Empire State Realty OP, L.P. [ESBA] Filings

10-Q 1 esrt-20240331.htm 10-Q esrt-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36106

EMPIRE STATE REALTY OP, L.P.

(Exact name of Registrant as specified in its charter)


Delaware						45-4685158
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

111 West 33rd Street, 12th Floor

New York, New York 10120

(Address of principal executive offices) (Zip Code)

(212) 687-8700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Series ES operating partnership units	ESBA	NYSE Arca, Inc.
Series 60 operating partnership units	OGCP	NYSE Arca, Inc.
Series 250 operating partnership units	FISK	NYSE Arca, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 2, 2024, there were 19,312,499 units of the Registrant Series ES operating partnership units outstanding, 4,973,023 units of the Series 60 operating partnership units outstanding, and 2,560,171 units of the Series 250 operating partnership units outstanding.


	EMPIRE STATE REALTY OP, L.P.
	FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
	TABLE OF CONTENTS	PAGE
PART 1.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023	2
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (unaudited)	4
	Condensed Consolidated Statements of Capital for the three months ended March 31, 2024 and 2023 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	36

ITEM 4.	CONTROLS AND PROCEDURES	36

PART II.	OTHER INFORMATION	36

ITEM 1.	LEGAL PROCEEDINGS	36

ITEM 1A.	RISK FACTORS	37

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37

ITEM 4.	MINE SAFETY DISCLOSURES	37

ITEM 5.	OTHER INFORMATION	37

ITEM 6.	EXHIBITS	38

SIGNATURES		39

ITEM 1. FINANCIAL STATEMENTS

Empire State Realty OP, L.P.

Condensed Consolidated Balance Sheets

(amounts in thousands, except per unit amounts)


	March 31, 2024		December 31, 2023
ASSETS	(unaudited)
Commercial real estate properties, at cost:
Land	$	366,357	$	366,357
Development costs	8,187		8,178
Building and improvements	3,327,773		3,280,657
	3,702,317		3,655,192
Less: accumulated depreciation	(1,288,519)		(1,250,062)
Commercial real estate properties, net	2,413,798		2,405,130

Cash and cash equivalents	333,573		346,620
Restricted cash	51,738		60,336

Tenant and other receivables	40,137		39,836
Deferred rent receivables	257,266		255,628
Prepaid expenses and other assets	74,472		98,167
Deferred costs, net	180,462		172,457
Acquired below-market ground leases, net	319,284		321,241
Right of use assets	28,378		28,439
Goodwill	491,479		491,479
Total assets	$	4,190,587	$	4,219,333
LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net	$	876,497	$	877,388
Senior unsecured notes, net	973,926		973,872
Unsecured term loan facilities, net	268,503		389,286
Unsecured revolving credit facility	120,000		—
Accounts payable and accrued expenses	91,005		99,756
Acquired below-market leases, net	12,798		13,750
Ground lease liabilities	28,378		28,439
Deferred revenue and other liabilities	69,289		70,298
Tenants’ security deposits	25,457		35,499

Total liabilities	2,465,853		2,488,288
Commitments and contingencies
Capital:
Private perpetual preferred units:
Private perpetual preferred units, $13.52 liquidation preference, 4,664 issued and outstanding in 2024 and 2023	21,936		21,936
Private perpetual preferred units, $16.62 liquidation preference, 1,560 issued and outstanding in 2024 and 2023	8,004		8,004
Series PR operating partnership units:
ESRT partner's capital (2,740 and 2,709 general partner operating partnership units and 162,058 and 160,337 limited partner operating partnership units outstanding in 2024 and 2023, respectively)	996,122		985,518
Limited partners' interests (82,266 and 80,189 limited partner operating partnership units outstanding in 2024 and 2023, respectively)	692,575		694,512
Series ES operating partnership units (19,387 and 19,947 limited partner operating partnership units outstanding in 2024 and 2023, respectively)	4,722		4,427
Series 60 operating partnership units (4,991 and 5,144 limited partner operating partnership units outstanding in 2024 and 2023, respectively)	863		779
Series 250 operating partnership units (2,573 and 2,619 limited partner operating partnership units outstanding in 2024 and 2023, respectively)	512		462
Total Empire State Realty OP, L.P.'s capital	1,724,734		1,715,638
Non-controlling interest in other partnerships	—		15,407
Total capital	1,724,734		1,731,045
Total liabilities and capital	$	4,190,587	$	4,219,333

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Condensed Consolidated Statements of Operations

(unaudited)

(amounts in thousands, except per unit amounts)


