assets and estimated useful lives used to
compute depreciation. The 2023 dividends of $0.14 per share are classified for income tax purposes 89.2% as taxable ordinary
dividends eligible for the Section 199A deduction and 10.8% as a return of capital. The 2022 dividends of $0.14 per share are
classified for income tax purposes 100% as taxable ordinary dividends eligible for the Section 199A deduction and 0% as a
return of capital. The 2021 dividends of $0.105 per share are classified for income tax purposes 16.2% as taxable ordinary
dividends eligible for the Section 199A deduction and 83.8% as a return of capital.
Incentive and Share-Based Compensation
On May 16, 2019, the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan (“2019
Plan”) was approved by our shareholders. The 2019 Plan provides for grants to directors, employees and consultants of our
Company and Operating Partnership, including options, restricted stock, restricted stock units, stock appreciation rights,
performance awards, dividend equivalents and other equity-based awards, and replaced the First Amended and Restated Empire
State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan ("2013 Plan", and collectively with the
2019 Plan, "the Plans"). The shares of Class A common stock underlying any awards under the 2019 Plan and the 2013 Plan
that are forfeited, canceled or otherwise terminated, other than by exercise, will be added back to the shares of Class A common
stock available for issuance under the 2019 Plan. Shares tendered or held back upon exercise of a stock option or settlement of
an award under the 2019 Plan or the 2013 Plan to cover the exercise price or tax withholding and shares subject to a stock
appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise
thereof, will not be added back to the shares of Class A common stock available for issuance under the 2019 Plan. In addition,
shares of Class A common stock repurchased on the open market will not be added back to the shares of Class A common stock
available for issuance under the 2019 Plan.
An aggregate of approximately 11.0 million shares of our common stock was authorized for issuance under awards
granted pursuant to the 2019 Plan, and as of December 31, 2023, approximately 4.2 million shares of common stock remain
available for future issuance under the Plans.
Long-term incentive plan ("LTIP") units are a special class of partnership interests in the Operating Partnership. Each
LTIP unit awarded will be deemed equivalent to an award of one share of stock under the Plans, reducing the availability for
other equity awards on a one-for-one basis. The vesting period for LTIP units, if any, will be determined at the time of issuance.
Under the terms of the LTIP units, the Operating Partnership will revalue for tax purposes its assets upon the occurrence of
certain specified events, and any increase in valuation from the time of one such event to the next such event will be allocated
first to the holders of LTIP units to equalize the capital accounts of such holders with the capital accounts of OP unitholders.
F-30
Subject to any agreed upon exceptions, once vested and having achieved parity with OP unitholders, LTIP units are convertible
into OP Units in the Operating Partnership on a one-for-one basis.
LTIP units subject to time-based vesting, whether vested or not, receive the same per unit distributions as OP Units,
which equal per share dividends (both regular and special) on our common stock. Market and performance-based LTIPs receive
10% of such distributions currently, unless and until such LTIP units are earned based on performance, at which time they will
receive the accrued and unpaid 90% and will commence receiving 100% of such distributions thereafter.
In March 2023, we made grants of LTIP units to executive officers under the 2019 Plan, including a total of 552,412
LTIP units that are subject to time-based vesting, 834,456 LTIP units that are subject to market-based vesting and 679,969 units
that are subject to performance-based vesting with fair market values of $3.2 million, $3.9 million and $3.9 million,
respectively. In March 2023, we made grants of LTIP units and restricted stock to certain other employees under the 2019 Plan,
including a total of 229,308 LTIP units and 370,465 shares of restricted stock that are subject to time-based vesting, 111,942
LTIP units that are subject to market-based vesting and 91,211 LTIP units that are subject to performance-based vesting, with
fair market values of $1.5 million and $2.6 million, respectively, for the time-based vesting awards, $0.6 million for the market-
based vesting awards and $0.6 million for the performance-based vesting awards. The awards subject to time-based vesting vest
ratably over four years, subject generally to the grantee's continued employment, with the first installment vesting on January 1,
2024. The vesting of the LTIP units subject to market-based vesting is based on the achievement of relative total stockholder
return hurdles over a three-year performance period, commencing on January 1, 2023. The vesting of the LTIP units subject to
performance-based vesting is based on the achievement of (i) operational metrics over a one-year performance period, subject
to a three-year absolute TSR modifier, and (ii) environmental, social and governance metrics over a three-year performance
period, in each case, commencing on January 1, 2023. Following the completion of the respective performance periods, our
Compensation and Human Capital Committee will determine the number of LTIP units to which the grantee is entitled based on
our performance relative to the performance hurdles set forth in the LTIP unit award agreements the grantee entered in
connection with the award grant. These LTIP units then vest in two equal installments, on January 1, 2025 and December 31,
2026, subject generally to the grantee's continued employment on those dates.
In March 2023, we also made one-time additional grants of LTIP units to certain non-executive employees under the
2019 Plan. At such time, we granted to certain other employees a total of 152,542 LTIP units that are subject to time-based
vesting, with a fair market value of $1.0 million that vest over four and five year periods.
In 2023, our named executive officers could elect to receive their annual incentive bonus in any combination of (i)
cash or vested LTIPs at the face amount of such bonus or (ii) time-vesting LTIPs which would vest over three years, subject to
continued employment, at a premium over such face amount (120% for awards granted in 2021, 2022, and 2023; 125% for
years prior to 2021). In March 2023, we made grants of LTIP units to executive officers under the 2019 Plan in connection with
the 2022 bonus election program. We granted to executive officers a total of 521,571 LTIP units that are subject to time-based
vesting with a fair market value of $3.0 million. Of these LTIP units, 446,376 LTIP units vest ratably over three years from
January 1, 2023, subject generally to the grantee's continued employment. The first installment vests on January 1, 2024, and
the remainder will vest thereafter in two equal annual installments on January 1, 2025 and January 1, 2026. We also granted to
our retired general counsel 75,195 LTIP units that vested immediately on the grant date.
