EDGAR 10-K Filing

Company CIK: 1553079
Filing Year: 2022
Filename: 1553079_10-K_2022_0001628280-22-003947.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Overview
Empire State Realty OP, L.P. is the entity through which Empire State Realty Trust, Inc. ("ESRT"), a self-administered and self-managed real estate investment trust ("REIT") conducts all of its business and owns (either directly or through subsidiaries) substantially all of its assets. We own and manage a well-positioned property portfolio of office, retail and multifamily assets in Manhattan and the greater New York metropolitan area. As the owner of the Empire State Building, the World’s Most Famous Building, ESRT also owns and operates its iconic, newly reimagined Observatory Experience. Empire State Realty Trust, Inc.'s Class A common stock, par value $0.01 per share, is listed on the New York Stock Exchange under the symbol "ESRT."
As of December 31, 2021, our office and retail portfolio, contained 10.1 million rentable square feet of office and retail space, and was 82.4% occupied. Including signed leases not yet commenced, our total office and retail portfolio was 85.7% leased. As of December 31, 2021, we owned 14 office properties (including three long-term ground leasehold interests) encompassing approximately 9.4 million rentable square feet of office space, which were approximately 82.5% occupied or 85.3% leased including signed leases not yet commenced. Nine properties are located in the midtown Manhattan market and encompass approximately 7.6 million rentable square feet of office space, including the Empire State Building. Our Manhattan office properties also contain 0.5 million rentable square feet of premier retail space on their ground floor and/or contiguous levels. Five office properties are located in Fairfield County, Connecticut and Westchester County, New York, encompassing approximately 1.8 million rentable square feet. The majority of square footage for these five properties is located in densely populated metropolitan communities with immediate access to mass transportation. Additionally, we have entitled land at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties, that will support the development of an approximately 0.4 million rentable square foot office building and garage, which we refer to herein as Metro Tower. As of December 31, 2021, our portfolio also included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing 0.2 million rentable square feet in the aggregate. As of December 31, 2021, our standalone retail properties were 100.0% leased. Additionally, at December 31, 2021, our portfolio included two multifamily properties located in Manhattan totaling 625 units.
We were organized as a Delaware limited partnership on November 28, 2011. ESRT, as the sole general partner in our company, has responsibility and discretion in the management and control of our company, and our limited partners, in such capacity, have no authority to transact business for, or participate in the management activities, of our company. As of December 31, 2021, ESRT owned approximately 60.5% of our operating partnership units.
Impact of COVID-19
Beginning with March 2020, the novel coronavirus disease 2019 ("COVID-19") pandemic created a global crisis with attendant uncertainty, volatility and disruption of the economy and social systems in the United States and globally. The stringent measures implemented by governments around the world to attempt to help control the spread of the virus have included business shutdowns and curtailments, and restrictions, prohibitions on all manner of events and gatherings, quarantines, "shelter-in-place" and "stay-at-home" orders, curfews, social distancing, and other measures. The impacts were especially harsh on the Northeastern United States, specifically New York City and the tri-state region, the business area for our company. Most of these restrictions have been lifted as the impact of the COVID-19 pandemic on the tri-state area has improved as a result of various factors, including the vaccination of a large portion of the local population, with most businesses now being permitted to open at full capacity, but under other limitations which change from time to time and are intended to control the spread of COVID-19.
Additional information regarding the impact of COVID-19 on our business can be found under the section titled "Impact of COVID-19" included within Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K and risks related to COVID-19 can be found under Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.
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 business and growth strategies:
•Capitalize on our Environmental Leadership. We have pioneered certain practices in energy efficiency, beginning at the Empire State Building where we created and implemented a groundbreaking process to integrate energy efficiency retrofits in the existing built environment. The reduced energy consumption lowers costs for us and our tenants, and we believe creates a competitive advantage for our properties. We have implemented other cost justified energy efficiency retrofit projects in our Manhattan and greater New York metropolitan area office properties based on our work at the Empire State Building. Based on our calculations, we have no exposure to fines in 2024 under New York City's Local Law 97. Additionally, 100% of our portfolio has been contracted for renewable wind energy since January 2021. Finally, we maintain a series of management practices to recycle tenant and construction waste, recycled content carpets, low off-gassing paints and adhesives, “green” pest control and cleaning solutions and recycled paper products throughout our office portfolio. We have achieved a number of awards and certifications for our sustainability work, including among others, a GRESB 5 Star rating, ENERGY STAR Partner of the Year, a WELL Health-Safety Rating and Fitwel Champion. As a result of our leadership we were selected to receive a $5.0 million grant in the first funding round of the Empire Building Challenge, a $50 million state initiative spearheaded by the New York State Research and Development Authority (NYSERDA) to reduce greenhouse gas emissions. We believe that higher quality tenants in general place a higher priority on sustainability, controlling costs, and reduction in contributions to greenhouse gases.
•Pursue Attractive Acquisition and Redevelopment Opportunities. We have built a dedicated investment function which includes our Chief Investment Officer and a full acquisitions team. and positions us to take advantage of potential opportunities. We believe our flexible balance sheet, access to capital, expertise in redevelopment and ability to offer OP units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions. In December 2021, we completed our first acquisition since the hire of our acquisitions team by purchasing two multifamily assets in Manhattan. 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. We also believe there may be opportunities to acquire and reposition additional stand-alone retail spaces. Further, we have a development site, Metro Tower at the Stamford Transportation Center, which is adjacent to our Metro Center property, which we believe to be one of the premier office buildings in Connecticut. All zoning approvals have been obtained to allow development of an approximately 0.4 million rentable square foot office tower and garage. We intend to develop this site when we deem the appropriate combination of market and other conditions are in place.
•Proactively Manage Our Portfolio. We believe our proactive, service-intensive approach to asset and property management helps increase occupancy and rental rates. We utilize our comprehensive building management services and our strong commitment to tenant and broker relationships and satisfaction to negotiate attractive leasing deals and to attract high credit-quality tenants. We proactively manage our rent roll and maintain continuous communication with our tenants. We foster strong tenant relationships by being responsive to tenant needs. We do this through the amenities we provide, the quality of our buildings and services, our employee screening and training, energy efficiency initiatives, and preventative maintenance and prompt repairs. Our attention to detail is integral to serving our clients and building our brand. Our properties have received numerous industry awards for their operational efficiency. We believe long-term tenant relationships will improve our operating results over time by reducing leasing, marketing and tenant improvement costs, as well as tenant turnover. We do extensive diligence on our tenants’ (current and prospective) balance sheets, businesses and business models to determine if we will establish long-term relationships in which they will both renew with us and expand over time. We have had greater than 200 tenant expansions within our portfolio totaling over 2.5 million square feet since 2013.
•Enhance and Recover our Observatory Operations. The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th and 102nd floor observatories which historically have drawn millions of visitors each year. Prior to the outbreak of COVID-19, the number of visitors to the observatories was approximately 3.8 million and 3.5 million for the years ended December 31, 2018 and 2019, respectively, including approximately two-thirds international visitors. Due to government mandated closure from March 16, 2020 to July 20, 2020, travel restrictions on international and domestic tourists, and other impacts of the pandemic, the number of visitors declined for the year ended December 31, 2020 to 0.5 million visitors, ramping up slowly to 0.8 million in 2021. Part of our business strategy is to return to the profitability at the Empire State Building observatory that we experienced pre-COVID-19 in the first months after our December 2019 completion of its comprehensive
approximately $165 million multi-year re-imagination and redevelopment. We plan to do this through enhanced operations such as timed-entry, enhanced marketing and cross-promotional activities as well as enhanced health and safety protocols, including indoor environmental quality measures with MERV 13 filters, ventilation and an Atmos Air bipolar ionization air purification system. Visitor feedback of the new experience and our safety protocols has been very positive thus far.
Leasing
Our focus is to maintain a brand that 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 that focus on negotiating attractive transactions with high credit-quality tenants. 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 seeking opportunities for growth in the future.
Property Management
We protect our investments by regularly monitoring our properties, performing routine preventive maintenance, and implementing capital improvement programs in connection with property redevelopment and life cycle replacement of equipment and systems. We presently self-manage all of our office and retail properties. We proactively manage our properties and rent rolls to (i) aggregate smaller demised spaces to create large blocks of vacant space in order to attract high credit-quality tenants at higher rental rates, and (ii) create efficient, modern, pre-built offices that can be rented through several lease cycles and attract high credit-quality tenants. We aggressively manage and control operating expenses at all of our properties. 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.
Business Segments
Our reportable segments consist of a real estate segment and an observatory segment. Our real estate segment includes all activities related to the ownership, management, operation, acquisition, repositioning and disposition of our commercial and multifamily real estate assets, principally office properties, located in Manhattan and the greater New York metropolitan area. Our observatory segment operates the 86th and 102nd floor observatories at the Empire State Building. 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.
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.
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 fueling, that may release petroleum products or other hazardous or toxic substances at such properties or to surrounding properties. While certain properties contain or contained uses that could have or have impacted our properties, we are not aware of any liabilities related to environmental contamination that we believe will have a material adverse effect on our operations.
Soil contamination has been identified at 69-97 Main Street in Westport, Connecticut. The affected soils are more than four feet below the ground surface. An Environmental Land Use Restriction has been imposed on this site to ensure the soil is not exposed, excavated or disturbed such that it could create a risk of migration of pollutants or a potential hazard to human health or the environment. While the contamination is currently contained, the potential resale value of this property and our ability to finance or refinance this property in the future may be adversely affected as a result of such contamination. In addition, pursuant to the Environmental Land Use Restriction, plans for the redevelopment of the property would be subject to the review of the Town of Westport, Connecticut among other conditions.
The property situated at 500 Mamaroneck Avenue in Harrison, New York was the subject of a voluntary remedial action work cleanup plan performed by the former owner following its conveyance of title to the present owners under an agreement with the New York State Department of Environmental Conservation, or ("NYDEC"). As a condition to the issuance of a “no further action” letter, NYDEC required that certain restrictive and affirmative covenants be recorded against the subject property. In substantial part, these include prohibition against construction that would disturb the soil cap isolating certain contaminated subsurface soil, limiting the use of such property to commercial uses, implementing engineering controls to assure that improvements be kept in good condition, not using ground water at the site for potable purposes without treatment, implementing safety procedures for workers to follow excavating at the site to protect their health and safety and filing an annual certification that the controls implemented in accordance with the voluntary remedial action work cleanup plan remain in place. Furthermore, a substantial portion of the site that had been substantially unimproved prior to acquisition may not be further developed.
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations. Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability. These liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us. 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.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM. 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.
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 portfolio in the 2024-2030 first period of enforcement.
Affordable Housing
Certain units in our multifamily properties are designated for lower income households and are therefore subject to supervision and regulation by state and federal governmental authorities regulate affordable housing rental activities. See Risk Factors - Government housing regulations may limit opportunities at the multifamily properties in which we invest, and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits - for more information.
Insurance
We carry comprehensive liability, fire, extended coverage, earthquake, terrorism and rental loss insurance covering all of our Manhattan properties and our greater New York metropolitan area properties under a blanket policy. We carry additional all-risk property and business insurance, which includes terrorism insurance, on the Empire State Building through ESRT Captive Insurance Company L.L.C., or ESRT Captive Insurance, our wholly owned captive insurance company. 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 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. In addition, while our title insurance policies insure for the current aggregate market value of our portfolio, we may decide to not increase our title insurance policies as the market value of our portfolio increases.
Competition
The leasing of real estate is highly competitive in Manhattan and the greater New York metropolitan market in which 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, 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 could 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.
ESRT's Tax Status as a REIT
ESRT elected to be taxed as a REIT and has operated in a manner that we believe allows it to qualify as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. We believe that ESRT has 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 its intended manner of operation will enable it to meet the requirements for qualification and taxation as a REIT. So long as ESRT qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its net taxable income that ESRT distributes to its security holders. If ESRT fails to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, ESRT will be subject to U.S. 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 it lost its REIT qualification. Even if ESRT qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes on its 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.
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 historical financial position or results of operations.
Seasonality
Our observatory business is subject to tourism trends and weather, and therefore does experience some seasonality. Historically, prior to the outbreak of COVID-19, approximately 16.0% to 18.0% of our annual observatory revenue was realized in the first quarter, 26.0% to 28.0% was realized in the second quarter, 31.0% to 33.0% was realized in the third quarter, and 23.0% to 25.0% was realized in the fourth quarter. We do not consider the balance of our business to be subject to material seasonal fluctuations.
Human Capital Management
As of December 31, 2021, the company employed 693 people, of whom approximately 484 are covered by collective bargaining agreements. We recognize that our success is realized through the attraction, retention, development, engagement and empowerment of the highly valued employees amongst our diverse pool of talent, and we endeavor to set our policies and practices accordingly.
Diversity and Inclusion
We believe diverse perspectives and experiences enhance effective decision making and innovation. We strive to create a diverse, inclusive workplace where people can be authentic in their roles. We are proud of the strides we have made in the past two years in terms of enhancing the gender and ethnic diversity of our board and management team through the appointment of new directors and a new Chief Financial Officer. We were selected for the 2022 Bloomberg Gender-Equality Index in our first year of participation.
Talent Acquisition and Retention
We offer what we believe to be generally competitive compensation and benefits. To reward and reinforce participation in the company’s outcomes, we also make equity grants to employees. For senior management, we grant such equity annually, with vesting contingent upon (a) the individual’s continuing service at the company and/or (b) the company’s performance against total shareholder return results. Other employees may receive shares of stock in the company on multi-year employment anniversaries.
We regularly collect employee feedback to understand and improve the employee experience at our company.
Training and Development
We believe continuous learning by our employees supports productivity, innovation and retention, as well as personal and professional growth for the individual employee. We invest in 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.
Health, Safety and Wellness
We have been recognized for leadership in indoor environmental quality, healthy buildings, retrofit energy efficiency, and sustainability in the built environment.