	Three Months Ended March 31,
		2024		2023
Revenues:
Rental revenue		$	153,882	$	140,091

Observatory revenue		24,596		22,154

Third-party management and other fees		265		427
Other revenue and fees		2,436		1,950
Total revenues		181,179		164,622
Operating expenses:
Property operating expenses		45,060		42,044
Ground rent expenses		2,331		2,331
General and administrative expenses		15,972		15,708
Observatory expenses		8,431		7,855
Real estate taxes		32,241		31,788


Depreciation and amortization		46,081		47,408
Total operating expenses		150,116		147,134
Total operating income		31,063		17,488
Other income (expense):
Interest income		4,178		2,595
Interest expense		(25,128)		(25,304)
Loss on early extinguishment of debt		(553)		—
Gain on disposition of property		—		15,696
Income before income taxes		9,560		10,475
Income tax benefit		655		1,219
Net income		10,215		11,694
Private perpetual preferred unit distributions		(1,050)		(1,050)
Net (income) loss attributable to non-controlling interests in other partnerships		(4)		43
Net income attributable to common unitholders		$	9,161	$	10,687

Total weighted average units:
Basic		264,562		264,493
Diluted		267,494		265,197

Earnings per unit attributable to common unitholders:
Basic		$	0.03	$	0.04
Diluted		$	0.03	$	0.04

Dividends per unit		$	0.035	$	0.035

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(amounts in thousands)


	Three Months Ended March 31,
		2024		2023
Net income		$	10,215	$	11,694
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of interest rate swap agreements		8,198		(5,402)
Amount reclassified into interest expense		(2,324)		(1,272)
Other comprehensive income (loss)		5,874		(6,674)
Comprehensive income		16,089		5,020
Net (income) loss attributable to non-controlling interests in other partnerships		(4)		43
Other comprehensive loss attributable to non-controlling interest in other partnerships		—		381
Comprehensive income attributable to OP unitholders		$	16,085	$	5,444

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Condensed Consolidated Statements of Capital

For The Three Months Ended March 31, 2024 and 2023

(unaudited)

(amounts in thousands)


				Series PR Operating Partnership Units						Series ES Operating Partnership Units Limited Partners			Series 60 Operating Partnership Units Limited Partners			Series 250 Operating Partnership Units Limited Partners
				General Partner			Limited Partners
	Private Perpetual Preferred Units	Private Perpetual Preferred Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Non-controlling Interest in Other Partnerships		Total Capital
Balance at December 31, 2023	6,224	29,940		163,046	985,518		80,189	694,512		19,947	4,427		5,144	779		2,619	462		15,407		$	1,731,045

Conversion of operating partnership units to ESRT Partner's Capital	—	—		1,566	7,132		(807)	(6,981)		(560)	(121)		(153)	(22)		(46)	(8)		—		—
Repurchases of common units	—	—		—	—		—	—		—	—		—	—		—	—		—		—

Acquisition of non-controlling interests in other partnerships	—	—		—	114		—	—		—	—		—	—		—	—		(15,411)		(15,297)
Equity compensation	—	—		186	(260)		2,884	3,709		—	—		—	—		—	—		—		3,449
Distributions	—	(1,050)		—	(5,765)		—	(2,793)		—	(679)		—	(175)		—	(90)		—		(10,552)
Net income	—	1,050		—	5,661		—	2,556		—	678		—	174		—	92		4		10,215
Other comprehensive income	—	—		—	3,722		—	1,572		—	417		—	107		—	56		—		5,874
Balance at March 31, 2024	6,224	$	29,940	164,798	$	996,122	82,266	$	692,575	19,387	$	4,722	4,991	$	863	2,573	$	512	$	—	$	1,724,734


				Series PR Operating Partnership Units						Series ES Operating Partnership Units Limited Partners			Series 60 Operating Partnership Units Limited Partners			Series 250 Operating Partnership Units Limited Partners
				General Partner			Limited Partners
	Private Perpetual Preferred Units	Private Perpetual Preferred Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Operating Partnership Units	Operating Partnership Unitholders		Non-controlling Interest in Other Partnerships		Total Capital
Balance at December 31, 2022	6,224	$	29,940	161,129	$	954,375	80,475	$	681,827	21,081	$	1,391	5,558	$	16	2,789	$	76	$	15,466	$	1,683,091