Annually, we make grants of LTIP units to our non-employee directors under the 2019 Plan. In May 2023, each of our
directors received 60% of their $200,000 annual base retainer in the form of equity vesting ratably over four years, and could
elect to receive the remaining 40% of such base retainer in (i) cash at the face value of the award, (ii) immediately vesting
equity at the face value of the award, or (iii) equity vesting ratably over three years at 120% of the face amount. Each director
could elect to receive any equity portion of the base retainer in either (i) LTIP units or (ii) restricted shares of our Class A
common stock. In accordance with each director's election, in May 2023, we granted a total of 237,856 LTIP units that are
subject to time-based vesting with fair market values of $1.2 million. The LTIP units vest ratably over three or four years from
the date of the grant, based on grantee election, subject generally to the director's continued service on our Board of Directors.
During July 2023, we granted our two new directors, Christina Van Tassell and Hannah Yang, a total of 27,000 LTIP
units which are subject to time-based vesting with a combined fair market value of $0.2 million. One-fourth of the units will
vest on May 12, 2024, and the remainder shall vest in substantially equal installments on each subsequent anniversary for a
period of three years thereafter.
Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant
and recognized as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three,
four or five years, or (ii) the period from the date of grant to the date the employee becomes retirement eligible, which may
occur upon grant. An employee is retirement eligible when the employee attains the (i) age of 65 for awards granted in 2020
and after, and age of 60 for awards granted before 2020 and (ii) the date on which the employee has first completed the
F-31
requisite years of continuous service with us or our affiliates. Share-based compensation for market-based equity awards and
performance-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense
on a straight-line basis over three or four years. Additionally, for the performance-based equity awards, we assess, at each
reporting period, whether it is probable that the performance conditions will be satisfied. We recognize expense respective to
the number of awards we expect to vest at the conclusion of the measurement period. Changes in estimate are accounted for in
the period of change through a cumulative catch-up adjustment. Any forfeitures of share-based compensation awards are
recognized as they occur.
For the market-based LTIP units, the fair value of the awards was estimated using a Monte Carlo Simulation model
and discounted for the restriction period during which the LTIP units cannot be redeemed or transferred and the uncertainty
regarding if, and when, the book capital account of the LTIP units will equal that of the common units. Our stock price, along
with the prices of the comparative indexes, is assumed to follow the Geometric Brownian Motion Process. Geometric Brownian
Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case the stock
price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on our stock
price and the comparative indexes were estimated based on implied volatilities and historical volatilities using an appropriate
look-back period. The expected growth rate of the stock prices over the performance period is determined with consideration of
the risk-free rate as of the grant date. For LTIP unit awards that are time or performance based, the fair value of the awards was
estimated based on the fair value of our stock at the grant date discounted for the restriction period during which the LTIP units
cannot be redeemed or transferred and the uncertainty regarding if, and when, the book capital account of the LTIP units will
equal that of the common units. For restricted stock awards, the fair value of the awards are based on the market price of our
stock at the grant date.
LTIP units and restricted stock issued during the year ended December 31, 2023, 2022 and 2021 were valued at $21.7
million, $22.4 million and $20.0 million, respectively. The weighted-average per unit or share fair value was $5.67, $7.21 and
$8.52 for grants issued in 2023, 2022 and 2021, respectively. The fair value per unit or share granted in 2023 was estimated on
the respective dates of grant using the following assumptions: an expected life from 2.0 to 5.3 years, a dividend rate of 1.7%, a
risk-free interest rate from 4.4% to 5.0%, and an expected price volatility from 35.0% to 46.0%. The fair value per unit or share
granted in 2022 was estimated on the respective dates of grant using the following assumptions: an expected life from 2.0 to 5.3
years, a dividend rate of 2.0%, a risk-free interest rate from 1.4% to 2.0%, and an expected price volatility from 37.0% to
53.0%. The fair value per unit or share granted in 2021 was estimated on the respective dates of grant using the following
assumptions: an expected life from 2.0 to 5.3 years, a dividend rate of 2.60%, a risk-free interest rate from 0.12% to 0.32%, and
an expected price volatility from 36.0% to 53.0%. No other stock options, dividend equivalents, or stock appreciation rights
were issued or outstanding in 2023, 2022 and 2021.
The following is a summary of restricted stock and LTIP unit activity for the year ended December 31, 2023:
Restricted
Stock
Time-based
LTIPs
Market-based
LTIPs
Performance-
based LTIPs
Weighted Average
Grant Fair Value
Unvested balance at
December 31, 2022
Vested
Granted
Forfeited or unearned
Unvested balance at
December 31, 2023
359,293
2,713,522
4,070,537
(121,128)
(1,148,987)
(582,800)
370,465
(10,341)
1,733,015
—
946,398
(1,695,323)
510,989 $
(2,011)
771,180
(3,795)
598,289
3,297,550
2,738,812
1,276,363 $
6.69
7.17
5.67
4.30
6.60
The total fair value of LTIP units and restricted stock that vested during 2023, 2022 and 2021 was $13.3 million, $14.1
million and $12.3 million, respectively.
The time-based LTIPs and restricted stock awards are treated for accounting purposes as immediately vested upon the
later of (i) the date the grantee attains the age of 60 or 65, as applicable, and (ii) the date on which grantee has first completed
the requisite years of continuous service with our Company or its affiliates. For award agreements that qualify, we recognize
noncash compensation expense on the grant date for the time-based awards and ratably over the vesting period for the market-
based and performance-based awards, and accordingly, we recognized $2.8 million, $2.3 million and $1.3 million for the years
ended December 31, 2023, 2022 and 2021, respectively. Unrecognized compensation expense was $3.2 million at
December 31, 2023, which will be recognized over a weighted average period of 2.4 years.