During the ongoing COVID-19 pandemic, we established protocols for building re-occupancy, including online screening for our staff, no-touch temperature checks for all entry to our buildings, and tests of indoor air quality and water systems. We have allowed working remotely where needed to accommodate health or childcare circumstances and to enhance social distancing in the workplace. We have provided and required personal protective equipment during the pandemic.
Offices
Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120. In addition, we have five additional regional leasing and property management offices in Manhattan and the greater New York metropolitan area. Our current facilities are adequate for our present and future operations, although we may add regional offices, depending upon our future operations.
Available Information
ESRT, our sole general partner, has a website address at http://www.esrtreit.com. The information found on, or otherwise accessible through, ESRT's 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 ESRT or we file with or furnish to the SEC and ESRT makes available, free of charge, on or through the SEC Filings section of its website, ESRT's and 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 ESRT or we electronically file such material with, or furnish it to, the SEC. ESRT has also posted on its 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 its directors, officers and employees. Within the time period required by the SEC, ESRT will post on its website any amendment to its Code of Business Conduct and Ethics and any waiver applicable to its senior financial officers and its 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
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 Related to the COVID-19 Pandemic
The current COVID-19 pandemic has had, and any future public health crisis could have, serious adverse effects on our and our tenants’ businesses, operations and financial condition, and on local, national, and global economic activity, including by creating volatility and negative pressure in the financial markets.
The COVID-19 pandemic has impacted the entire U.S., including New York and Connecticut where our properties are located. Measures taken by authorities to limit its impact, including quarantines, social distancing, and restrictions on travel, business operations and construction, have affected, and continue to affect, adversely our and our tenants’ businesses, operations and financial condition. Certain tenants have made, and may continue to make, requests for rent deferral, rent abatement or lease termination, and/or have taken actions to challenge lease enforceability, defaulted on lease obligations or invoked insolvency protection, all of which have reduced, and may continue to reduce, our revenue. Additionally, measures taken by our tenants to limit COVID’s impact, including internal policies on work from home, social distancing, and delays in return to office dates have impacted office building utilization levels. The scope and duration of the foregoing events are uncertain and unpredictable.
In addition, as a result of such restrictions, we had to close the observatory to the public from March 16, 2020 to July 20, 2020, and during such closure substantially all observatory revenue was discontinued. Since then, due to continued travel restrictions, especially for international travel, visitor volume has lagged our historical results and we cannot predict when we may achieve visitor volume comparable to 2019 when approximately two-thirds of our visitors were international. During 2020 and 2021, visitor volume was 0.5 million and 0.8 million, respectively, compared to 3.5 million in 2019. Additionally, observatory revenue for 2020 and 2021 was $29.1 million and $41.5 million respectively, compared to $128.8 million in 2019.
Moreover, real estate companies like us may be subject to claims from employees, tenants, vendors, visitors or the public that they were exposed to COVID-19 by our inadequate protective measures or were unnecessarily inconvenienced or damaged by our excessive protective measures.
The COVID-19 pandemic has had, and any future public health crisis could have, a material adverse effect on our operations, cash flows and financial condition due to, among other factors:
•adverse effect on our human capital management, as our employees, including senior management, remain subject to risk of illness, and their remote work sometimes strains efficiencies and management oversight, cybersecurity, and morale;
•downturn in national and/or local economies 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;
•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.
While the U.S. economy has shown signs of improvement compared to 2020 and the use of vaccines has alleviated some COVID-19 restrictions, the persistence of the pandemic and spread of new virus strains reinforces the risks described herein.
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 operations, cash flow and financial condition.
Our portfolio is comprised of properties primarily in Manhattan as well as in Fairfield County, Connecticut and Westchester County, New York. 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 Manhattan 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. Additionally, our concentration in dense urban communities where social distancing is more difficult may cause us to experience longer periods of economic disruption from COVID-19.
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 Manhattan and the greater New York metropolitan area 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 their 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 six properties, in particular the Empire State Building and its Observatory, for a significant portion of our revenue.
For the year ended December 31, 2021, six of our properties together accounted for approximately 75.5% of our portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 31.7%. Our revenue and cash available for distribution would be materially and adversely affected if any of these six 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 ending December 31, 2019, 2020 and 2021, we derived approximately $128.8 million, $29.1 million and $41.5 million, respectively from the Empire State Building’s observatory operations. Loss of revenue from the observatory, as we have experienced in 2020 through 2021 as a result of the COVID-19 pandemic, has had and can in the future have a material adverse impact on our total revenue and financial condition.
Our five largest tenants represented approximately 13.2% of our total portfolio’s annualized rent as of December 31, 2021.
As of December 31, 2021, our five largest tenants together represented 13.2% of our total portfolio’s annualized rent, with our largest tenant leasing an aggregate of 0.4 million rentable square feet of office space at one of our office properties, representing approximately 4.1% of our total portfolio rentable square feet and approximately 5.1% of our total portfolio annualized rent. Our significant tenants may experience financial strain leading to lease default or bankruptcy filing, as we experienced in July 2021 with the bankruptcy of one of our then largest tenants. See Leasing section of ITEM 7. Management's Discussion and Analysis for more information. 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 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.
Risks Relating to the Real Estate Market
A sustained shift away from in-person work environments to remote work, increased use of a hoteling desk layout or a move towards a city hub and suburban spoke geographic model could have an adverse effect on the overall demand for our office and multifamily apartment units.
Limitations on in-person work environments caused by the COVID-19 pandemic have temporarily 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 Company owns. These trends and the related effects may continue after the COVID-19 pandemic, which 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, 2021, approximately 17.1% of our 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, all exacerbated by the COVID-19 pandemic. 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.
As we experienced in July 2021 with the bankruptcy of one of our largest tenants at the time, the occurrence of a tenant bankruptcy or insolvency could diminish or terminate the income we receive from that tenant. The COVID-19 pandemic has increased the number of tenant bankruptcies, where federal law may prohibit us from timely eviction and/or authorize the tenant to terminate its lease(s), with statutory limitations on our recovery of rent due for the remaining lease term. 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 operations, cash flow and financial condition.
Competition may impede our ability to attract or retain tenants or re-lease space.
The leasing of real estate in the greater 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. Increased competition challenges our ability to lease space and maximize our effective rents.
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, 2021, we had approximately 1.4 million rentable square feet of vacant space (excluding leases signed but not yet commenced) in our office and retail properties. In addition, leases representing 5.7% and 6.3% of the square footage of the office and retail properties in our portfolio will expire in 2022 and 2023, respectively (including month-to-month leases). We cannot be assured that expiring leases will be renewed or that our properties will be re-leased at net effective rental rates at or above the current average.
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.
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, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants. Additionally, our multifamily properties face competition for residents as a result of technology innovation. 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.
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 results of operations and financial condition will be negatively affected. Given their short-term lease structure, our multifamily rental revenues are more sensitive to market declines.
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, and continue to engage, in development activities with respect to our properties. We own entitled land at the Transportation Center in Stamford, Connecticut that can support the development of an approximately 0.4 million rentable square foot office building and garage. 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.
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 certain of 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 caused by public health crises, including COVID-19 pandemic, among other factors.
For fiscal years ending December 31, 2019, 2020 and 2021, we derived approximately $128.8 million, $29.1 million and $41.5 million from our observatory operations. Our revenues declined significantly in 2020 and 2021, 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. We cannot predict when, if at all, our observatory revenues will return to pre-COVID-19 levels. Any future health or other economic crisis could negatively impact tourist trends and visitor demand for our observatory, which could have a material adverse effect on our business. 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.
The Empire State Building and its broadcasting mast provide radio and data communications services and support delivery of broadcasting signals to cable and satellite systems and television and radio receivers. We license the use of the broadcasting mast to third party television and radio broadcasters. During the year ended December 31, 2021, we derived approximately $13.5 million of revenue (excluding tenant reimbursement income) from such broadcasting licenses and related leases, as compared with about $21 million at its peak a few years ago. 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 reported financial condition.
Our balance sheet includes goodwill of approximately $491.5 million at December 31, 2021, 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. The closure of our observatory due to the pandemic and continued uncertainty around tourism amid COVID caused us to perform such an assessment each quarter since the second quarter of 2020 using a third-party valuation consulting firm. Though we determined no impairment has been necessary, we will continue such assessments when appropriate. See “Financial Statements - Note 4 - Deferred Costs, Acquired Lease Intangibles and Goodwill.” An impairment could have a material adverse effect on our reported earnings.
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 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 Internal Revenue Code of 1986, as amended (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.
Risks Relating to Our Indebtedness and Liquidity
The phase-out, replacement or unavailability of LIBOR could affect interest rates under our revolving credit facility, as well as our ability to obtain future debt financing on favorable terms.
We are subject to interest rate risk under our revolving credit facility and related term loan, which use U.S. Dollar (“USD”) LIBOR to establish the interest rate. In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated that it would phase out LIBOR as a benchmark. In November 2020, the Federal Reserve Board announced that banks must stop writing new USD LIBOR contracts by the end of 2021 and that, no later than June 30, 2023, when USD LIBOR will no longer be published, market participants should amend legacy contracts to use the Secured Overnight Financing Rate (“SOFR”) or another alterative reference rate. Our debt facilities provide a mechanism to set an alternative rate of interest, but no such amendment has yet been made. While we do not expect the discontinuation of USD LIBOR and related transition to affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates and/or payments under our debt agreements. Additionally, the phase-out of USD LIBOR and transition to SOFR may result in disruption to financial markets , which could have a material adverse effect on our financial condition and adversely affect our ability to obtain future debt on favorable terms.
Our debt and related limitations in our loan documents could adversely affect us.
As of December 31, 2021, we had total debt outstanding of approximately $2.3 billion and total mortgages of approximately $968.8 million with no maturity before November 2024. See “Financial Statements - Note 5 - Debt” for required payments of our indebtedness. 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 related 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. We may fail to hedge interest rates effectively. If any one of these events were to occur, our 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 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” and “Private Perpetual Preferred Units.”
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 available for them to guarantee). See “Financial Statements - Note 11 - Related Party Transactions - Tax Protection Agreements.”
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 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.
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 Relating to Disaster Recovery and Business Continuity
Natural disasters and climate change could adversely impact our area and business.
Our properties are concentrated in the New York metropolitan area. Natural disasters, including earthquakes, storms, storm surges, tornados, floods and hurricanes, could cause significant damage to our properties and the surrounding area. Climate change, including rising sea levels 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 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, although certain third parties have claimed such coverage in litigation, which we continue to monitor. In addition, our insurance policies include substantial self-insurance and deductibles and co-payments for certain events. See Part I, Item 1, “Business - Insurance.” 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, 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.
Our properties are subject to various laws and regulations concerning protection of the environment, including air and water quality, hazardous substances, and health and safety. Some of our properties, or adjacent properties, have previously been used by former owners or tenants for commercial or industrial activities (e.g., gas stations, underground storage tanks, and dry cleaners), and a portion of the Metro Tower site is currently used for automobile parking and fueling, which may release hazardous substances. The presence of contamination or the failure to remediate contamination at any of our properties may subject us to fines and impair our ability to sell, lease or finance them.
If contamination is discovered on our properties, environmental laws may restrict use or operations. For example, our property at 69-97 Main Street in Westport, Connecticut is subject to restrictions on the use, occupancy and development of the property, which may impair our ability to sell, lease or finance this property. Additionally, we have restrictions imposed on site work done at our 500 Mamaroneck property required by the New York State Department of Environmental Control. Other laws and regulations govern indoor and outdoor air and water quality including abatement or removal of asbestos-containing materials, lead paint, and electrical equipment containing polychlorinated biphenyls (PCBs). We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria, which may cause adverse health effects. Our predecessors may be subject to similar liabilities for past activities. We could incur fines and be liable for the costs of remedial action with respect to the foregoing. 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 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 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. 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 portfolio in the 2024-2030 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, President 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, President 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 that were not contributed to us in the formation transactions, some of which are now managed by our company. See “Financial Statements - Note 11 - Related Party Transactions - Excluded Properties and Businesses.” In some cases, Mr. Malkin or his affiliates may have management and fiduciary obligations that could conflict with his responsibilities to our company. We may choose to moderate or omit enforcement of our rights under this 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, 2021, we have collective bargaining agreements that cover 484 employees, or 70% of our workforce, that service all of our office properties. 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 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 complying 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 would be required to incur costs to bring any non-compliant property into compliance and could be required to make modifications to our properties upon any renovation, all of which could involve substantial costs and material adverse effect on our financial conditions.
We may become subject to litigation, which could have a material adverse effect on our financial condition.
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.”
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, so our business is increasingly at risk from cyberattacks that continue to increase in number, intensity and sophistication. These have included and could in the future include internal and external attempts to gain unauthorized access to our data and computer systems to, disrupt operations, or steal confidential information. We employ a number of controls to prevent and mitigate these threats; but there is no guarantee such measures will be successful. A cyberattack could compromise the confidential information of our employees, tenants, customers and vendors, and disrupt our business operations and relationships.
Any compromise of our security could also result in a violation of applicable privacy (e.g., observatory customer data, company employee data, or residential data at multifamily properties) and other laws, with significant damage to our legal and financial condition, our reputation, our business, our records, and confidence of our business relationships. New laws and regulations on these subjects pose increasingly complex compliance challenges and costs across multiple jurisdictions.
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 receipt 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 ESRT's REIT Status, Our Organization and Structure
If we are treated as a corporation for U.S. federal income tax purposes, we will be subject to entity-level U.S. federal income tax, and ESRT will cease to qualify as a REIT.