Conversion of operating partnership units to ESRT Partner's Capital	—	—		806	2,544		(282)	(2,433)		(397)	(89)		(55)	(9)		(72)	(13)		—		—
Repurchases of common shares	—	—		(933)	(5,694)		—	—		—	—		—	—		—	—		—		(5,694)
Contributions from consolidated joint ventures	—	—		—	—		—	—		—	—		—	—		—	—		18		18
Equity compensation	—	—		327	21		1,519	4,353		—	—		—	—		—	—		—		4,374
Distributions	—	(1,050)		—	(5,675)		—	(2,006)		—	(724)		—	(193)		—	(95)		—		(9,743)
Net income	—	1,050		—	6,519		—	2,993		—	844		—	224		—	107		(43)		11,694
Other comprehensive income (loss)	—	—		—	(3,839)		—	(1,762)		—	(497)		—	(132)		—	(63)		(381)		(6,674)
Balance at March 31, 2023	6,224	$	29,940	161,329	$	948,251	81,712	$	682,972	20,684	$	925	5,503	$	(94)	2,717	$	12	$	15,060	$	1,677,066

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)


	Three Months Ended March 31,
	2024		2023
Cash Flows From Operating Activities
Net income	$	10,215	$	11,694
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,081		47,408
Gain on disposition of property	—		(15,696)
Amortization of non-cash items within interest expense	2,076		2,238
Amortization of acquired above- and below-market leases, net	(514)		(703)
Amortization of acquired below-market ground leases	1,958		1,958
Straight-lining of rental revenue	(3,061)		(556)
Equity based compensation	3,449		4,374

Loss on early extinguishment of debt	553		—
Increase (decrease) in cash flows due to changes in operating assets and liabilities:
Security deposits	(10,042)		10,184
Tenant and other receivables	(1,371)		258
Deferred leasing costs	(8,105)		(4,498)
Prepaid expenses and other assets	29,132		34,915
Accounts payable and accrued expenses	141		(6,804)
Deferred revenue and other liabilities	414		1,591
Net cash provided by operating activities	70,926		86,363
Cash Flows From Investing Activities

Acquisition of non-controlling interests in other partnerships	(14,226)		—
Net proceeds from disposition of property	—		39,137
Post-closing costs from a prior period sale of property	(4,034)		—
Development costs	(9)		(12)
Additions to building and improvements	(53,000)		(41,756)
Net cash used in investing activities	(71,269)		(2,631)

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)


	Three Months Ended March 31,
	2024		2023
Cash Flows From Financing Activities

Repayment of mortgage notes payable	(1,470)		(2,142)


Proceeds from unsecured term loan	95,000		—
Repayment of unsecured term loan	(215,000)		—
Proceeds from unsecured revolving credit facility	120,000		—
Deferred financing costs	(9,280)		—


Repurchases of common units	—		(5,694)
Distributions	(10,552)		(9,743)
Net cash used in financing activities	(21,302)		(17,579)
Net increase (decrease) in cash and cash equivalents and restricted cash	(21,645)		66,153
Cash and cash equivalents and restricted cash—beginning of period	406,956		314,678
Cash and cash equivalents and restricted cash—end of period	$	385,311	$	380,831

Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period	$	346,620	$	264,434
Restricted cash at beginning of period	60,336		50,244
Cash and cash equivalents and restricted cash at beginning of period	$	406,956	$	314,678

Cash and cash equivalents at end of period	$	333,573	$	272,648
Restricted cash at end of period	51,738		108,183
Cash and cash equivalents and restricted cash at end of period	$	385,311	$	380,831

Supplemental disclosures of cash flow information:
Cash paid for interest	$	21,984	$	23,006
Cash paid for income taxes	$	480	$	283

Non-cash investing and financing activities:
Building and improvements included in accounts payable and accrued expenses	$	48,771	$	39,982
Write-off of fully depreciated assets	551		847
Derivative instruments at fair values included in prepaid expenses and other assets	16,726		12,446
Derivative instruments at fair values included in accounts payable and accrued expenses	—		2,171
Conversion of operating partnership units to ESRT partner's capital	7,132		2,544

The accompanying notes are an integral part of these consolidated financial statements

Empire State Realty OP, L.P.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Organization

As used in these condensed consolidated financial statements, unless the context otherwise requires, “we,” “us,” “our,” and the “Company,” mean Empire State Realty OP, L.P. and its consolidated subsidiaries.

Empire State Realty OP, L.P. (the "Operating Partnership") is the entity through which Empire State Realty Trust, Inc. (NYSE: ESRT), a NYC-focused REIT that owns and operates a portfolio of modernized, amenitized, and well-located office, retail, and multifamily assets, and the Observatory deck attraction in ESRT’s flagship Empire State Building – the “World’s Most Famous Building”, conducts all of its business and owns (either directly or through subsidiaries) substantially all of its assets. The Company is a recognized leader in energy efficiency and indoor environmental quality.