For the remainder of the LTIP unit awards, we recognized noncash compensation expense ratably over the vesting
period, and accordingly, we recognized $17.2 million, $18.7 million and $19.0 million in noncash compensation expense for
F-32
the years ended December 31, 2023, 2022 and 2021, respectively. Unrecognized compensation expense was $24.1 million at
December 31, 2023, which will be recognized over a weighted average period of 2.4 years.
Earnings Per Share
Earnings per share is calculated by dividing the net income attributable to common shareholders by the weighted
average number of shares outstanding during the respective period. Unvested share-based payment awards that contain non-
forfeitable rights to dividends, whether paid or unpaid, are accounted for as participating securities. Share-based payment
awards are included in the calculation of diluted income using the treasury stock method if dilutive.
Earnings per share for the years ended December 31, 2023, 2022 and 2021 is computed as follows (amounts in
thousands, except per share amounts):
Numerator - Basic:
Net income (loss)
Private perpetual preferred unit distributions
Net (income) loss attributable to non-controlling interest in
operating partnership
Net (income) loss attributable to non-controlling interests in other
partnerships
Earnings allocated to unvested shares
Net income (loss) attributable to common stockholders - basic
Numerator - Diluted:
Net income (loss)
Private perpetual preferred unit distributions
Net (income) loss attributable to non-controlling interests in other
partnerships
Earnings allocated to unvested shares
Net income (loss) attributable to common stockholders - diluted
Denominator:
Weighted average shares outstanding - basic
Operating partnership units
Effect of dilutive securities:
Stock-based compensation plans
Weighted average shares outstanding - diluted
Earnings per share - basic
Earnings per share - diluted
For the Year Ended December 31,
2023
2022
2021
$
84,407
$
63,212
$
(4,201)
(4,201)
(13,037)
(4,201)
(31,094)
(22,812)
6,527
(68)
—
243
—
—
(26)
49,044
$
36,442
$
(10,737)
84,407
$
63,212
$
(4,201)
(4,201)
(68)
—
80,138
$
243
—
59,254
$
161,122
102,104
2,407
265,633
165,039
103,298
1,611
269,948
(13,037)
(4,201)
—
(26)
(17,264)
172,445
104,975
—
277,420
0.30
0.30
$
$
0.22
0.22
$
$
(0.06)
(0.06)
$
$
$
$
$
There were zero antidilutive shares for the years ended December 31, 2023 and 2022, respectively. There were
1,052,390 antidilutive shares for the year ended December 31, 2021.
11. Related Party Transactions
Sale of Westport Retail Properties
On February 1, 2023, we closed on the disposition of our retail assets located at 69-97 and 103-107 Main Street in
Westport, Connecticut, for total consideration of $40.0 million, to an entity affiliated with our Chairman and Chief Executive
Officer, Anthony E. Malkin (the “Westport Transaction”). The Company determined to make the sale to the related party entity
F-33
after a marketed sale process conducted from February 2022 through August 2022 through a broker in which it received several
third-party bids. Deals with third-party purchasers failed to materialize due to adverse changes in capital market conditions
during that time. The Westport Transaction materialized due to timing because the related party entity had recently completed a
sale of property and was in the market for exchange property to defer tax in a 1031 exchange, and the Company recently
executed on the acquisition of 298 Mulberry Street. The $40.0 million valuation for the Westport Transaction is in the range of
the bids the Company received during the marketed sale process.
In connection with the Westport Transaction, we advanced a loan to the buyer to facilitate closing with a maximum
principal amount of up to $1.0 million, which bore interest at SOFR plus 3.5% and required repayment of principal to the extent
of available cash flow of the property. As of December 31, 2023, the loan has been fully paid.
The Company has a written Related Party Transactions Policy (the “Policy”) which requires the Nominating and
Corporate Governance Committee to review the material facts of all related party transactions and consider all relevant factors
in approving any related party transaction. Further, the Policy provides that a director or executive officer shall not participate
in any consideration, discussion or approval of such related party transaction in which he or she is a related party. The Westport
Transaction process was completed in compliance with the Policy.
The independent members of the Nominating and Corporate Governance Committee conducted an independent review
under the guidance of outside counsel and then approved the transaction. The Company reviewed with outside counsel best
practices for the specific Westport Transaction and took additional precautions to ensure an arms-length process. There were
separate counsels and appraisals for both buyer and seller.
Tax Protection Agreements
In 2013, we entered into a tax protection agreement with Anthony E. Malkin and Peter L. Malkin that is intended to
protect to a limited extent the Malkin Group and an additional third-party investor in Metro Center (who was one of the original
landowners and was involved in the development of the property) against certain tax consequences arising from a transaction
involving one of four properties, which we refer to in this section as the protected assets.
First, this agreement provides that our operating partnership will not sell, exchange, transfer or otherwise dispose of
such protected assets, or any interest in a protected asset, until (i) October 7, 2025, with respect to one protected asset, First
Stamford Place, and (ii) the later of (x) October 7, 2021 and (y) the death of both Peter L. Malkin and Isabel W. Malkin, who
are 90 and 87 years old, respectively, for the three other protected assets, Metro Center, 298 Mulberry Street (“substituted basis
property” as contemplated by the tax protection agreement for 10 Bank Street, which was sold on December 7, 2022) and 1542
Third Avenue, unless:
(1)
Anthony E. Malkin consents to the sale, exchange, transfer or other disposition; or
our operating partnership delivers to each protected party thereunder a cash payment intended to approximate
(2)
the tax liability arising from the recognition of the pre-contribution built-in gain resulting from the sale, exchange,
transfer or other disposition of such protected asset (with the pre-contribution “built-in gain” being not more than the
taxable gain that would have been recognized by such protected party if the protected asset been sold for fair market
value in a taxable transaction at the time of the consolidation) plus an additional amount so that, after the payment of
all taxes on amounts received pursuant to the agreement (including any tax liability incurred as a result of receiving
such payment), the protected party retains an amount equal to such protected party’s total tax liability incurred as a
result of the recognition of the pre-contribution built-in gain pursuant to such sale, exchange, transfer or other
disposition; or
(3)
the disposition does not result in a recognition of any built-in gain by the protected party.