We believe we qualify as a partnership for U.S. federal income tax purposes and as such are generally not subject to U.S. federal income tax on our income. Instead, each of our securityholders, including ESRT, is required to include in income its allocable share of our income. We are treated as a publicly traded partnership under the Code and accordingly will be treated and taxed as such a corporation for U.S. federal income tax purposes unless we meet certain requirements, in particular, that at least 90% of our gross income be derived from qualifying sources income, which generally includes rental income and other income from passive sources. We believe we satisfy this test, but the IRS could challenge us. If the IRS were successful in treating us as a corporation, we would be subject to U.S. federal, state and local corporate income tax, which would significantly reduce our cash available to pay debt service and distributions, could have adverse tax consequences on holders of OP units, and would disqualify ESRT from REIT status.
You may be allocated more taxable income than the distributions you receive from us.
So long as we remain eligible to be taxed as a partnership for U.S. federal income tax purposes, we generally are not subject to U.S. federal income tax. Rather, each holder of our OP units is required to take into account its allocable share of items of our income, gain, loss, deduction and credit for our taxable year ending within or with the taxable year of such holder in computing such holder's U.S. federal income tax liability, regardless of whether the holder has received any distributions from us. It is possible that the tax liability of such holder could exceed our cash distributions to such holder for the year, thus requiring an out-of-pocket tax payment by the holder.
Your ability to deduct certain losses allocated from us may be subject to limitations.
Your ability to utilize any tax losses or deductions generated by us may be limited under the “at risk” limitation in Section 465 of the Code, the passive activity loss limitation in Section 469 of the Code, the basis limitation of Section 704(d) of the Code, the suspension of miscellaneous itemized deductions in Section 67 of the Code, the limitation on excess business losses in Section 461 of the Code, and/or other provisions of the Code. These limitations may, among other things, prevent a holder from utilizing allocations of loss and deduction from us against income from other sources. The passive activity loss rules are applied separately with respect to items of income and loss of each partnership held by a holder. Furthermore, your ability to utilize certain specific items of deduction may be limited under certain provisions of the Code. The application of these limitations depends on the exact nature of our current and future operations and the individual tax positions of such holders. Holders of OP units should consult with their tax advisor regarding these provisions.
Participants may recognize taxable gain resulting from a reduction in their allocable share of our liabilities.
We may elect to pay down our secured debt or refinance such debt with unsecured debt, which may reduce the amount of our liabilities allocable to a holder of OP units. In addition, certain commitments in ESRT’s tax protection agreements could reduce the share of liabilities available to be allocated to holders of OP units due to our obligation to offer to the tax-protected parties opportunities to guarantee certain debt. Over time, depreciation, capital improvements and debt amortization and repayment, among other things, may also reduce the share of our liabilities allocated to a holder of OP units. Any such reductions in the share of our liabilities that exceeds the holder's U.S. federal income tax basis in its OP units is treated as taxable gain from sale or exchange of such units. Holders of our OP units should consult their tax advisors with regard to the foregoing.
Failure of ESRT to qualify as a REIT would have a material adverse effect on us.
We must rely on ESRT, as our general partner, to manage our affairs and business. ESRT is subject to certain risks that may affect its financial and other conditions, including particularly adverse consequences if it fails to qualify as a REIT for U.S. federal income tax purposes. ESRT's qualification as a REIT is governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations and depends on various facts and circumstances that are not entirely within its 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. Thus, while we and ESRT intend to operate so that ESRT will qualify as a REIT, there can be no assurance that ESRT will so qualify for any particular year. These considerations also might restrict the types of assets that we can acquire in the future. If, with respect to any taxable year, ESRT fails to maintain its qualification as a REIT and does not qualify under statutory relief provisions, it could not deduct distributions to shareholders in computing its taxable income and would have to pay U.S. federal income tax on its taxable income at regular corporate rates and thus reduce funds available for distribution and debt service, and ESRT would not be required to make distributions until it re-qualified as a REIT which would not be permitted for the four taxable years following our disqualification, unless it gained relief under relevant statutory provisions.
To enable ESRT to comply with REIT requirements, we may have to forego and/or liquidate attractive investments.
To qualify as a REIT (and avoid certain taxes to which it would be subject notwithstanding its status as a REIT), ESRT must meet, on an ongoing basis, certain tests regarding the nature and diversification of its assets and its income. Because substantially all of ESRT's assets consists of our OP units, and substantially all of ESRT's income consists of income allocations with respect to such units, ESRT's ability to satisfy these tests will depend on the composition of our assets and income. Similarly, in order to be treated as a partnership for U.S. federal income tax purposes, we must meet certain annual tests relating to the sources of our gross income. In order to meet these tests and to allow ESRT to meet these tests, we may be required to forego investments that we otherwise would make or to liquidate from our portfolio otherwise attractive investments. In addition, we may be required to make distributions to ESRT at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our securityholders.
To allow ESRT to comply with REIT distribution requirements, we may be required to borrow funds during unfavorable market conditions or may be subject to tax.
ESRT intends to distribute its net income to securityholders in a manner intended to satisfy the REIT 90% distribution requirement (See Part I, Item 1, “Business - Our Tax Status”) and to avoid U.S. federal income tax and the 4% nondeductible excise tax. Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these distribution requirements. 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 because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income. In addition, we may incur nondeductible capital expenditures or be required to make debt or amortization payments, or the effect of limitations on interest (subject to an exception for an electing real property trade or business) and net operating loss deductibility under the current law, could cause our taxable income to exceed our net income as determined by GAAP. As a result, we may generate less cash flow than taxable income in a particular year and be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable in order to allow ESRT to satisfy such REIT requirements and avoid such taxes.
Specific transactions or tax elections may cause you to recognize gain or otherwise affect your investment.
As a general matter, per the terms of our partnership agreement, ESRT is not required to take into account tax consequences to the other holders of OP units in deciding whether to cause us to undertake specific transactions or make tax elections that could cause you to recognize gain. Consequently, we could enter into transactions that result in additional taxable income allocations to you at any time, and your share of our liabilities could be reduced at any time.
We cannot match the transferor of particular Series 60, Series 250, or Series ES OP units with each transferee of such OP units, so we have adopted certain income tax accounting positions that could subject us to challenge by the IRS.
Because we cannot match the transferor of particular Series 60, Series 250, or Series ES OP units with each transferee of such OP units, we have adopted certain depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury Regulations. A successful challenge to those positions could adversely affect the amount of tax benefit available or taxable income allocated to holders of such operating partnership units. It also could affect the timing of certain tax benefits or the amount of gain on the sale of such OP units and could have a negative impact on their value or result in audits of and adjustments to the tax returns of holders of such units. In addition, our taxable income and losses are determined and apportioned among investors using conventions we regard as consistent with applicable law. As a result, if you transfer your OP units, you may be allocated income, gain, loss and deduction realized by us after the date of transfer. Similarly, a transferee may be allocated income, gain, loss and deduction realized by us prior to the date of the transfer and, in certain circumstances, even if such a transferee receives no distributions. A transferee may also bear the cost of withholding tax imposed with respect to income allocated to a transferor through a reduction in the cash distributed to the transferee.
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 ESRT has received, we would be required to restructure our operations in a manner that could adversely affect the value of our OP units.
To treat income from our observatory and broadcast facilities as qualified REIT income, we rely upon private letter rulings that such income 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 company receives from observatory TRS as qualifying income for purposes of the REIT gross income tests applicable to ESRT, 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 company 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 ESRT to fail to qualify as a REIT.
There remains uncertainty as to how partnership tax audits will be applied.
In the case of an audit for taxable years beginning after December 31, 2017, our company and any subsidiary partnership may be required to pay the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit or in other tax proceedings, unless the partnership elects an alternative method under which the taxes resulting from the adjustment (and interest and penalties) are assessed at the partner level. In addition, Treasury Regulations provide that a partner that is a REIT may be able to use deficiency dividend procedures with respect to such adjustments. Many uncertainties remain as to the application of these rules, and the impact they will have on us. In addition, it is possible that partnerships in which we invest may be subject to U.S. federal income tax, interest and penalties in the event of a U.S. federal income tax audit as a result of these law changes.
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 COVID-19 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 tax reform legislation now and in the future could affect REITs generally and the geographic markets in which we operate both positively and negatively, in ways that are difficult to anticipate.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our securityholders or us. In recent years, many such changes have been made and changes are likely to continue to occur in the future.
Pursuant to the formation transactions, Malkin Properties of Connecticut, Inc., a Connecticut corporation, or Malkin Properties CT, and Malkin Construction Corp., a Connecticut corporation, or Malkin Construction merged with and into a subsidiary of ESRT, with the subsidiary surviving, in a transaction that was intended to be treated as a reorganization under the Code. Each of Malkin Properties CT and Malkin Construction had previously elected to be treated as an S Corporation for U.S. federal income tax purposes under Section 1361 of the Code with respect to periods preceding our formation transactions. If either of Malkin Properties CT or Malkin Construction had failed to qualify as an S corporation with respect to periods preceding our formation transactions, ESRT could have assumed material U.S. federal income tax liabilities in connection with the formation transactions and/or may be subject to certain other adverse tax consequences. In addition, for ESRT to qualify as a REIT under these circumstances, we would be required to distribute, prior to the close of our first taxable year in which we elect to be taxed as a REIT under the Code, any earnings and profits of these entities to which we were deemed to succeed. No rulings from the IRS were requested and no opinions of counsel were rendered regarding the U.S. federal income tax treatment of any of Malkin Properties CT or Malkin Construction with respect to periods preceding our formation transactions. Accordingly, no assurance can be given that Malkin Properties CT or Malkin Construction qualified as an S corporation for U.S. federal income tax purposes during such periods, or that these entities did not have any other tax liabilities. In addition, Malkin Holdings LLC merged with our subsidiary in the formation transactions, and as a result, we may have inherited any liabilities, including any tax liabilities, of Malkin Holdings LLC.
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 and ESRT 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 ESRT 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.”. If we were to trigger such tax indemnification obligations, we would be required to pay the resulting tax consequences 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 ESRT’s Class B common stock have a significant vote in ESRT matters.
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 in ESRT or tax-deferred operating partnership units in our company. 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 in ESRT and 49 operating partnership units in us for each 50 operating partnership units in us 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 holders of Class A common stock in ESRT are entitled to vote, including the election of directors.
Holders of ESRT Class B common stock may have interests that differ from holders of ESRT Class A common stock and our securityholders, including by reason of their interest in us, and may accordingly vote as a stockholder in ways that may not be consistent with the interests of holders of ESRT Class A common stock and our securityholders. This significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of ESRT, or could deprive holders of ESRT Class A common stock or our securityholders of an opportunity to receive a premium for their Class A common stock or units, as applicable, as part of a sale of ESRT.
The concentration of our voting power may adversely affect the ability of new investors to influence our policies.
As of December 31, 2021, ESRT’s Chairman, President and Chief Executive Officer, Anthony E. Malkin, together with the Malkin Group, has the right to vote 40,859,706 shares of ESRT’s common stock, which represents approximately 18.7% of the voting power of ESRT’s outstanding common stock. Consequently, Mr. Malkin has the ability to influence the outcome of matters presented to our securityholders, including the election of ESRT’s board and approval of significant corporate transactions, including business combinations, consolidations and mergers and the determination of our day-to-day corporate and management policies.
As of December 31, 2021, QIA had a 10.63% fully diluted interest in ESRT, which represented 17.67% of the outstanding Class A common stock of ESRT. Pursuant to the terms of ESRT’s stockholders agreement with QIA, QIA generally has the right (but not the obligation) to maintain its fully diluted economic interest in ESRT by purchasing additional shares of ESRT’s Class A common stock when we or ESRT issue additional common equity securities from time to time. While QIA has agreed to limit its voting power on all matters presented to ESRT’s 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 ESRT’s board. The interests of Mr. Malkin and QIA could conflict with or differ from your interests as a holder of our operating partnership units, 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 our operating partnership units upon a sale or refinancing of our properties may cause the interests of certain members of ESRT’s 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, President and Chief Executive Officer, Anthony E. Malkin, and our Chairman Emeritus, Peter L. Malkin, may suffer different and more adverse tax consequences than other holders of operating partnership units upon the sale or refinancing of the properties owned by us, 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 and other material terms of any sale or refinancing of certain properties, or whether to sell 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 members of ESRT’s senior management team to attempt to delay, defer or prevent a transaction that might otherwise be in the best interests of our other securityholders. Additionally, in connection with the formation transactions, we and ESRT entered into a tax protection agreement with Messrs. Malkin pursuant to which we and ESRT 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” 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 between ESRT’s securityholders and OP unit holders.
Conflicts of interest exist or could arise in the future as a result of the relationships between ESRT and its affiliates, on the one hand, and our company 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. ESRT’s directors and officers have duties to ESRT and its shareholders under applicable Maryland law in connection with their management of ESRT. At the same time, ESRT, as our general partner has fiduciary duties and obligations to us and our limited partners under Delaware law and our partnership agreement. ESRT’s fiduciary duties and obligations to us as general partner may come into conflict with the duties of ESRT’s directors and officers to ESRT, which may impede business decisions that could benefit our securityholders. Pursuant to our partnership agreement, our limited partners have agreed that in the event of a conflict in the duties owed by ESRT's directors and officers to ESRT and ESRT's securityholders and the fiduciary duties owed by ESRT, in its capacity as general partner of us, to such limited partners, ESRT will fulfill its fiduciary duties to such limited partners by acting in the best interests of ESRT's securityholders.
ESRT’s rights and the rights of ESRT’s securityholders to take action against ESRT’s directors and officers are limited, which could limit your recourse in the event of actions not in your best interest.
ESRT’s charter limits the liability of its present and former directors and officers to ESRT and its securityholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, ESRT’s present and former directors and officers will not have any liability to ESRT or its 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, our partnership agreement 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.
Provisions in our partnership agreement and ESRT’s charter may delay or prevent a change of control over the company or ESRT, or a tender offer, even if such action might be beneficial to our securityholders. Certain provisions in our partnership agreement may delay or make more difficult unsolicited acquisitions of us or changes of control, including, among others: redemption rights of qualifying parties; transfer restrictions on operating partnership units; ESRT’s ability, as general partner, in some cases, to amend the partnership agreement and to cause us to issue units with terms that could delay, defer or prevent a merger or other change of control 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 preferred units if we decide, at our option, to redeem preferred units for cash upon the occurrence of certain fundamental transactions, such as a change of control.