As of March 31, 2024, ESRT’s portfolio was comprised of approximately 8.6 million rentable square feet of office space, 0.7 million rentable square feet of retail space and 727 residential units. Our office portfolio included 11 properties (including three long-term ground leasehold interests) encompassing approximately 8.6 million rentable square feet. Nine of these office properties are located in midtown Manhattan and encompass approximately 7.6 million rentable square feet, including the Empire State Building. The remaining two office properties encompass approximately 1.1 million rentable square feet and are located in Stamford, Connecticut, with immediate access to mass transportation. Additionally, we have entitled land adjacent to one of the Stamford office properties that can support the development of either office or residential per local zoning. Our multifamily portfolio included 727 residential units in New York City.

We were organized as a Delaware limited partnership on November 28, 2011, and commenced operations upon completion of the initial public offering of ESRT’s Class A common stock and related formation transactions on October 7, 2013 (the "IPO"). ESRT's Class A common stock, par value $0.01 per share, is listed on the New York Stock Exchange under the symbol "ESRT." 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 March 31, 2024, ESRT owned approximately 60.1% of our operating partnership units.

2. Summary of Significant Accounting Policies

There have been no material changes to the summary of significant accounting policies included in the "Summary of Significant Accounting Policies" section in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”).

Basis of Quarterly Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments and eliminations (including intercompany balances and transactions), consisting of normal recurring adjustments, considered necessary for the fair presentation of the financial statements have been included.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the corresponding full years. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the financial statements for the year ended December 31, 2023 contained in our Annual Report. Our Observatory business is subject to tourism trends and the weather, and therefore does experience some seasonality. For the year ended December 31, 2023, approximately 17% of our annual Observatory revenue was realized in the first quarter, 26% was realized in the second quarter, 29% was realized in the third quarter, and 28% was realized in the fourth quarter. Our multifamily business experiences some seasonality based on general market trends in New York City – the winter months (November through January) are slower in terms of lease activity. We seek to mitigate this by staggering lease terms such that

lease expirations are matched with seasonal demand. We do not consider the balance of our business to be subject to material seasonal fluctuations.

We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members. For variable interest entities ("VIE"), we consolidate the entity if we are deemed to have a variable interest in the entity and through that interest we are deemed the primary beneficiary. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. The primary beneficiary is required to consolidate the VIE. We had no VIEs as of March 31, 2024 and December 31, 2023.

We will assess the accounting treatment for each investment we may have in the future. This assessment will include a review of each entity’s organizational agreement to determine which party has what rights and whether those rights are protective or participating. For all VIEs, we will review such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity’s economic performance and benefit. In situations where we or our partner could approve, among other things, the annual budget, or leases that cover more than a nominal amount of space relative to the total rentable space at each property, we would not consolidate the investment as we consider these to be substantive participation rights that result in shared power of the activities that would most significantly impact the performance and benefit of such joint venture investment.

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate component of equity in the condensed consolidated balance sheets and in the condensed consolidated statements of operations by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interests.

Accounting Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to use estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Significant items subject to such estimates and assumptions include allocation of the purchase price of acquired real estate properties among tangible and intangible assets, determination of the useful life of real estate properties and other long-lived assets, valuation and impairment analysis of commercial real estate properties, goodwill, right-of-use assets and other long-lived and indefinite-lived assets, estimate of tenant expense reimbursements, valuation of the allowance for doubtful accounts, and valuation of derivative instruments, ground lease liabilities, senior unsecured notes, mortgage notes payable, unsecured revolving credit and term loan facilities, and equity-based compensation. These estimates are prepared using management’s best judgment, after considering past, current, and expected events and economic conditions. Actual results could differ from those estimates.

3. Acquisitions and Dispositions

Property Acquisitions

In September 2023, we closed on the acquisition of a retail property in Williamsburg, Brooklyn, located on the corner of North 6th Street and Wythe Avenue for a purchase price of $26.4 million. The property has three retail tenants and six residential units and was fully leased as of March 31, 2024. The purchase price is the fair value at the date of acquisition.

The following table summarizes properties acquired during the three and twelve months ended March 31, 2024 and December 31, 2023, respectively (amounts in thousands):


						Intangibles
Property	Date Acquired	Land		Building and Improvements		Assets		Liabilities		Total*
Williamsburg Retail, Brooklyn	9/14/2023	$	4,851	$	20,936	$	1,573	$	(300)	$	27,060
*Includes total capitalized transaction costs of $0.7 million.