Second, with respect to the Malkin Group, including Anthony E. Malkin and Peter L. Malkin, and one additional third-
party investor in Metro Center (who was one of the original landowners and was involved in the development of the property),
to protect against gain recognition resulting from a reduction in such continuing investor’s share of the operating partnership
liabilities, the agreement provides that during the period from October 7, 2013 until such continuing investor owns less than the
aggregate number of operating partnership units and shares of common stock equal to 50% of the aggregate number of such
units and shares such investor received in the formation transactions, which we refer to in this section as the tax protection
period, our operating partnership will (i) refrain from prepaying any amounts outstanding under any indebtedness secured by
the protected assets and (ii) use its commercially reasonable efforts to refinance such indebtedness at or prior to maturity at its
F-34
current principal amount, or, if our operating partnership is unable to refinance such indebtedness at its current principal
amount, at the highest principal amount possible. The agreement also provides that, during the tax protection period, our
operating partnership will make available to such continuing investors the opportunity (i) to enter into a “bottom dollar”
guarantee of their allocable share of $160.0 million of aggregate indebtedness of our operating partnership meeting certain
requirements or (ii) in the event our operating partnership has recourse debt outstanding and such a continuing investor agrees,
in lieu of guaranteeing debt pursuant to clause (i) above, to enter into a deficit restoration obligation, in each case, in a manner
intended to provide an allocation of operating partnership liabilities to the continuing investor. In the event that a continuing
investor guarantees debt of our operating partnership, such continuing investor will be responsible, under certain circumstances,
for the repayment of the guaranteed amount to the lender in the event that the lender would otherwise recognize a loss on the
loan, such as, for example, if property securing the loan was foreclosed and the value was not sufficient to repay a certain
amount of the debt. A deficit restoration obligation is a continuing investor’s obligation, under certain circumstances, to
contribute a designated amount of capital to our operating partnership upon our operating partnership’s liquidation in the event
that the assets of our operating partnership are insufficient to repay our operating partnership liabilities.
Because we expect that our operating partnership will at all times have sufficient liabilities to allow it to meet its
obligations to allocate liabilities to its partners that are protected parties under the tax protection agreement, our operating
partnership’s indemnification obligation with respect to “certain tax liabilities” would generally arise only in the event that the
operating partnership disposes in a taxable transaction of a protected asset within the period specified above in a taxable
transaction. In the event of such a disposition, the amount of our operating partnership’s indemnification obligation would
depend on several factors, including the amount of “built-in gain,” if any, recognized and allocated to the indemnified partners
with respect to such disposition and the effective tax rate to be applied to such gain at the time of such disposition. Our
disposition of the 10 Bank Street asset on December 7, 2022 did not trigger any obligation of payment pursuant to the tax
protection agreement.
The operating partnership agreement requires that allocations with respect to such acquired property be made in a
manner consistent with Section 704(c) of the Code. Treasury Regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of allocating book-tax differences. Under the tax protection agreement, our
operating partnership has agreed to use the “traditional method” for accounting for book-tax differences for the properties
acquired by our operating partnership in the consolidation. Under the traditional method, which is the least favorable method
from our perspective, the carryover basis of the acquired properties in the hands of our operating partnership (i) may cause us to
be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to us if all of the
acquired properties were to have a tax basis equal to their fair market value at the time of acquisition and (ii) in the event of a
sale of such properties, could cause us to be allocated gain in excess of its corresponding economic or book gain (or taxable loss
that is less than its economic or book loss), with a corresponding benefit to the partners transferring such properties to our
operating partnership for interests in our operating partnership.
In 2016, we entered into a tax protection agreement with Q REIT Holding LLC, a Qatar Financial Centre limited
liability company and a wholly owned subsidiary of the Qatar Investment Authority, a governmental authority of the State of
Qatar ("QREIT", and together with any eligible transferee, "QIA"). Subject to certain minimum thresholds and conditions, we
will indemnify QIA for certain applicable U.S. federal and state taxes payable by QIA in connection with dividends paid by us
on the QIA shares that are attributable to capital gains from the sale or exchange of any U.S. real property interests. Our
obligation to indemnify QIA will terminate one year following the date on which the sum of the QIA shares then owned by QIA
falls below 10% of our outstanding common shares.
Registration Rights
We entered into a registration rights agreement with certain persons receiving shares of our common stock or operating
partnership units in the formation transactions, including certain members of our senior management team and our other
continuing investors. In connection therewith, we have filed, and are obligated to maintain the effectiveness of, an automatically
effective shelf registration statement, along with a prospectus supplement, with respect to, among other things, shares of our
Class A common stock that may be issued upon redemption of operating partnership units or issued upon conversion of shares
of Class B common stock to continuing investors in the public existing entities. Pursuant to the registration rights agreement,
under certain circumstances, we will also be required to undertake an underwritten offering upon the written request of the
Malkin Group, which we refer to as the holder, provided (i) the registrable shares to be registered in such offering will have a
market value of at least $150.0 million, (ii) we will not be obligated to effect more than two underwritten offerings during any
12-month period; and (iii) the holder will not have the ability to effect more than four underwritten offerings. In addition, if we
file a registration statement with respect to an underwritten offering for our own account or on behalf of the holder, the holder
will have the right, subject to certain limitations, to register such number of registrable shares held by him, her or it as each such
F-35
holder requests. With respect to underwritten offerings on behalf of the holder, we will have the right to register such number of
primary shares as we request; provided, however, that if cut backs are required by the managing underwriters of such an
offering, our primary shares shall be cutback first (but in no event will our shares be cut back to less than $25.0 million).