Certain provision’s in ESRT’s charter also may delay or prevent a change in control of ESRT, and by extension of us, including ownership restrictions, which generally limit (i) ownership to 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT common stock, except where waived by ESRT’s board in its sole discretion, as it did with QIA, and (ii) ownership to the extent such ownership would result in ESRT 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 are subject to the loss of rights to distributions and voting and other penalties. Additionally, ESRT’s 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.
These limitations could have the effect of discouraging a takeover or other transaction in which our securityholders might receive a premium for their securities or which holders might believe to be otherwise in their best interests.
Risks Related to our Traded OP Units
Our cash available for distribution may not be sufficient to make distributions at expected levels, and the market price of our securities could be adversely affected by our level of cash distributions.
We intend to make distributions to our securityholders. All dividends and distributions will be made at the discretion of our sole general partner, ESRT, acting through its board, and will depend on our earnings, financial condition, maintenance of ESRT’s REIT qualification and other factors as ESRT’s 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 ESRT’s Class A common stock and our traded OP units.
The future exercise of registration rights may adversely affect the market price of our securities.
In August 2016, ESRT entered into a registration rights agreement with QIA in connection with its purchase of ESRT’s Class A common stock, which requires ESRT, 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, 2020 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 and our traded OP units.
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 securities.
In the future, we or ESRT may issue debt or equity securities or make other borrowings. ESRT’s board, without stockholder approval, has the power under its charter to cause ESRT to issue additional shares of capital stock or debt securities, and we 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 ESRT’s common stock. We or ESRT are not required to offer any such additional debt or equity securities to existing ESRT securityholders or our securityholders, as applicable, on a preemptive basis. Therefore, additional shares of ESRT common stock issuances, directly or through convertible or exchangeable securities (including operating partnership units), warrants or options, will dilute the holdings of ESRT’s existing common securityholders and such issuances or the perception of such issuances may reduce the market price of shares of ESRT’s common stock or our traded OP units. Additionally, ESRT’s preferred units or shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit ESRT’s ability to make distributions to holders of shares of its common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2021, we did not have any unresolved comments from the staff of the SEC.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our Portfolio Summary
As of December 31, 2021, our office and retail portfolio consisted of 14 office properties and six standalone retail properties totaling approximately 10.1 million rentable square feet and was approximately 82.4% occupied, yielding approximately $523.8 million of annualized rent. Our retail properties are comprised of retail space at the base of our Manhattan office properties, four standalone retail properties in Manhattan and two contiguous standalone retail properties in Westport, Connecticut. All of the Manhattan properties are located dynamic retail corridors with convenient access to mass transportation, a diverse tenant base and high pedestrian traffic. Giving effect to leases signed but not yet commenced, our portfolio was approximately 85.7% leased as of December 31, 2021. Additionally, at December 31, 2021, our portfolio included two multifamily properties located in Manhattan totaling 625 units. In addition, we owned entitled land that will support the development of an approximately 0.4 million rentable square foot office building and garage ("Metro Tower") at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties.
Office and Retail Portfolio
The table below presents an overview of our office and retail portfolio as of December 31, 2021.
Annualized
Rentable Rent per
Square Percent Annualized Occupied Number of
Property Name Location or Sub-Market Feet (1)
Occupied (2)
Rent (3)
Square Foot (4)
Leases (5)
Manhattan Office Properties - Office
The Empire State Building (6)
Penn Station -Times Sq. South 2,715,148 82.0 % $ 138,571,093 $ 62.22 153
One Grand Central Place Grand Central 1,245,679 87.5 % 65,514,506 60.11 162
1400 Broadway (7)
Penn Station -Times Sq. South 917,716 89.9 % 46,174,199 55.98 24
111 West 33rd Street (8)
Penn Station -Times Sq. South 641,036 97.5 % 40,477,718 64.79 23
250 West 57th Street Columbus Circle - West Side 466,143 81.7 % 23,693,696 62.24 33
501 Seventh Avenue Penn Station -Times Sq. South 461,367 78.0 % 17,527,866 48.68 23
1359 Broadway Penn Station -Times Sq. South 456,129 70.8 % 19,041,630 58.98 26
1350 Broadway (9)
Penn Station -Times Sq. South 372,060 79.4 % 17,504,941 59.26 54
1333 Broadway Penn Station -Times Sq. South 295,635 77.0 % 13,430,296 59.01 12
Manhattan Office Properties - Office 7,570,913 83.9 % 381,935,945 60.12 510
Manhattan Office Properties - Retail
The Empire State Building Penn Station -Times Sq. South 100,196 46.1 % 5,530,491 119.80 11
One Grand Central Place Grand Central 68,733 98.9 % 8,615,690 126.80 12
1400 Broadway (7)
Penn Station -Times Sq. South 20,176 77.2 % 1,731,713 111.21 7
112 West 34th Street (8)
Penn Station -Times Sq. South 91,280 100.0 % 23,742,322 260.10 4
250 West 57th Street Columbus Circle - West Side 67,927 86.3 % 8,732,706 148.90 6
501 Seventh Avenue Penn Station -Times Sq. South 33,632 81.3 % 1,969,358 72.04 7
1359 Broadway Penn Station -Times Sq. South 27,624 88.5 % 1,554,701 63.62 5
1350 Broadway Penn Station -Times Sq. South 30,707 73.3 % 5,697,920 253.30 4
1333 Broadway Penn Station -Times Sq. South 67,001 100.0 % 9,812,303 146.45 4
Manhattan Office Properties - Retail 507,276 83.0 % 67,387,204 160.11 60
Sub-Total/Weighted Average Manhattan Office Properties - Office and Retail 8,078,189 83.9 % 449,323,149 66.33 570
Greater New York Metropolitan Area Office Properties
First Stamford Place (10)
Stamford, CT 777,174 77.4 % 26,604,240 44.24 40
Metro Center Stamford, CT 286,384 84.3 % 13,774,751 57.05 19
383 Main Street Norwalk, CT 260,081 46.0 % 3,601,000 30.08 18
500 Mamaroneck Avenue Harrison, NY 286,161 87.3 % 7,604,809 30.46 30
10 Bank Street White Plains, NY 234,985 85.3 % 7,420,613 37.01 30
Sub-Total/Weighted Average Greater New York Metropolitan Office Properties 1,844,785 76.6 % 59,005,413 41.77 137
Standalone Retail Properties
10 Union Square Union Square 57,857 30.4 % 4,160,690 236.40 9
1542 Third Avenue Upper East Side 56,250 100.0 % 3,343,039 59.43 4
1010 Third Avenue Upper East Side 44,662 100.0 % 3,658,188 81.91 2
77 West 55th Street Midtown 25,388 100.0 % 1,968,830 77.55 3
69-97 Main Street Westport, CT 16,874 82.9 % 1,591,181 113.70 4
103-107 Main Street Westport, CT 4,330 100.0 % 703,176 162.40 1
Sub-Total/Weighted Average Standalone Retail Properties 205,361 79.0 % 15,425,104 95.08 23
Portfolio Total 10,128,335 82.4 % $ 523,753,666 $ 62.73 730
Total/Weighted Average Office Properties 9,415,698 82.5 % $ 440,941,358 $ 56.78 647
Total/Weighted Average Retail Properties (11)
712,637 81.8 % 82,812,308 142.02 83
Portfolio Total (12)
10,128,335 82.4 % $ 523,753,666 $ 62.73 730
(1)Excludes (i) 204,168 square feet of space across our portfolio attributable to building management use and tenant amenities and (ii) 79,613 square feet of space attributable to our observatory.
(2)Based on leases signed and commenced as of December 31, 2021 and calculated as (i) rentable square feet less available square feet divided by (ii) rentable square feet.
(3)Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.
(4)Represents annualized rent under leases commenced as of December 31, 2021 divided by occupied square feet.
(5)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.
(6)Includes 37,110 rentable square feet of space leased by our broadcasting tenants.
(7)Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to the Company, of approximately 42 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 56 years (expiring May 31, 2077).
(9)Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to us, of approximately 29 years (expiring July 31, 2050).
(10)First Stamford Place consists of three buildings.
(11)Includes 507,276 rentable square feet of retail space in our Manhattan office properties.
(12)Excludes 16,175 square feet of retail rentable space at two multifamily properties.
Tenant Diversification
As of December 31, 2021, our office and retail portfolios were leased to a diverse tenant base consisting of approximately 730 leases. Our tenants represent a broad array of industries as follows:
Diversification by Industry Percent (1)
Arts and entertainment 3.1 %
Broadcast 1.1 %
Consumer goods 15.2 %
Finance, insurance, real estate 17.0 %
Government entity 2.1 %
Healthcare 2.0 %
Legal services 5.3 %
Media and advertising 4.6 %
Non-profit 4.6 %
Professional services (not including legal services) 10.0 %
Retail 17.1 %
Technology 13.1 %
Others 4.8 %
Total 100.0 %
(1) Based on annualized rent.
The following table sets forth information regarding the 20 largest tenants in our portfolio based on annualized rent as of December 31, 2021.
Weighted Percent of
Average Total Portfolio Percent of
Remaining Occupied Rentable Portfolio
Lease Lease Square Square Annualized Annualized
Tenant Property Expiration (1)
Term (2)
Feet (3)
Feet (4)
Rent (5)
Rent (6)
LinkedIn Empire State Building Aug. 2036 14.7 years 418,552 4.1 % $ 26,656,726 5.1 %
PVH Corp. 501 Seventh Avenue Oct. 2028 6.8 years 237,281 2.3 % 11,343,800 2.2 %
Centric Brands Inc. Empire State Building Oct. 2028 6.8 years 215,819 2.1 % 11,006,769 2.1 %
Sephora 112 West 34th Street Jan. 2029 7.1 years 11,334 0.1 % 10,528,487 2.0 %
Li & Fung 1359 Broadway, ESB Oct. 2023 -Oct. 2028 5.8 years 173,273 1.7 % 9,283,476 1.8 %
Macy's 111 West 33rd Street May 2030 8.4 years 131,117 1.3 % 8,185,511 1.6 %
Coty Inc. Empire State Building Jan. 2030 8.1 years 156,187 1.5 % 7,943,754 1.5 %
Urban Outfitters 1333 Broadway Sept. 2029 7.8 years 56,730 0.6 % 7,791,801 1.5 %
Federal Deposit Insurance Corp. Empire State Building Dec. 2024 3.0 years 119,226 1.2 % 7,584,532 1.4 %
Signature Bank 1333 & 1400 Broadway Jul. 2030 - Apr. 2035 12.8 years 124,884 1.2 % 7,540,459 1.4 %
The Interpublic Group of Co's, Inc. 111 West 33rd Street & 1400 B'way Feb. 2025 2.4 years 128,296 1.3 % 7,221,237 1.4 %
Foot Locker 112 West 34th Street Sept. 2031 9.8 years 34,192 0.3 % 7,046,880 1.3 %
HNTB Corporation Empire State Building Feb. 2029 7.2 years 105,143 1.0 % 6,982,283 1.3 %
Franklin Templeton First Stamford Place Sept. 2024 2.8 years 137,583 1.4 % 6,426,634 1.2 %
Shutterstock Empire State Building Apr. 2029 7.3 years 104,386 1.0 % 5,974,821 1.1 %
Fragoman 1400 Broadway Feb. 2035 13.2 years 107,680 1.1 % 5,922,400 1.1 %
The Michael J. Fox Foundation 111West 33rd Street Nov. 2029 7.9 years 86,492 0.9 % 5,649,928 1.1 %
ASCAP 250 West 57th Street Aug. 2034 12.7 years 87,943 0.9 % 5,465,025 1.0 %
On Deck Capital, Inc. 1400 Broadway Dec. 2026 5.0 years 83,266 0.8 % 5,004,365 1.0 %
Duane Reade ESB, 1350 Broadway May 2025 - Sept. 2027 4.5 years 39,142 0.4 % 4,830,412 0.9 %
Total $ 2,558,526 25.2 % $ 168,389,300 32.0 %
(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, 2021.
(4)Represents the percentage of rentable square feet of our 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 our office and retail portfolios in the aggregate.
Lease Expirations
During 2019, we generally obtained higher base rents on new and renewed leases at our Manhattan office properties. 2021 and 2020 were not representative due to COVID-19. These increased rents are partly due to an increase in the total rentable square footage of such space as a result of remeasurement and application of market loss factors to our space.
The following table sets forth new and renewal leases entered into at our Manhattan office properties (excluding the retail component of these 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 in mark-to market rent.
Year Ended December 31,
2021 2020 2019
New and renewal leases entered into during the year (square feet) 1,005,630 923,379 970,443
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 57.55 $ 57.45 $ 65.91
Weighted average annualized cash rent per square foot for previous leases $ 58.04 $ 61.18 $ 54.72
Increase (decrease) in mark-to-market rent (0.8) % (6.1) % 20.4 %
The following tables set forth a summary schedule of expirations for leases in place as of December 31, 2021 plus available space for each of the ten calendar years beginning with the year ended December 31, 2021 at the office and retail properties in our portfolio. The information set forth in the table assumes that tenants exercise no renewal options and all early termination rights. The table excludes 16,175 of retail rentable square feet at two multifamily properties.
All Office and Retail Properties
Percent of
Rentable Portfolio Annualized
Number Square Rentable Percent of Rent Per
of Leases Feet Square Feet Annualized Annualized Rentable
Year of Lease Expiration Expiring (1)
Expiring (2)
Expiring Rent (3)
Rent Square Foot
Available - 1,448,024 14.3 % $ - - % $ -
Signed leases not commenced 30 331,510 3.3 % - - % -
Fourth quarter 2021 16 62,128 0.6 % 3,029,820 0.6 % 48.77
2022 105 575,796 5.7 % 32,670,890 6.2 % 56.74
2023 94 634,713 6.3 % 39,622,216 7.6 % 62.43
2024 94 838,787 8.3 % 48,675,426 9.3 % 58.03
2025 88 548,091 5.4 % 33,535,725 6.4 % 61.19
2026 71 791,371 7.8 % 42,960,506 8.2 % 54.29
2027 73 611,080 6.0 % 38,944,131 7.4 % 63.73
2028 40 918,804 9.1 % 48,951,154 9.3 % 53.28
2029 41 903,943 8.9 % 65,438,879 12.5 % 72.39
2030 36 717,208 7.1 % 47,398,789 9.0 % 66.09
2031 19 159,145 1.6 % 19,493,200 3.7 % 122.49
Thereafter 53 1,587,735 15.6 % 103,032,930 19.8 % 64.89
Total 760 10,128,335 100.0 % $ 523,753,666 100.0 % $ 62.73
Manhattan Office Properties (4)
Percent of
Rentable Portfolio Annualized
Number Square Rentable Percent of Rent Per
of Leases Feet Square Feet Annualized Annualized Rentable
Year of Lease Expiration Expiring (1)
Expiring (2)
Expiring Rent (3)
Rent Square Foot
Available - 981,727 13.0 % $ - - % $ -
Signed leases not commenced 18 236,152 3.1 % - - % -
Fourth quarter 2021 11 48,900 0.6 % 2,799,183 0.7 % 57.24
2022 73 354,592 4.7 % 20,349,570 5.3 % 57.39
2023 74 474,339 6.3 % 29,082,557 7.6 % 61.31
2024 73 621,040 8.2 % 37,606,241 9.8 % 60.55
2025 54 354,559 4.7 % 22,963,843 6.0 % 64.77
2026 51 571,774 7.6 % 32,924,790 8.6 % 57.58
2027 51 440,876 5.8 % 26,386,783 6.9 % 59.85
2028 26 799,889 10.6 % 43,248,632 11.3 % 54.07
2029 27 647,901 8.6 % 38,825,165 10.2 % 59.92
2030 21 607,354 8.0 % 36,909,918 9.7 % 60.77
2031 10 79,806 1.1 % 5,650,883 1.5 % 70.81
Thereafter 39 1,352,004 17.7 % 85,188,380 22.4 % 63.01
Total 528 7,570,913 100.0 % $ 381,935,945 100.0 % $ 60.12
Greater New York Metropolitan Area Office Properties
Percent of
Rentable Portfolio Annualized
Number Square Rentable Percent of Rent Per
of Leases Feet Square Feet Annualized Annualized Rentable
Year of Lease Expiration Expiring (1)
Expiring (2)
Expiring Rent (3)
Rent Square Foot
Available - 403,698 21.9 % $ - - % $ -
Signed leases not commenced 7 28,427 1.5 % - - % -
Fourth quarter 2021 3 1,836 0.1 % 51,622 0.1 % 28.12
2022 24 176,698 9.6 % 7,191,472 12.2 % 40.70
2023 15 152,874 8.3 % 7,159,068 12.1 % 46.83
2024 13 191,633 10.4 % 8,502,782 14.4 % 44.37
2025 31 173,068 9.4 % 6,329,977 10.7 % 36.58
2026 14 152,836 8.3 % 5,943,591 10.1 % 38.89
2027 15 114,165 6.2 % 4,394,893 7.4 % 38.50
2028 9 107,564 5.8 % 3,867,238 6.6 % 35.95
2029 6 149,116 8.1 % 6,507,235 11.0 % 43.64
2030 5 41,116 2.2 % 1,962,709 3.3 % 47.74
2031 - - - % - - % -
Thereafter 2 151,754 8.2 % 7,094,826 12.1 % 46.75
Total 144 1,844,785 100.0 % $ 59,005,413 100.0 % $ 41.77
Retail (5)
Percent of
Rentable Portfolio Annualized
Number Square Rentable Percent of Rent Per
of Leases Feet Square Feet Annualized Annualized Rentable
Year of Lease Expiration Expiring (1)
Expiring (2)
Expiring Rent (3)
Rent Square Foot
Available - 62,599 8.8 % $ - - % $ -
Signed leases not commenced 5 66,931 9.4 % - - % -
Fourth quarter 2021 2 11,392 1.6 % 179,015 0.2 % 15.71
2022 8 44,506 6.2 % 5,129,848 6.2 % 115.26
2023 5 7,500 1.1 % 3,380,591 4.1 % 450.75
2024 8 26,114 3.7 % 2,566,403 3.1 % 98.28
2025 3 20,464 2.9 % 4,241,905 5.1 % 207.29
2026 6 66,761 9.4 % 4,092,125 4.9 % 61.30
2027 7 56,039 7.9 % 8,162,455 9.9 % 145.66
2028 5 11,351 1.6 % 1,835,284 2.2 % 161.68
2029 8 106,926 15.0 % 20,106,479 24.3 % 188.04
2030 10 68,738 9.6 % 8,526,162 10.3 % 124.04
2031 9 79,339 11.1 % 13,842,317 16.7 % 174.47
Thereafter 12 83,977 11.7 % 10,749,723 13.0 % 128.01
Total 88 712,637 100.0 % $ 82,812,307 100.0 % $ 142.02
The Empire State Building (6)
Percent of
Rentable Portfolio Annualized
Number Square Rentable Percent of Rent Per
of Leases Feet Square Feet Annualized Annualized Rentable
Year of Lease Expiration Expiring (1)
Expiring (2)
Expiring Rent (3) (7)
Rent Square Foot
Available - 430,014 15.8 % $ - - % $ -
Signed leases not commenced 2 58,120 2.1 % - - % -
Fourth quarter 2021 2 6,971 0.3 % 333,750 0.2 % 47.88
2022 21 120,124 4.4 % 6,881,935 5.0 % 57.29
2023 24 99,464 3.7 % 6,783,696 4.9 % 68.20
2024 23 271,661 10.0 % 18,074,834 13.0 % 66.53
2025 14 110,331 4.1 % 7,400,687 5.3 % 67.08
2026 12 132,831 4.9 % 8,224,278 5.9 % 61.92
2027 18 57,581 2.1 % 3,818,249 2.8 % 66.31
2028 7 371,238 13.7 % 19,810,835 14.3 % 53.36
2029 7 282,020 10.4 % 17,571,549 12.7 % 62.31
2030 6 210,800 7.8 % 11,468,411 8.3 % 54.40
2031 5 23,038 0.8 % 1,918,571 1.4 % 83.28
Thereafter 14 540,955 19.9 % 36,284,298 26.2 % 67.07
Total 155 2,715,148 100.0 % $ 138,571,093 100.0 % $ 62.22
The Empire State Building Broadcasting Licenses and Leases
Annualized Percent of
Annualized Expense Annualized Annualized
Year of Lease Expiration Base Rent (8)
Reimbursements Rent (3)
Rent
Fourth quarter 2021 $ 31,710 $ 14,903 $ 46,613 0.3 %
2022 - - - - %
2023 285,588 69,728 355,316 2.4 %
2024 68,958 39,416 108,374 0.7 %
2025 - - - - %
2026 848,556 103,900 952,456 6.4 %
2027 2,613,626 600,207 3,213,833 21.7 %
2028 261,200 9,633 270,833 1.8 %
2029 - - - - %
2030 2,082,250 326,484 2,408,734 16.3 %
2031 1,855,250 272,818 2,128,068 14.4 %
Thereafter 4,703,059 635,565 5,338,624 36.0 %
Total $ 12,750,197 $ 2,072,654 $ 14,822,851 100.0 %
(1)If a lease has two different expiration dates, it is considered to be two leases (for the purposes of lease count and square footage).
(2)Excludes (i) 204,168 rentable square feet across our portfolio attributable to building management use and tenant amenities and (ii) 79,613 square feet of space attributable to our observatory.
(3)Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.
(4)Excludes (i) retail space in our Manhattan office properties and (ii) the Empire State Building broadcasting licenses and observatory operations.
(5)Includes an aggregate of 507,276 rentable square feet of retail space in our Manhattan office properties. Excludes the Empire State Building broadcasting licenses and observatory operations.
(6)Excludes retail space, broadcasting licenses and observatory operations.
(7)Includes approximately $4.3 million of annualized rent related to physical space occupied by broadcasting tenants for their broadcasting operations. Does not include license fees charges to broadcast tenants.
(8)Represents license fees for the use of the Empire State Building mast and base rent for the physical space occupied by broadcasting tenants.
Investments in Real Estate
On December 22, 2021, we closed on the acquisition of two multifamily assets, the Victory (561 10th Avenue) and 345 East 94th Street, previously owned by a joint venture of Fetner Properties and an institutional owner. The total transaction value was $307 million, inclusive of $186 million of assumed debt. Fetner Properties retained a 10% equity stake and continues to manage onsite operations. We will asset manage the properties, make all decisions, and have the right to assume day-to-day management for no additional consideration. The two properties have a total of 625 units and were 96.4% occupied as of December 31, 2021.
Redevelopment and Repositioning
We have been undertaking a comprehensive redevelopment and repositioning strategy of our Manhattan office properties that has included the physical improvement through upgrades and modernization of, and tenant upgrades in, such properties. Since we assumed full control of the day-to-day management of our Manhattan office properties beginning with One Grand Central Place in 2002, and through December 31, 2021, we have invested a total of approximately $966.7 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties pursuant to this program. We intend to fund capital improvements through a combination of operating cash flow, cash on hand and borrowings.
The improvements, within our redevelopment and repositioning program, include restored, renovated and upgraded or new lobbies, elevator modernization, renovated public areas and bathrooms, refurbished or new windows, upgrade and standardization of retail storefront and signage, façade restorations, modernization of building-wide systems, with a focus on energy efficiency and indoor environmental quality, and enhanced tenant amenities. These improvements are designed to improve the overall value and attractiveness of our properties and have contributed significantly to our tenant repositioning efforts, which seek to increase our occupancy, raise our rental rates, increase our rentable square feet, increase our aggregate rental revenue, lengthen our average lease term, increase our average lease size, and improve our tenant credit quality. We have also aggregated smaller spaces in order to offer larger blocks of office space, including multiple floors, that are attractive to larger, higher credit-quality tenants, as well as to offer new, pre-built suites with improved layouts. This strategy has shown
what we believe to be attractive results to date, and we believe has the potential to improve our operating margins and cash flows in the future. We believe we will continue to enhance our tenant base and improve rents as our pre-redevelopment leases continue to expire and be re-leased.
We believe the high quality of our buildings, services and amenities, their desirable locations and commuter access to mass transportation represent a value proposition with rents at a substantially lower price point than new construction and offering a premium product when compared to similar-vintage unrenovated buildings. Management believes the replacement cost of these properties substantially exceeds their implied value by our current stock price.
The greater New York metropolitan area office market is soft, and we compete with properties that have been redeveloped recently or have planned redevelopment. We have spent approximately $41 million over 2018 through 2021 on our well-maintained and well-located properties’ common areas and amenities to ensure competitiveness and protect our market position.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
We have 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 18, 2022, the last sales price for our Series ES OP Units on the NYSE Arca was $9.75 per share. On February 18, 2022, the last sales price for our Series 60 OP Units on the NYSE Arca was $9.55 per share. On February 18, 2022, the last sales price for our Series 250 OP Units on the NYSE Arca was $9.52 per share.
Holders
As of February 18, 2022, we had approximately 603 registered holders of Series PR OP Units, 1,343 registered holders of Series ES OP Units, 406 registered holders of Series 60 OP Units and 288 registered holders of Series 250 OP Units. Certain shares and OP Units are held in "street" name and accordingly, the number of beneficial owners of such shares and OP Units is not known or included in the foregoing totals.
Distributions
ESRT intends to pay regular quarterly dividends to holders of its Class A common stock and Class B common stock, at least to the extent of its taxable income or as required to maintain its qualification as a REIT and we intend to make regular quarterly distributions to our securityholders. Any distributions we or ESRT pay in the 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.
During May 2021, we announced our decision to reinstate the quarterly dividend, one quarter earlier than previously announced, driven by confidence in the New York City recovery and improvement in our operating results and liquidity. We declared dividends of $0.035 per share for the second, third and fourth quarters of 2021, which equates to an annualized rate of $0.14 per share.
We and ESRT's board will continue regular reviews of our dividend and capital allocation policies. Distributions declared by us will be authorized by ESRT's 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 ESRT's 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.
Securities Authorized For Issuance Under Equity Compensation Plans
On May 16, 2019, the 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 Note 10 to the consolidated financial statements included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
The following table presents certain information about our equity compensation plans as of December 31, 2021:
Plan Category 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)
Equity compensation plans approved by securityholders (1)
N/A N/A 7,694,642 (2)
Equity compensation plans not approved by securityholders - - -
Total N/A N/A 7,694,642
______________
(1)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.
(2)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, 2021, we have issued 572,451 shares of restricted stock and 12,094,605 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
ESRT's 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, 2021 through December 31, 2021 and reauthorized a new $500 million from January 1, 2022 through December 31, 2023. 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 and general market conditions. 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.
The following table summarizes our purchases of equity securities in each of the three months of the fourth quarter 2021 under the 2021 Repurchase Program:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Approximate Dollar Value Available for Future Purchase (in thousands)
October 2021 - $ - - $ -
November 2021 1,452,168 $ 10.06 1,452,168 $ 475,343
December 2021 2,426,091 $ 9.09 2,426,091 $ 453,296

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or 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).