We have also agreed to indemnify the persons receiving rights against specified liabilities, including certain potential
liabilities arising under the Securities Act, or to contribute to the payments such persons may be required to make in respect
thereof. We have agreed to pay all of the expenses relating to the registration and any underwritten offerings of such securities,
including, without limitation, all registration, listing, filing and stock exchange or FINRA fees, all fees and expenses of
complying with securities or “blue sky” laws, all printing expenses and all fees and disbursements of counsel and independent
public accountants retained by us, but excluding underwriting discounts and commissions, any out-of-pocket expenses (except
we will pay any holder’s out-of-pocket fees (including disbursements of such holder’s counsel, accountants and other advisors)
up to $25,000 in the aggregate for each underwritten offering and each filing of a resale shelf registration statement or demand
registration statement), and any transfer taxes.
Employment Agreement and Change in Control Severance Agreements
We entered into an employment agreement with Anthony E. Malkin, which provides for salary, bonuses and other
benefits, including among other things, severance benefits upon a termination of employment under certain circumstances and
the issuance of equity awards. In addition, we entered into change in control severance agreements with Thomas P. Durels and
Christina Chiu.
Indemnification of Our Directors and Officers
We entered into indemnification agreements with each of our directors, executive officers, chairman emeritus and
certain other parties, providing for the indemnification by us for certain liabilities and expenses incurred as a result of actions
brought, or threatened to be brought, against (i) our directors, executive officers and chairman emeritus and (ii) our executive
officers, chairman emeritus and certain other parties who are former members, managers, securityholders, directors, limited
partners, general partners, officers or controlling persons of our predecessor in such capacities.
Excluded Properties and Businesses
The Malkin Group, including Anthony E. Malkin, our Chairman and Chief Executive Officer, owns non-controlling
interests in, and Anthony E. Malkin and Peter L. Malkin control the general partners or managers of, the entities that own
interests in seven multi-family properties and five net leased retail properties, (including one single tenant retail property in
Greenwich, Connecticut). The Malkin Group also owns non-controlling interests in one Manhattan office property, two
Manhattan retail properties and several retail properties outside of Manhattan, none of which were contributed to us in the
formation transactions, and two retail properties in Westport, Connecticut acquired from ESRT in February 2023 (see Sale of
Westport Retail Properties above). We refer to the non-controlling interests described above collectively as the excluded
properties. In addition, the Malkin Group owns interests in one senior equity fund and three property managers, which we refer
to collectively as the excluded businesses. We do not believe that the excluded properties or the excluded businesses are
consistent with our current commercial portfolio or strategic direction.
Pursuant to management and/or service agreements with the owners of interests in those excluded properties and
businesses, we are designated as the asset manager (supervisor) and/or property manager of the excluded properties, provide
services to certain of the excluded properties and the other excluded businesses. As the manager or service provider, we are
paid a management or other fee with respect to those excluded properties and businesses where our predecessor had previously
received a management fee, and reimbursed for our costs in providing the management and other services to those excluded
properties and businesses where our predecessor had not previously received a management fee. Our management of the
excluded properties and provision of services to the three residential property managers and the existing managers of the other
excluded businesses represent a minimal portion of our overall business. There is no established time period in which we will
continue to provide such services; and Peter L. Malkin and Anthony E. Malkin expect to sell certain properties or unwind these
businesses over time. We are not precluded from acquiring all or certain interests in the excluded properties or businesses. If we
were to attempt any such acquisition, we anticipate that Anthony E. Malkin, our Chairman and Chief Executive Officer, will not
participate in the negotiation process on our behalf with respect to our potential acquisition of any of these excluded properties
or businesses, and the approval of a majority of our independent directors will be required to approve any such acquisition.
F-36
Services are and were provided by us to excluded properties and businesses. These transactions are reflected in our
consolidated statements of operations as third-party management and other fees.
We earned asset management (supervisory) and service fees from excluded properties and businesses of $0.9 million,
$1.0 million and $1.0 million during the years ended December 31, 2023, 2022 and 2021, respectively.
We earned property management fees from excluded properties of $0.3 million, $0.3 million and $0.2 million during
the years ended December 31, 2023, 2022 and 2021, respectively.
Other
We receive rent generally at market rental rate for 5,447 square feet of leased space from entities affiliated with
Anthony E. Malkin at one of our properties. Under the lease, the tenant has the right to cancel such lease without special
payment on 90 days’ notice. We also have a shared use agreement with such tenant to occupy a portion of the leased premises
as the office location for Peter L. Malkin, our chairman emeritus and employee, utilizing approximately 15% of the space, for
which we pay to such tenant an allocable pro rata share of the cost. We also have agreements with these entities and excluded
properties and businesses to provide them with general computer-related support services. Total aggregate revenue was $0.2
million, $0.3 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
12. Income Taxes
Holdings TRS and Observatory TRS are taxable entities and their consolidated provision for income taxes consisted of
the following for the years ended December 31, 2023, 2022 and 2021 (amounts in thousands):
Current:
Federal
State and local
Total current
Deferred:
Federal
State and local
For the Year Ended December 31,
2023
2022
2021
$
(783) $
(319) $
(695)
(1,478)
(710)
(527)
(227)
(546)
(264)
(736)
Total deferred
Income tax (expense) benefit
(1,237)
(2,715) $
(1,000)
(1,546) $
$
(266)
(347)
(613)
1,206
1,141
2,347
1,734
As of December 31, 2023, Empire State Realty Trust, Inc. had $103.0 million of NOL carryforwards that may be used
in the future to reduce the amount otherwise required to be distributed by ESRT to meet REIT requirements. However, for
federal income tax purposes, the NOL will not be able to offset more than 80% of ESRT’s REIT taxable income and may not be
able to reduce the amount required to be distributed by ESRT to meet REIT requirements to zero. The federal NOL may be
carried forward indefinitely. Other limitations may apply to ESRT’s ability to use its NOL to offset taxable income.