The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: (i) economic, political and social impact of, and uncertainty relating to, the COVID-19 pandemic; (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 COVID-19 pandemic; (v) changes in our business strategy; (vi) changes in technology and market competition that affect utilization of our office, retail, broadcast or other facilities; (vii) changes in domestic or international tourism, including due to health crises such as the COVID-19 pandemic, geopolitical events and/or currency exchange rates, which may cause a decline in Observatory visitors; (viii) defaults on, early terminations of, or non-renewal of, leases by tenants; (ix) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of LIBOR after 2021; (x) declining real estate valuations and impairment charges; (xi) termination of our ground leases; (xii) changes in our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow additional funds in compliance with drawdown conditions and financial covenants; (xiii) decreased rental rates or increased vacancy rates; (xiv) our failure to execute any newly planned capital project successfully or on the anticipated timeline or at the anticipated costs; (xv) difficulties in identifying and completing acquisitions; (xvi) risks related to our development projects (including our Metro Tower development site); (xvii) impact of changes in governmental regulations, tax laws and rates and similar matters; (xviii) our failure to qualify as a REIT; (xix) environmental uncertainties and risks related to climate change, adverse weather conditions, rising sea levels and natural disasters; and (xx) accuracy of our methodologies and estimates regarding ESG metrics and goals, tenant willingness and ability to collaborate in reporting ESG metrics and meeting ESG goals, and impact of governmental regulation on our ESG efforts. For a further discussion of these and other factors that could impact the 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 are not guarantees of future performance. The company disclaims any 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.
Overview
Unless the context otherwise requires or indicates, references in this section to "our company," "we," "our" and "us" refer to Empire State Realty OP, L.P. and its consolidated subsidiaries.
The following discussion and analysis should be read in conjunction with our consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 and the notes related thereto which are included in this Annual Report on Form 10-K.
2021 Highlights
•Net loss attributable to the company of $13.0 million.
•Core FFO of $194.9 million.
•Signed 129 leases, new, renewal, and expansion leases, representing 1,005,630 rentable square feet. This included 87 leases representing 801,254 rentable square feet for the Manhattan office portfolio.
•On December 22, 2021, we completed the acquisition of 625 units in two Manhattan multifamily assets with a total transaction value of $307 million, inclusive of $186 million of assumed debt. We now own a 90% interest, and a Fetner Properties affiliate retained a 10% interest.
Impact of COVID-19
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented economic, social and political uncertainty, volatility and disruption in the United States and globally. The following sections discuss specific COVID-19 impacts on our business operations.
Liquidity
We currently hold $423.7 million in cash and cash equivalents on our balance sheet and have $850 million undrawn capacity under our unsecured revolving credit facility. Our $850 million unsecured revolving credit facility matures in March 2025 and has two six-month extension options, subject to certain conditions.
Property Operations
All of our office buildings have remained open during the COVID-19 pandemic. We have scaled back certain building operations in cleaning, security, lobby concierge and recurring maintenance, which reduced costs until buildings are repopulated. A portion of the reduction in operating expenses was offset by a reduction in tenant expense recoveries.
Our operations team worked diligently to develop and implement plans for tenants' reoccupation of our buildings to ensure a safe, clean and healthy work environment. These plans involved staff reassigned to screen tenants and visitors, changes to cleaning and maintenance standards, and changes to building operations for access by tenants and their guests.
Despite the challenge of the uncertain near-term environment, we continue to believe in the long-term demand for office space. We believe many tenants have acknowledged the challenges, inequities, and worries about divided workplaces between home and office work, the challenges with onboarding new employees and miss the connectivity and productivity that an office environment provides.
Leasing
The economic uncertainty and concerns over health and safety relating to the COVID-19 pandemic has slowed the pace of our leasing activity and could result in higher vacancy than we otherwise would have experienced, a longer amount of time to fill vacancies, increased concessions and potentially lower rental rates. In addition, the potential for continued remote work or hybrid remote/in-person work arrangements could negatively impact the office leasing market. As of December 31, 2021, our portfolio was 85.7% leased, including signed leases not yet commenced, with 5.7% subject to leases scheduled to expire in 2022 and 6.3% subject to leases scheduled to expire in 2023.
New leasing activity was impacted during 2020 by the COVID-19 pandemic and shelter-in-place rules that were in effect for much of the period. On June 15, 2021, New York State ended pandemic-linked restrictions given the broad-based distribution of the COVID-19 vaccine. During the second quarter 2021, we experienced a sustained increase in leasing tour volume in our Manhattan office portfolio which led to our improved leasing performance in the third and fourth quarters of 2021.
Our smaller food and service type retailers have been hit particularly hard. They provide critical amenities and services to our office tenants. In many instances, we have converted some of their fixed rent to a percentage rent structure. We intend to support our food and service retailers so that they can service our office tenants as they continue to re-occupy.
Retailers, in general, have been hardest hit by the pandemic. Our retail-orientated tenants are no exception. As with all landlords, we are working with some of our tenants that are financially challenged. Some of these tenants may end up in bankruptcy or default in their leases in the near term.
On July 29, 2021, GBG USA Inc., an indirect wholly-owned subsidiary of Global Brands Group Holding Limited, announced that its North America wholesale business and certain subsidiaries and affiliates (collectively, “GBG USA”) filed for bankruptcy under Chapter 11 (the "GBG Bankruptcy"). At the time of the filing, GBG USA leased 353,325 square feet of office space at 1333 Broadway and the Empire State Building, or 3.5%, of our total portfolio rentable square feet, representing approximately 3.6% of total portfolio annualized rent. Of that total, all but 191,000 square feet, or 1.9% of our total portfolio rentable square feet, has been sublet to tenants, where both GBG USA and the subtenant are liable for the rent, and we have the right to require the subtenant to pay directly to us. The sublets are for GBG USA’s entire premises at 1333 Broadway and have been in effect for several years. We have current discussions to convert the subtenants to direct tenants. Subsequently, GBG USA filed to reject their leases and both lease rejections were approved by the bankruptcy court during the third quarter.
In the third quarter we recorded a $1.6 million non-cash write-off of the straight-line receivables related to GBG USA's 1333 Broadway lease.
We collected rent from GBG USA through June 2021 and have converted the full balance of its $17.0 million letter of credit to cash, which was applied as follows:
• $5.2 million was applied against GBG USA's straight-line rent receivable balance related to their lease at the Empire State Building,
• $1.7 million was recognized as GAAP rental revenue for the partial period in the third quarter when their lease remained in place, and
• $10.1 million was recognized as lease termination income.
Observatory Operations
On March 16, 2020, we complied with governmental mandates regarding the closing of non-essential businesses in response to the COVID-19 pandemic and closed the Empire State Building observatory. The 86th floor observatory deck reopened on July 20, 2020 and the 102nd floor observation deck reopened on August 24, 2020.
Due to the lifting of New York State COVID-19 restrictions, on June 16, 2021, the observatory fully reopened with interactive exhibits. We continue to operate with reduced hours, staffing, services, operating costs, credit card fees and marketing expenses. We have seen a higher local visitor mix, followed by a ramp up of nationally sourced travel. We anticipate this pattern will then be followed by a restoration of our typical visitor mix that is approximately two-thirds international which we do not expect to achieve until the broad resumption of international air travel some time in 2022.
The closure and gradual ramp-up of our observatory operations caused us during each quarter of 2020 and throughout each quarter of 2021 to choose to perform an impairment test related to goodwill. We engaged a third-party valuation consulting firm to perform the valuation process. Based upon the results of the most recent goodwill impairment test of the stand-alone observatory reporting unit, which is after the intercompany rent expense paid to the Real Estate reporting
unit, we determined that the fair value of the observatory reporting unit exceeded its carrying value by less than 15.0%. Many of the factors employed in determining whether or not we would need to record a non-cash goodwill impairment charge 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 and that continued assessment may again utilize a third-party valuation consulting firm. Goodwill allocated to the observatory reporting unit was $227.5 million at December 31, 2021.
Results of Operations
Overview
The discussion below relates to the financial condition and results of operations for the years ended December 31, 2021 and 2020.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The following table summarizes the historical results of operations for the years ended December 31, 2021 and 2020 (amounts in thousands):
Years Ended December 31,
2021 2020 Change %
Revenues:
Rental revenue $ 559,690 $ 563,071 $ (3,381) (0.6) %
Observatory revenue 41,474 29,057 12,417 42.7 %
Lease termination fees 16,230 9,416 6,814 72.4 %
Third-party management and other fees 1,219 1,225 (6) (0.5) %
Other revenues and fees 5,481 6,459 (978) (15.1) %
Total revenues
624,094 609,228 14,866 2.4 %
Operating expenses:
Property operating expenses 126,986 136,141 9,155 6.7 %
Ground rent expenses 9,326 9,326 - - %
General and administrative expenses 55,947 62,244 6,297 10.1 %
Observatory expenses 23,206 23,723 517 2.2 %
Real estate taxes 119,967 121,923 1,956 1.6 %
Impairment charges 7,723 6,204 (1,519) (24.5) %
Depreciation and amortization 201,806 191,006 (10,800) (5.7) %
Total operating expenses
544,961 550,567 5,606 1.0 %
Operating income
79,133 58,661 20,472 34.9 %
Other income (expense):
Interest income
704 2,637 (1,933) (73.3) %
Interest expense
(94,394) (89,907) (4,487) (5.0) %
Loss on early extinguishment of debt (214) (86) (128) (148.8) %
IPO litigation expense - (1,165) 1,165 100.0 %
Loss before income taxes
(14,771) (29,860) 15,089 (50.5) %
Income tax benefit
1,734 6,971 (5,237) (75.1) %
Net loss
(13,037) (22,889) 9,852 (43.0) %
Private perpetual preferred unit distributions
(4,201) (4,197) (4) (0.1) %
Net loss attributable to non-controlling interests 17 - 17 - %
Net loss attributable to common unit holders
$ (17,221) $ (27,086) $ 9,865 (36.4) %
Rental Revenue and Tenant Expense Reimbursement
The decrease in rental revenue was attributable to lower occupancy, straight-line rent write-offs and lower tenant expense reimbursements, consistent with lower property operating expenses.
Observatory Revenue
Observatory revenues were higher driven by increased visitation due to a reduction in COVID-19 restrictions in 2021.
Lease Termination Fees
Higher termination fees were earned in the year ended December 31, 2021 compared to the year ended December 31, 2020.
Property Operating Expenses
The decrease in property operating expenses was primarily due to lower payroll costs, lower repair and maintenance costs, and other lower operating expenses. The lower costs are primarily driven by lower tenant utilization in our buildings.
General and Administrative Expenses
The decrease in general and administrative expenses was primarily due to lower equity compensation expense, lower severance costs and lower legal costs than the year ended December 31, 2020.
Observatory Expenses
The modest decline in observatory expenses was driven by cost controls and reduced hours of operation instituted in response to reduced visitors due to COVID-19 travel restrictions for the vast majority of 2021.
Real Estate Taxes
Lower real estate taxes in the year ended December 31, 2021 were attributable to the overall reduction in property assessment values due to the impact of COVID-19.
Depreciation and Amortization
The increase in depreciation and amortization reflects tenant improvement write-offs primarily related to GBG USA.
Interest Income
The decrease in interest income reflects higher cash investments in the year ended December 31, 2020 compared to the year ended December 31, 2021 and lower interest rates in the year ended December 31, 2021.
Interest Expense
Interest expense increased due to higher debt balances and higher deferred financing cost amortization reflecting higher deferred financing cost balances associated with new debt.
Income Taxes
The decrease in income tax benefit was attributable to lower net operating loss for the observatory segment.
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 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.
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, short term investments, cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit and term loan 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 and term loan 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 and term loan 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. ESRT's charter does not restrict the amount of leverage that we may use.
At December 31, 2021, we had approximately $423.7 million available in cash and cash equivalents and there was $850 million available under our unsecured revolving credit facility.
At December 31, 2021, we had approximately $2.3 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 3.89% and a weighted average maturity of 7.5 years. As of December 31, 2021, excluding debt amortization, we have no outstanding debt maturing until November 2024 when principal repayments would amount to $77.7 million in 2024, $315.0 million in 2025 and $1.8 billion thereafter. As of December 31, 2021, interest expense obligations from 2022 through 2026 and thereafter amount to $612.9 million while debt amortization amount to $85.8 million. Our net debt to total market capitalization was 42.4% as of December 31, 2021.
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 $71.3 million as of December 31, 2021 of which $7.6 million is due within the next five years.
Investments in Real Estate
On December 22, 2021, we closed on the acquisition of two multifamily assets located in Manhattan, the Victory (561 10th Avenue) and 345 East 94th Street, previously owned by a joint venture of Fetner Properties and an institutional owner. The total transaction value was $307 million, inclusive of $186 million of assumed debt. Fetner Properties retained a 10% equity stake and continues to manage onsite operations. We will asset manage the properties, make all decisions, and have the right to assume day-to-day management at any time and for any reason for no additional consideration.
Unsecured Revolving Credit and Term Loan Facilities
On March 31, 2021, we entered into a second amendment to an existing credit agreement dated August 29, 2017 ("Amended Credit Agreement") that will govern an amended senior unsecured credit facility (the “Credit Facility”) with Bank of America, N.A., as administrative agent, and Bank of America, Wells Fargo Bank, National Association, Capital One, National Association and JPMorgan Chase Bank, N.A., as co-syndication agents, and the lenders and the letter of credit issuers party thereto.
The 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 and a $215.0 million term loan facility. We borrowed the term loan facility in full in August 2017. We may request the Credit Facility be increased through one or more increases in the revolving credit facility or one or more increases in the term loan facility or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount not to exceed $1.50 billion. The Credit Facility will be used for our working capital needs and for other general corporate purposes. As of December 31, 2021, we had no borrowings under the revolving credit facility and $215.0 million under the term loan facility.
The revolving credit facility matures on March 31, 2025. We have the option to extend the initial term for up to two additional 6-month periods, subject to certain conditions, including the payment of an extension fee equal to 0.0625% and 0.075% of the then outstanding commitments under the revolving credit facility on the first and the second extensions, respectively. The term loan facility matures on March 19, 2025. We may prepay the loans under the Credit Facility at any
time in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar Rate borrowings.
On March 19, 2020, we entered into a senior unsecured term loan facility (the “Term Loan Facility”) with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC as sole bookrunner, Wells Fargo Securities, LLC, Capital One, National Association, U.S. Bank National Association and SunTrust Robinson Humphrey, Inc. as Joint Lead Arrangers, Capital One, National Association, as syndication agent, U.S. Bank National Association and Truist Bank, as documentation agents, and the lenders party thereto.
The Term Loan Facility is in the original principal amount of $175 million which we borrowed in full at closing. We may request the 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, 2021, our borrowings amounted to $175.0 million under the Term Loan Facility.
The Term Loan Facility matures on December 31, 2026. We may prepay loans under the Term Loan Facility at any time in whole or in part, subject to reimbursement of the lenders’ breakage and redeployment costs in the case of prepayment of Eurodollar rate borrowings and, if the prepayment occurs on or before December 31, 2021, a prepayment fee.
The terms of both the Credit Facility and the 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. 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, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control.
As of December 31, 2021, we were in compliance with the covenants, as described below:
Financial Covenant Required December 31, 2021 In Compliance
Maximum total leverage < 60% 43.5 % Yes
Maximum secured debt < 40% 17.9 % Yes
Minimum fixed charge coverage > 1.50x 2.4x Yes
Minimum unencumbered interest coverage
> 1.75x 4.4x Yes
Maximum unsecured leverage
< 60% 34.7 % Yes
Mortgage Debt
On December 22, 2021, we acquired 90% of two multifamily assets, the Victory (561 10th Avenue) and 345 East 94th Street. In connection with this acquisition, we assumed $134.0 million of principal balance of debt on the Victory, which matures in November 2033 and has an effective interest rate of 3.85%, and $52 million of principal balance of debt on 345 East 94th Street, which matures in November 2030 and has an effective interest rate of 3.56%.
As of December 31, 2021, mortgage notes payable, net, amounted to $948.8 million. The first maturity is in 2024. See Note 5 - Debt for more information on mortgage debt.
Senior Unsecured Notes
Series A, B, C, D, E, F, G and H Senior Notes (collectively, "Senior Unsecured Notes") are senior unsecured obligations with an aggregate principal amount of $975.0 million maturing on various dates from 2025 to 2035. These Senior Unsecured Notes are unconditionally guaranteed by each of our subsidiaries that guarantees indebtedness under the unsecured revolving credit and term loan facility. Interest on the Senior Unsecured Notes is payable quarterly.
The terms of the Senior Unsecured Notes include customary covenants, including limitations on liens, investment, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. These 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, 2021, 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 ESRT's board of directors. Although ESRT's board has not adopted a policy that limits the total amount of indebtedness that we may incur, we anticipate that ESRT's board 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. ESRT's 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, however, we initially intend to maintain a level of indebtedness consistent with our plan to seek an investment grade credit rating. ESRT's board 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 ESRT's common stock and our traded OP units, growth and acquisition opportunities and other factors.
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)
Years Ended December 31,
Total New Leases, Expansions, and Renewals 2021 2020 2019
Number of leases signed(2)
118 90 152
Total square feet
983,182 854,068 1,216,037
Leasing commission costs(3)
$ 19,802 $ 9,969 $ 21,227
Tenant improvement costs(3)
65,133 32,896 70,643
Total leasing commissions and tenant improvement costs(3)
$ 84,935 $ 42,865 $ 91,870
Leasing commission costs per square foot(3)
$ 20.14 $ 11.67 $ 17.46
Tenant improvement costs per square foot(3)
66.25 38.52 58.09
Total leasing commissions and tenant improvement costs per square foot(3)
$ 86.39 $ 50.19 $ 75.55
Retail Properties(4)
Years Ended December 31,
Total New Leases, Expansions, and Renewals 2021 2020 2019
Number of leases signed(2)
11 14 9
Total Square Feet
22,448 69,311 87,538
Leasing commission costs(3)
$ 1,286 $ 2,239 $ 3,557
Tenant improvement costs(3)
1,386 7,575 3,337
Total leasing commissions and tenant improvement costs(3)
$ 2,672 $ 9,814 $ 6,894
Leasing commission costs per square foot(3)
$ 57.27 $ 32.31 $ 40.71
Tenant improvement costs per square foot(3)
61.75 109.29 38.20
Total leasing commissions and tenant improvement costs per square foot(3)
$ 119.02 $ 141.60 $ 78.91
_______________
(1)Excludes an aggregate of 507,276, 504,284 and 511,984 rentable square feet of retail space in our Manhattan office properties in 2021, 2020 and 2019, respectively. Includes the Empire State Building broadcasting licenses and observatory operations.
(2)Presents a renewed and expansion lease as one lease signed.
(3)Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid.
(4)Includes an aggregate of 507,276, 504,284 and 511,984 rentable square feet of retail space in our Manhattan office properties in 2021, 2020 and 2019, respectively. Excludes the Empire State Building broadcasting licenses and observatory operations.
(5)The tables above exclude two multifamily properties.
Years Ended December 31,
2021 2020 2019
Total Portfolio
Capital expenditures (1)
$ 24,279 $ 43,022 $ 138,560
_______________
(1)Includes all capital expenditures, excluding tenant improvements and leasing commission costs, which are primarily attributable to the redevelopment and repositioning program conducted at our Manhattan office properties.
As of December 31, 2021, we expect to incur additional costs relating to obligations under signed new leases of approximately $109.6 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, short term investments and borrowings under the unsecured revolving credit and term loan facilities.
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund the capital improvements to complete the redevelopment and repositioning program through a combination of operating cash flow, cash on hand, short term investments and borrowings under the unsecured revolving credit and term loan facilities.
Distribution Policy
We intend to distribute our net taxable income to our security holders in a manner intended to satisfy REIT distribution requirements and to avoid U.S. federal income tax liability on our income.
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 and our board continue to prioritize balance sheet flexibility and the maximization of our operating runway amidst an uncertain environment. During August 2020, we announced the suspension of our third and fourth quarter 2020 dividends to holders of ESRT's Class A common stock and Class B common stock and to holders of our Series ES, Series 250 and Series 60 operating partnership units and Series PR operating partnership units. During May 2021, we announced our decision to reinstate the quarterly dividend, one quarter earlier than previously announced, driven by confidence in the New York City recovery and improvement in our results and liquidity. We declared a dividend of $0.035 per share for the second, third and fourth quarters of 2021, 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 2019, 2020 and 2021 as follows (amounts in thousands):
Year ended December 31, 2019 127,761
Year ended December 31, 2020 65,047
Year ended December 31, 2021 32,764
Stock and Publicly Traded Operating Partnership Unit Repurchase Program
ESRT's 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, 2021 through December 31, 2021 and reauthorized a new $500 million from January 1, 2022 through December 31, 2023. Under the program, ESRT may purchase its Class A common stock and our Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to stock price, availability, trading volume and general market conditions. 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.
The following table summarizes our purchases of equity securities for the year ended December 31, 2021:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Approximate Dollar Value Available for Future Purchase (in thousands)
Year ended December 31, 2021 4,886,932 $ 9.56 4,886,932 $ 453,296
Cash Flows
Comparison of Year Ended December 31, 2021 to the Year Ended December 31, 2020
Net cash. Cash and cash equivalents and restricted cash were $474.6 million and $567.9 million as of December 31, 2021 and 2020, respectively. The decrease was primarily due to the acquisition of real estate property, partially offset by lower spending for capital expenditures, lower dividends paid and lower repurchases of common shares in 2021.
Operating activities. Net cash provided by operating activities increased by $30.2 million to $212.5 million primarily due to the settlement of a derivative contract in the year ended December 31, 2020.
Investing activities. Net cash from investing activities increased by $69.6 million to $212.7 million used in investing activities due to the acquisition of real estate property in the year ended December 31, 2021 and lower spending on building and improvements due to COVID-19.
Financing activities. Net cash from financing activities decreased by $350.2 million to $93.0 million used in financing activities primarily due to the net proceeds from issuance of debt in the year ended December 31, 2020.
Net Operating Income
Our financial reports include a discussion of property net operating income, or NOI. NOI is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by: (i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner and because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. 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 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 the 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,
2021 2020 2019
Net income (loss)
$ (13,037) $ (22,889) $ 84,290
Add:
General and administrative expenses
55,947 62,244 61,063
Depreciation and amortization
201,806 191,006 181,588
Interest expense
94,394 89,907 79,246
Loss on early extinguishment of debt
214 86 -
Income tax expense (benefit)
(1,734) (6,971) 2,429
Impairment charges 7,723 5,360 -
IPO litigation expense - 1,165 -
Less:
Interest income
(704) (2,637) (11,259)
Third-party management and other fees
(1,219) (1,225) (1,254)
Net operating income
$ 343,390 $ 316,046 $ 396,103
Other Net Operating Income Data
Straight line rental revenue
$ 21,078 $ 5,238 $ 20,057
Net increase in rental revenue from the amortization of above and below-market lease assets and liabilities
$ 5,895 $ 3,627 $ 7,311
Amortization of acquired below-market ground leases
$ 7,831 $ 7,831 $ 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 writedowns 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, FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. 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 consider this 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 consider it 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 items: IPO litigation expense, severance expenses and loss on early extinguishment of debt.. The company presents Core FFO because it considers it an important supplemental measure of its operating performance in that it excludes items associated with its IPO and formation transactions and other 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 net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO for the periods presented (amounts in thousands):
Years Ended December 31,
2021 2020 2019
Net income (loss)
$ (13,037) $ (22,889) $ 84,290
Private perpetual preferred unit distributions
(4,201) (4,197) (1,743)
Real estate depreciation and amortization
196,360 184,245 177,515
Impairment charges 7,723 5,360 -
Funds from operations attributable to common stockholders and non-controlled interests
186,845 162,519 260,062
Amortization of below-market ground leases 7,831 7,831 7,831
Modified funds from operations attributable to common stockholders and non-controlled interests
194,676 170,350 267,893
Loss on early extinguishment of debt 214 86 -
Severance expenses - 3,813 -
IPO litigation expense - 1,165 -
Core funds from operations attributable to common stockholders and non-controlled interests
$ 194,890 $ 175,414 $ 267,893
Weighted average Operating Partnership units
Basic
277,420 283,826 297,798
Diluted
277,420 283,837 297,798
Factors That May Influence Future Results of Operations
Impact of COVID-19
See "Overview" section.
Rental Revenue
We derive revenues primarily from rents, rent escalations, expense reimbursements and other income received from tenants under existing leases at each of our properties. “Escalations and expense reimbursements” consist of payments made by tenants to us under contractual lease obligations to reimburse a portion of the property operating expenses and real estate taxes incurred at each property.
We believe that the average rental rates for in-place leases at our properties are generally below the current market rates, although individual leases at particular properties presently may be leased above, at or below the current market rates within its particular submarket.
The amount of net rental income and reimbursements that we receive depends principally on our ability to lease currently available space, re-lease space to new tenants upon the scheduled or unscheduled termination of leases or renew expiring leases and to maintain or increase our rental rates. Factors that could affect our rental incomes include, but are not limited to: local, regional or national economic conditions; an oversupply of, or a reduction in demand for, office or retail space; changes in market rental rates; our ability to provide adequate services and maintenance at our properties; and fluctuations in interest rates, all of which could adversely affect our rental income in future periods. Future economic or regional downturns affecting our submarkets, or downturns in our tenants’ industries, could impair our ability to lease vacant space and renew or re-lease space as well as the ability of our tenants to fulfill their lease commitments, and could adversely affect our ability to maintain or increase the occupancy at our properties.
Tenant Credit Risk
The economic condition of our tenants may also deteriorate, which could negatively impact their ability to fulfill their lease commitments and in turn adversely affect our ability to maintain or increase the occupancy level and/or rental rates of our properties. Potential tenants may look to consolidate, reduce overhead and preserve operating capital and may also defer strategic decisions, including entering into new, long-term leases at properties.
Leasing
We signed 1.0 million, 0.9 million, and 1.3 million rentable square feet of new leases, expansions and lease renewals, for the years ended December 31, 2021, 2020, and 2019, respectively.
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.
As of December 31, 2021, there were approximately 1.4 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 14.3% of the net rentable square footage of the properties in our portfolio. In addition, leases representing 5.7% and 6.3% of net rentable square footage of the properties in our portfolio will expire in 2022 and in 2023, respectively. These leases are expected to represent approximately 6.2% and 7.6%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. Further, our revenues and results of operations can also be affected by the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant.
Market Conditions
The properties in our portfolio are located in Manhattan and the greater New York metropolitan area, which includes Fairfield County, Connecticut and Westchester County, New York. Positive or negative changes in conditions in these markets, such as business hirings or layoffs or downsizing, industry growth or slowdowns, relocations of businesses, increases or decreases in real estate and other taxes, costs of complying with governmental regulations or changed regulation, can impact our overall performance.
Observatory and Broadcasting Operations
For the year ended December 31, 2021, the observatory hosted 827,000 visitors, compared to 507,000 visitors for the same period in 2020, an increase of 63.1%. Our return of attendance to pre-COVID-19 levels is closely tied to national and international travel trends and these remain adversely impacted by developments around the COVID-19 pandemic.
Observatory revenue for the year ended December 31, 2021 was $41.5 million, a 42.6% increase from $29.1 million for the year ended December 31, 2020. The observatory revenue increase was driven by higher visitation levels in 2021 given the closing of the observatory during 2020 due to COVID-19.
Observatory revenue and admissions are dependent upon the following: (i) the number of tourists (domestic and international) that come to New York City and visit the observatory, as well as any related tourism trends; (ii) the prices per admission that can be charged; (iii) seasonal trends affecting the number of visitors to the observatory; (iv) competition, in particular from other new and existing observatories; and (v) weather trends.
We license the use of the Empire State Building mast to third party television and radio broadcasters and providers of data communications. We also lease space in the upper floors of the building to such licensees to house their transmission equipment and related facilities. During the year ended December 31, 2021, we derived $13.5 million of revenue and $5.6 million of expense reimbursements from the Empire State Building’s broadcasting licenses and related leases.