As of December 31, 2023, the Observatory TRS had a federal income tax receivable of $2.5 million. This receivable
reflects an anticipated refund resulting from the carryback of 2020 NOL to previous tax years. The Observatory TRS has
$1.5 million of federal NOL carryforward that may be used to offset future taxable income, if any. The federal NOL may be
carried forward indefinitely.
We measure deferred tax assets using enacted tax rates that will apply in the years in which the temporary differences
are expected to be recovered or paid.
The effective income tax rate is 44.5%, 33.6% and 26.0% for the years ended December 31, 2023, 2022 and 2021,
respectively. The actual tax provision differed from that computed at the federal statutory corporate rate as follows (amounts in
thousands):
F-37
Federal tax benefit (expense) at statutory rate
State income tax benefit (expense), net of federal benefit
Income tax (expense) benefit
$
$
(1,494) $
(1,221)
(583) $
(963)
(2,715) $
(1,546) $
940
794
1,734
For the Year Ended December 31,
2023
2022
2021
The income tax effects of temporary differences that give rise to deferred tax assets are presented below as of
December 31, 2023, 2022 and 2021 (amounts in thousands):
2023
2022
2021
Deferred tax assets:
Deferred revenue on unredeemed Observatory admission ticket
sales
$
616 $
535 $
Federal net operating loss carryforward credit
New York State net operating loss carryforward credit
New York City net operating loss carryforward credit
Other deferred tax assets
Deferred tax assets
328
—
—
161
969
250
233
261
383
1,393
612
704
—
$
1,105 $
2,248 $
3,092
Deferred tax assets at December 31, 2023, 2022 and 2021 are included in prepaid expenses and other assets on the
consolidated balance sheets. The deferred tax assets at December 31, 2023 are mainly attributable to a timing difference in
recognizing income on unredeemed Observatory admission tickets and the inclusion of the Federal net operating loss to be
carried forward and utilized during income years indefinitely. No valuation allowance has been recorded against the deferred
tax asset because the Company believes it is more likely than not that the deferred tax asset will be realized. This determination
is based on the Observatory TRS’s anticipated future taxable income and the reversal of the deferred tax asset.
As of December 31, 2023, 2022 and 2021, the TRS entities have no amount of unrecognized tax benefits. As of
December 31, 2023, the tax years ended December 31, 2020 through December 31, 2023 remain open for an audit by the
Internal Revenue Service, state or local authorities.
13. Segment Reporting
We have identified two reportable segments: (1) real estate and (2) Observatory. Our real estate segment includes all
activities related to the ownership, management, operation, acquisition, redevelopment, repositioning and disposition of our
traditional real estate assets. Our Observatory segment operates the 86th and 102nd floor observatories at the Empire State
Building. These two lines of businesses are managed separately because each business requires different support infrastructures,
provides different services and has dissimilar economic characteristics such as investments needed, stream of revenues and
marketing strategies. We account for intersegment sales and rents as if the sales or rents were to third parties, that is, at current
market prices.
The following tables provide components of segment profit for each segment for the years ended December 31, 2023,
2022 and 2021 (amounts in thousands):
F-38
Revenues:
Rental revenue
Intercompany rental revenue
Observatory revenue
Lease termination fees
Third-party management and other fees
Other revenue and fees
Total revenues
Operating expenses:
Property operating expenses
Intercompany rent expense
Ground rent expenses
General and administrative expenses
Observatory expenses
Real estate taxes
Depreciation and amortization
Total operating expenses
Total operating income
Other income (expense):
Interest income
Interest expense
Gain on sale/disposition of properties
Income before income taxes
Income tax expense
Net income
Segment assets
Expenditures for segment assets
2023
Real Estate
Observatory
Intersegment
Elimination
Total
$
597,319
$
80,514
—
—
1,351
11,536
690,720
167,324
—
9,326
63,939
—
127,101
189,762
557,452
133,268
14,936
(101,484)
26,764
73,484
(552)
72,932
3,957,659
169,044
$
$
$
$
$
$
$
—
—
129,366
—
—
—
—
$
597,319
(80,514)
—
—
—
—
—
129,366
—
1,351
11,536
129,366
(80,514)
739,572
—
80,514
—
—
35,265
—
149
115,928
13,438
200
—
—
13,638
(2,163)
11,475
261,674
111
$
$
$
—
167,324
(80,514)
—
—
—
—
—
(80,514)
—
—
—
—
—
—
—
—
—
$
$
$
—
9,326
63,939
35,265
127,101
189,911
592,866
146,706
15,136
(101,484)
26,764
87,122
(2,715)
84,407
4,219,333
169,155
F-39
Revenues:
Rental revenue
Intercompany rental revenue
Observatory revenue
Lease termination fees
Third-party management and other fees
Other revenue and fees
Total revenues
Operating expenses:
Property operating expenses
Intercompany rent expense
Ground rent expenses
General and administrative expenses
Observatory expenses
Real estate taxes
Impairment charge
Depreciation and amortization
Total operating expenses
Total operating income (loss)
Other income (expense):
Interest income
Interest expense
Gain on sale/disposition of properties
Income before income taxes
Income tax (expense) benefit
Net income
Segment assets
Expenditures for segment assets
2022
Real Estate
Observatory
Intersegment
Elimination
Total
$
591,048
$
65,005
—
20,032
1,361
8,622
$
—
—
105,978
—
—
—
—
$
591,048
(65,005)
—
—
—
—
—
105,978
20,032
1,361
8,622
686,068
105,978
(65,005)
727,041
157,935
—
9,326
61,765
—
123,057
—
216,707
568,790
117,278
4,901
(101,206)
33,988
54,961
(584)
54,377
3,909,299
85,646
$
$
$
$
$
$
—
65,005
—
—
31,036
—
—
187
96,228
9,750
47
—
—
9,797
(962)
8,835
254,295
315
$
$
$
—
157,935
(65,005)
—
—
—
—
—
—
(65,005)
—
—
—
—
—
—
—
—
—
—
9,326
61,765
31,036
123,057
—
216,894
600,013
127,028
4,948
(101,206)
33,988
64,758
(1,546)
63,212
4,163,594
85,961
$
$
$
F-40
Revenues:
Rental revenue
Intercompany rental revenue
Observatory revenue
Lease termination fees
Third-party management and other fees
Other revenue and fees
Total revenues
Operating expenses:
Property operating expenses
Intercompany rent expense
Ground rent expenses
General and administrative expenses
Observatory expenses
Real estate taxes
Impairment charges
Depreciation and amortization
Total operating expenses
Total operating income (loss)
Other income (expense):
Interest income
Interest expense
Loss on early extinguishment of debt
Loss before income taxes
Income tax (expense) benefit
Net loss
Segment assets
Expenditures for segment assets
2021
Real Estate
Observatory
Intersegment
Elimination
Total
$
559,690
$
23,413
—
16,230
1,219
5,343
$
—
—
41,474
—
—
138
—
$
559,690
(23,413)
—
—
—
—
—
41,474
16,230
1,219
5,481
605,895
41,612
(23,413)
624,094
126,986
—
9,326
55,947
—
119,967
7,723
201,676
521,625
84,270
701
(94,292)
(214)
(9,535)
(613)
—
23,413
—
—
23,206
—
—
130
46,749
(5,137)
3
(102)
—
(5,236)
2,347
$
$
$
(10,148) $
(2,889) $
4,037,122
398,368
$
$
245,325
4
$
$
—
126,986
(23,413)
—
—
—
—
—
—
(23,413)
—
—
—
—
—
—
—
—
—
—
9,326
55,947
23,206
119,967
7,723
201,806
544,961
79,133
704
(94,394)
(214)
(14,771)
1,734
(13,037)
4,282,447
398,372
$
$
$
During the fourth quarter 2021, we incurred a $7.7 million impairment charge relating to our property in Norwalk,
Connecticut. Refer to Note 2 Summary of Significant Accounting Policies. Our methodology to calculate the fair value of the
property involved a combination of the discounted cash flow method, utilizing Level 3 unobservable inputs such as market
capitalization rates obtained from external sources, and the market based approach utilizing recent sales comparables.
14. Subsequent Events
None.
F-41
Empire State Realty Trust, Inc.
Schedule III—Real Estate and Accumulated Depreciation
(amounts in thousands)
Initial Cost to
the Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at which Carried at 12/31/23
Development
Type
Encumbrances
Land and
Development
Costs
Building &
Improvements
Improvements
Carrying
Costs
Land and
Development
Costs
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement is
computed
$
—
$
13,630
$
244,461
$
129,859
n/a
$
13,630
$
374,320
$ 387,950
$
(118,371)
1954
2014
various
—
—
96,338
102,241
159,039
91,434
120,190
17,239
—
—
102,518
48,815
175,755
2,117
5,041
179,876
—
—
—
—
1,100
2,600
107,812
1,233
1,809
83,221
21,551
38,934
1,060,121
7,240
17,490
310,522
office
177,181
22,952
122,738
86,494
office
80,117
5,313
28,602
40,955
retail
49,762
5,003
12,866
5,742
retail
29,804
2,239
15,266
485
retail
34,697
4,462
15,819
4,211
multi-
family
multi-
family
48,646
44,228
55,766
4,237
124,194
91,437
124,997
3,461
298 Mulberry,
New York, NY
multi-
family
retail
—
—
40,935
69,509
1,475
4,851
20,936
101
office /
retail
office
/
retail
office /
retail
office
/
retail
office/
retail
office/
retail
office/
retail
office/
retail
office/
retail
111 West 33rd
Street, New
York, NY
1400
Broadway,
New York, NY
1333
Broadway,
New York, NY
1350
Broadway,
New York, NY
250 West 57th
Street, New
York, NY
501 Seventh
Avenue, New
York, NY
1359
Broadway,
New York, NY
350 Fifth
Avenue
(Empire State
Building),
New York, NY
One Grand
Central Place,
New York, NY
First Stamford
Place,
Stamford, CT
One Station
Place,
Stamford, CT
(Metro Center)
10 Union
Square, New
York, NY
1542 Third
Avenue, New
York, NY
1010 Third
Avenue, New
York, NY and
77 West 55th
Street, New
York, NY
345 E 94th
Street, New
York, NY
Victory 561
10th Ave, New
York, NY
Williamsburg
Retail,
Brooklyn, NY
Property for
development at
the
Transportation
Hub in
Stamford, CT
Totals
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
—
198,579
198,579
(72,907)
1930
2014
various
91,435
137,429
228,864
(43,811)
1915
2013
various
—
151,333
151,333
(55,169)
1929
2013
various
2,117
184,917
187,034
(74,936)
1921
1953
various
1,100
110,412
111,512
(58,775)
1923
1950
various
1,233
85,029
86,262
(33,438)
1924
1953
various
21,551
1,099,055
1,120,606
(428,926)
1930
2013
various
7,222
328,030
335,252
(164,248)
1930
1954
various
24,860
207,324
232,184
(113,916)
1986
2001
various
5,313
69,557
74,870
(41,494)
1987
1984
various
5,003
18,608
23,611
(10,102)
1987
1996
various
2,239
15,751
17,990
(9,937)
1991
1999
various
4,462
20,030
24,492
(10,937)
1962
1998
various
44,228
60,003
104,231
(3,485)
2000
2021
various
91,437
128,458
219,895
(7,491)
2004
2021
various
41,125
70,794
111,919
(1,923)
1986
2022
various
4,860
21,028
25,888
(196)
1910, 1945
2023
various
land
—
4,541
—
8,179
n/a
12,720
—
12,720
—
n/a
n/a
n/a
$
879,195
$
364,266
$
1,095,880
$
2,195,046
$
—
$
374,535
$
3,280,657
$ 3,655,192
$ (1,250,062)
F-42
Empire State Realty Trust, Inc.