Operating Expenses
Our operating expenses generally consist of depreciation and amortization, real estate taxes, ground lease expenses, repairs and maintenance, security, utilities, property-related payroll, and insurance. Factors that may affect our ability to control these operating costs include: increases in insurance premiums, tax rates, the cost of periodic repair, redevelopment costs and the cost of re-leasing space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under applicable laws and interest rate levels. If our operating costs increase as a result of any of the foregoing factors, our future cash flow and results of operations may be adversely affected.
The expenses of owning and operating a property are not necessarily reduced when circumstances, such as market factors and competition, cause a reduction in income from the property. If revenues drop, we may not be able to reduce our expenses accordingly. Costs associated with real estate investments, such as real estate taxes and maintenance generally, will not be materially reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. As a result, if revenues decrease in the future, static operating costs may adversely affect our future cash flow and results of operations. If similar economic conditions exist in the future, we may experience future losses.
Cost of Funds and Interest Rates
As of December 31, 2021, our variable rate debt was $125.0 million which represented 5.4% of our total indebtedness and 2.5% of our total enterprise value. Our variable rate debt may increase to the extent we use available borrowing capacity from our unsecured credit facility to fund capital improvements.
Competition
The leasing of real estate is highly competitive in Manhattan and the greater New York metropolitan market in which 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, 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 could have a negative impact on revenues from our observatory and/or broadcasting operations. Adverse impacts on domestic 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. 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 may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire.
Reference is made to ITEM 1A. Risk Factors in this Annual Report on Form 10-K for additional factors that that may influence future results of operations.
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 SEC represent our assets and liabilities and operating results. The consolidated financial statements include our accounts and our wholly owned 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 as well as whether the entity is a variable interest entity (“VIE”) and we are 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. We had no VIEs as of December 31, 2021 and 2020.
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.
Goodwill
Goodwill is tested annually for impairment and is tested for impairment 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.
The closure of our observatory and subsequent reopening under international, national, and local travel restrictions and quarantines caused us during the second quarter of 2020 to choose to perform an impairment test related to goodwill. We engaged a third-party valuation consulting firm to perform the valuation process. The 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 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. Based upon the results of the goodwill impairment test of the standalone observatory reporting unit, which is after the intercompany rent expense paid to the Real Estate reporting unit, we determined that the fair value of the observatory reporting unit exceeded its carrying value by less than 15.0% at December 31, 2021. 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 and that continued assessment may again utilize a third-party valuation consulting firm.
Income Taxes
We are generally not subject to federal and state income taxes as our taxable income or loss is reportable by our partners. Accordingly, no provision has been made for federal and state income taxes. ESRT elected, together with ESRT observatory TRS, L.L.C., our subsidiary which holds our observatory operations, to treat ESRT observatory TRS, L.L.C. as a taxable REIT subsidiary ("TRS"), and ESRT has elected, together with ESRT Holdings TRS, L.L.C., our subsidiary that holds our third party management, construction (through cessation of our construction business in the first quarter of 2015), restaurant, cafeteria, health clubs and certain cleaning operations, to treat ESRT Holdings TRS, L.L.C. as a TRS. TRSs 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. Each of our TRSs 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 financial statements or tax returns. The calculation of the TRSs 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 TRSs 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, 2021, our parent and general partner, Empire State Realty Trust, Inc., had $73.0 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, 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, 2021, the observatory TRS had a federal income tax receivable of $5.5 million. This receivable reflects an anticipated refund resulting from the carryback of 2020 NOL to previous tax years.
The observatory TRS had $3.1 million NOL carryforwards that may be used to offset future taxable income, if any. The federal NOL may be carried forward indefinitely and the state and local NOL can be carried forward for up to 20 years.
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, 2021 and 2020, we do not have a liability for uncertain tax positions. As of December 31, 2021, the tax years ended December 31, 2018 through December 31, 2021 remain open for an audit by the Internal Revenue Service, state or local authorities.
Share-Based Compensation
Share-based compensation for market 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 stated vesting period, which is generally three or four years, depending on retirement eligibility. 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. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of ESRT 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
Reference is made to Note 2 in the accompanying consolidated financial statements for information about recently issued and recently adopted accounting standards.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. One of the principal market risks facing us is interest rate risk on our variable rate indebtedness. As of December 31, 2021, our floating rate debt of $125.0 million represented 2.5% of our total enterprise value.
Subject to maintaining ESRT's 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 portfolio. We are not subject to foreign currency risk.
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 on a related floating rate financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.
As of December 31, 2021, we have interest rate LIBOR swap and cap agreements with an aggregate notional value of $451.3 million, which fix interest at swap rates between 1.757% to 2.500% and cap rates between 4.5% and 5.5%, and mature between August 24, 2022 and November 1, 2033. The interest rate swaps have been designated as cash flow hedges and are deemed highly effective with a fair value of ($25.3) million which is included in accounts payable and accrued expenses on the consolidated balance sheet as of December 31, 2021.
Based on our floating rate debt balances, interest expense would have increased by approximately $1.3 million for the year ended December 31, 2021, if short-term interest rates had been 1% higher. As of December 31, 2021, 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, 2021, the fair value of our outstanding debt was approximately $2.3 billion which was approximately $35.0 million more than the historical 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.
On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021.
We anticipate that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
We have contracts that are indexed to LIBOR and are monitoring and evaluating the related risks, which include interest on loans and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely to vary by contract. The value of loans or derivative instruments tied to LIBOR, as well as interest rates on our unsecured revolving credit facility and our unsecured term loan facilities and the swap rate for our interest rate swaps, may also be impacted if LIBOR is limited or discontinued. For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.
While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.
The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.
Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for us.
Our exposures to market risk have not changed materially since December 31, 2020.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements beginning on Page of this Annual Report on Form 10-K are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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 ESRT's Chief Executive Officer and Principal Financial 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, 2021, the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of ESRT management, including ESRT's Chief Executive Officer and Principal Financial Officer, regarding the effectiveness of our disclosure controls and procedures at the end of the period covered by this Report. Based on the foregoing, ESRT's Chief Executive Officer and Principal Financial 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 ESRT's Chief Executive Officer and Principal Financial 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 OP, L.P. 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 and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 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, 2021 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, 2021, 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 Partners of Empire State Realty OP, L.P.
Opinion on Internal Control Over Financial Reporting
We have audited Empire State Realty OP, L.P.’s internal control over financial reporting as of December 31, 2021, 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 OP, L.P. (the Operating Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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 2021 consolidated financial statements of the Operating Partnership and our report dated February 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Operating Partnership’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 Operating Partnership’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 Operating Partnership 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.
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 25, 2022

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We are managed by Empire State Realty Trust, Inc. in its capacity as our sole general partner. The information required by Item 10 will be set forth in Empire State Realty Trust, Inc.'s definitive proxy statement for its 2022 Annual Meeting of Stockholders (which is scheduled to be held on May 12, 2022), to be filed pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended, or the ESRT Proxy Statement, and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
We are managed by Empire State Realty Trust, Inc. in its capacity as our sole general partner. The information required by Item 11 will be set forth in the ESRT Proxy Statement and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 the ESRT 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.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 will be set forth in the ESRT Proxy Statement and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 will be set forth in the ESRT Proxy Statement and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) The following documents are filed as part of this report:
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, 2021 on page.
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 Index
Exhibit No. Description
3.1
Certificate of Limited Partnership of Empire State Realty OP, L.P.
3.2
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 Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
3.3
Amendment No. 1 to the 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.
3.4
Amendment No. 2 to the 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.
4.1
Description of Securities of Empire State Realty OP, L.P. Registered under Section 12 of the Securities Exchange Act of 1934, as Amended
4.2
Indenture, dated August 12, 2014, by and among Empire State Realty OP, L.P., as issuer, Empire State Realty Trust, Inc., and Wilmington Trust, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed with the SEC on August 12, 2014.
4.3
Form of Global Note representing Empire State Realty OP, L.P.’s 2.625% Exchangeable Senior Notes due 2019 (included in Exhibit 4.2).
10.1
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
10.2
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on September 19, 2013.
10.3
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
10.4
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
10.5
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
10.6
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 Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on February 13, 2012.
10.7+
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.
10.8
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 Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.9
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 Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.10
Indemnification Agreement among Empire State Realty Trust, Inc. and Peter L. Malkin, dated October 7, 2013, incorporated by reference to Exhibit 10.4 to Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.11
Indemnification Agreement among Empire State Realty Trust, Inc. and Anthony E. Malkin, dated October 7, 2013, incorporated by reference to Exhibit 10.5 to Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.13
Indemnification Agreement among Empire State Realty Trust, Inc. and Thomas P. Durels, dated October 7, 2013, incorporated by reference to Exhibit 10.7 to Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.14
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 Empire State Realty Trust, Inc.'s Form 10-Q filed with the SEC on November 12, 2013.
10.15
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.
10.16
Form of Empire State Realty Trust, Inc. Independent Director Indemnification Agreement, incorporated by reference to Exhibit 10.22 to Empire State Realty Trust's Form 10-K filed with the SEC on February 28, 2018.
10.17+
Amended and Restated Employment Agreement between Empire State Realty Trust, Inc. and Anthony E. Malkin, dated April 5, 2016, incorporated by reference to Exhibit 10.32 to the Registrant's Form 10-Q filed with the SEC on May 5, 2016.
10.18
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.
10.19+
Amended and Restated Change in Control Severance Agreement between Empire State Realty Trust, Inc. and Thomas N. Keltner, Jr., dated April 5, 2016, incorporated by reference to Exhibit 10.34 to the Registrant's Form 10-Q filed with the SEC on May 5, 2016.
10.20+
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.
10.22
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.
10.23
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.
10.24
Registration Rights Agreement, dated August 12, 2014, by and among Empire State Realty OP, L.P., Empire State Realty Trust, Inc. and Goldman, Sachs & Co., incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on August 12, 2014.
10.25
Form of Asset and Property Management Agreement, incorporated by reference to Exhibit 10.18 to Amendment No. 6 to Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on September 6, 2013.
10.26
Form of Services Agreement, incorporated by reference to Exhibit 10.19 to Amendment No. 6 to Empire State Realty Trust, Inc.'s Form S-11 (Registration No. 333-179485), filed with the SEC on September 6, 2013.
10.27
Amended and Restated Credit Agreement dated August 29, 2017 among Empire State Realty OP, L.P., as borrower, Empire State Realty Trust, Inc., Bank of America, N.A., as administrative agent, and the lenders and L/C issuers party hereto, Wells Fargo Bank, National Association and Capital One, National Association, as co-syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint bookrunners and the other lenders party thereto, incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with SEC on September 05, 2017.
10.28
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.
10.29+
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.
10.30+
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.
10.31+
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.
10.32+
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.
10.33+
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.
10.34
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.
10.35
Credit Agreement Dated as of March 19, 2020 among Empire State Realty OP, L.P., as Borrower, Empire State Realty Trust, Inc., Wells Fargo Bank, National Association, as Administrative Agent, and The Lenders Party Hereto, Capital One, National Association, as Syndication Agent, U.S. Bank National Association and Truist Bank as Documentation Agents, Wells Fargo Securities, LLC, as Sole Bookrunner, Wells Fargo Securities, LLC, Capital One, National Association, U.S. Bank National Association and Suntrust Robinson Humphrey, Inc., as Joint Lead Arrangers incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the SEC on March 23, 2020.
10.36
First Amendment to Credit Agreement, dated as of March 19, 2020 (this “Amendment”), to that certain Amended and Restated Credit Agreement referenced below, is among Empire State Realty Trust, Inc., a Maryland corporation (the “Parent”), Empire State Realty OP, L.P. (the “Borrower”), the Subsidiary Guarantors party hereto, the Lenders party hereto, Bank of America, N.A. (“Bank of America”), as Administrative Agent, and Bank of America, Wells Fargo Bank, National Association and Capital One, National Association, as L/C Issuers incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on March 23, 2020.
10.37
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.
10.38
Second Amendment to Credit Agreement dated March 31, 2021, among Empire State Realty OP, L.P., as borrower, Empire State Realty Trust, Inc., the subsidiary guarantor parties thereto, Bank of America, N.A., as administrative agent, and the lenders and letter of credit issuers party thereto, incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC on April 1, 2021.
10.39+
Form of LTIP Agreement (Executive Officer, Time Based) incorporated by reference to Exhibit 10.1 to the Empire State Realty OP, L.P. Form 10-Q filed with the SEC on August 5, 2021.
10.40+
Form of LTIP Agreement (Executive Officer, Performance Based) incorporated by reference to Exhibit 10.1 to the Empire State Realty OP, L.P. Form 10-Q filed with the SEC on August 5, 2021.
10.41+
Form of LTIP Agreement (Executive Officer or Director, Immediate Vest) incorporated by reference to Exhibit 10.1 to the Empire State Realty OP, L.P. Form 10-Q filed with the SEC on August 5, 2021.
10.42+
Form of LTIP Agreement (Director, Time-Based) incorporated by reference to Exhibit 10.1 to the Empire State Realty OP, L.P. Form 10-Q filed with the SEC on August 5, 2021.
21.1*
Subsidiaries of Registrant
23.1*
Consent of Ernst & Young LLP
31.1*
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.
31.2*
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.
32.1*
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.
32.2*
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.
101.INS* 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.
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Document
101.DEF* XBRL Taxonomy Extension Definitions Document
101.LAB* XBRL Taxonomy Extension Labels Document
101.PRE* XBRL Taxonomy Extension Presentation Document
104* Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)
99.1
Articles of Amendment and Restatement of Empire State Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to Amendment No. 8 to Empire State Realty Trust, Inc.'s Form S-11 (Registration No.333-179485), filed with the SEC on September 27, 2013.
99.2
Third 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 March 7, 2019.
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.