Notes to Schedule III—Real Estate and Accumulated Depreciation
(amounts in thousands)
1. Reconciliation of Investment Properties
The changes in our investment properties for the years ended December 31, 2023, 2022 and 2021 are as follows:
Balance, beginning of year
Acquisition of new properties
Improvements
Property classified as held for sale
Disposals
Balance, end of year
2023
2022
2021
$
3,551,449 $
25,787
3,500,917 $
110,444
3,133,966
316,428
106,792
—
79,070
(61,965)
89,426
—
(28,836)
3,655,192 $
(77,017)
3,551,449 $
(38,903)
3,500,917
$
The unaudited aggregate cost of investment properties for federal income tax purposes as of December 31, 2023 was $3.8 billion.
2. Reconciliation of Accumulated Depreciation
The changes in our accumulated depreciation for the years ended December 31, 2023, 2022 and 2021 are as follows:
Balance, beginning of year
Depreciation expense
Property classified as held for sale
Disposals
Balance, end of year
2023
2022
2021
$
1,137,267 $
1,072,938 $
158,879
179,872
941,612
162,667
—
(30,315)
—
(46,084)
1,250,062 $
(85,228)
1,137,267 $
(31,341)
1,072,938
$
Depreciation of investment properties reflected in the combined statements of income is calculated over the estimated original lives of
the assets as follows:
Buildings
Building improvements
Tenant improvements
39 years or useful life
39 years or useful life
Term of related lease
F-43
CORPORATE INFORMATION
CORPORATE OFFICES:
111 West 33rd Street, 12TH Floor, New York, NY 10120
BOARD OF DIRECTORS
STOCKHOLDER ACCOUNT ASSISTANCE
Anthony E. Malkin
Chairman and Chief Executive Officer
Thomas J. DeRosa 1, 2, 4
Independent Director
Steven J. Gilbert 2, 3, 4
Lead Independent Director
TRUSTED
S. Michael Giliberto 1, 3, 4
Independent Director
PARTNER
Patricia S. Han 2, 3, 4
Independent Director
Grant H. Hill 3, 4
Independent Director
R. Paige Hood 1, 3, 4
Independent Director
James D. Robinson IV 4
Independent Director
Christina Van Tassell 1, 4
Independent Director
Hannah Y. Yang 3, 4
Independent Director
SENIOR MANAGEMENT
Anthony E. Malkin
Chairman and Chief Executive Officer
Christina Chiu
President
Thomas P. Durels
Executive Vice President, Real Estate
Stephen V. Horn
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
COMMITTEE MEMBERSHIPS:
1. Audit Committee
2. Compensation and Human Capital Committee
3. Finance Committee
4. Nominating and Corporate Governance Committee
Registered stockholder records are
maintained by our Transfer Agent:
Equiniti
Attn: Proxy Tabulation Department
55 Challenger Road, Suite 200B, 2nd Floor
Ridgefield Park, NJ 07660
Shareholder Service Number:
(800) 937-5449
www.amstock.com
FORM 10-K
Our Form 10-K is incorporated herein and has
been filed with the Securities and Exchange
Commission. To request a copy of our Form
10-K (free of charge) from the Company,
please contact Investor Relations.
INVESTOR RELATIONS
Company information is available upon request
without charge. Please contact the Investor
Relations Department at (212) 850-2678
or by email at ir@esrtreit.com
ANNUAL STOCKHOLDERS MEETING
May 9, 2024 at 11:00 a.m. EST
STATE Grill and Bar
21 West 33 RD Street
New York, NY 10118
Virtual at:
www.virtualshareholdermeeting.com/ESRT2024
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
One Manhattan West
New York, New York 10001
STOCK EXCHANGE
The New York Stock Exchange – NYSE
Ticker Symbol – ESRT
Front Cover: ESRT Rings the NYSE Opening Bell to Celebrate its 10th Anniversary as a NYSE Listed REIT
PHOTO CREDITS:
¹ Pantry at 1359 Broadway ² 1350 Broadway 3 CLA’s Lounge at One Grand Central Place ⁴ Oprah Winfrey Lights the Empire State Building to Celebrate the Premiere of “The Color Purple” Film
⁵ Jared Leto Climbs the Empire State Building ⁶ Metro Center’s New Gaming Lounge ⁷ The Empire State Building Wins the 2023 BOMA Grand Pinnacle and the Earth Awards
⁸ Capco’s Pantry at the Empire State Building ⁹ Capco’s Reception Area at the Empire State Building
Back Cover: Capco’s Conference Room at the Empire State Building
ESRTREIT.com
2023 ANNUAL REPORT
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