In March 2024, we executed a buyout of our partner's 10% interest in two of our multifamily properties located at 561 10th Avenue and 345 East 94th Street in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place

debt. As of March 31, 2024, we own 100% of the interests in these assets. As there was no change in control, we accounted for this acquisition as an equity transaction in accordance with Accounting Standards Codification 810-10 and no gain or loss was recognized.

Property Dispositions

The following table summarizes properties disposed of during the three and twelve months ended March 31, 2024 and December 31, 2023, respectively (amounts in thousands):


Property	Date of Disposal	Sales Price		Gain on Disposition
500 Mamaroneck Avenue, Harrison, New York*	4/5/2023	$	53,000	$	11,075
69-97 and 103-107 Main Street, Westport, Connecticut	2/1/2023	$	40,000	$	15,689
*The gain is net of approximately $4.5 million of post-closing costs we accrued related to our commitment to reimburse the buyer for a lease that did not occur. We funded the buyer for these costs and we have no further obligations or contingencies related to this property.

4. Deferred Costs, Acquired Lease Intangibles and Goodwill

Deferred costs, net, consisted of the following as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	March 31, 2024		December 31, 2023
Leasing costs	$	230,108	$	224,295
Acquired in-place lease value and deferred leasing costs	146,533		158,267
Acquired above-market leases	22,064		23,918
	398,705		406,480
Less: accumulated amortization	(228,482)		(236,900)
Total deferred costs, net, excluding net deferred financing costs	$	170,223	$	169,580

At March 31, 2024 and December 31, 2023, $10.2 million and $2.9 million, respectively, of net deferred financing costs associated with the unsecured revolving credit facility was included in deferred costs, net on the condensed consolidated balance sheets.

Amortization expense related to deferred leasing costs and acquired deferred leasing costs was $5.8 million and $5.8 million for the three months ended March 31, 2024 and 2023, respectively. Amortization expense related to acquired lease intangibles was $1.3 million and $2.4 million for the three months ended March 31, 2024 and 2023, respectively.

Amortizing acquired intangible assets and liabilities consisted of the following as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	March 31, 2024		December 31, 2023
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(77,632)		(75,675)
Acquired below-market ground leases, net	$	319,284	$	321,241


	March 31, 2024		December 31, 2023
Acquired below-market leases	$	(51,927)	$	(55,155)
Less: accumulated amortization	39,129		41,405
Acquired below-market leases, net	$	(12,798)	$	(13,750)

Rental revenue related to the amortization of below-market leases, net of above-market leases, was $0.5 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023, we had goodwill of $491.5 million. Goodwill was allocated $227.5 million to the Observatory reportable segment and $264.0 million to the real estate reportable segment.

We performed our annual goodwill testing in October 2023, where we bypassed the optional qualitative goodwill impairment assessment and proceeded directly to a quantitative assessment of the Observatory reportable segment and engaged a third-party valuation consulting firm to perform the valuation process. The quantitative analysis used a combination of the discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach). Significant assumptions under the former included revenue and cost projections, weighted average cost of capital, long-term growth rate and income tax considerations while the latter included guideline company enterprise values, revenue multiples, EBITDA multiples and control premium rates. Our methodology to review goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis to determine whether impairment had occurred. The quantitative analysis performed concluded the fair value of the reporting unit exceeds its carrying value. We also perform quarterly qualitative assessments and have not identified any events which would indicate, on a more likely than not basis, that the goodwill allocated to the reporting unit was impaired. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control, and it is reasonably likely that assumptions and estimates will change in future periods. We will continue to assess the impairment of the Observatory reporting unit goodwill going forward.

5. Debt

Debt consisted of the following as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	Principal Balance				As of March 31, 2024
	March 31, 2024		December 31, 2023		Stated Rate		Effective Rate(1)		Maturity Date(2)

Fixed rate mortgage debt
Metro Center	$	79,425	$	80,070	3.59	%	3.67	%	11/5/2024
10 Union Square	50,000		50,000		3.70	%	3.97	%	4/1/2026
1542 Third Avenue	30,000		30,000		4.29	%	4.53	%	5/1/2027
First Stamford Place(3)	175,860		175,860		4.28	%	4.73	%	7/1/2027
1010 Third Avenue and 77 West 55th Street	34,734		34,958		4.01	%	4.21	%	1/5/2028
250 West 57th Street	180,000		180,000		2.83	%	3.21	%	12/1/2030
1333 Broadway	160,000		160,000		4.21	%	4.29	%	2/5/2033
345 East 94th Street - Series A	43,600		43,600		70% of SOFR plus 0.95%		3.56	%	11/1/2030
345 East 94th Street - Series B	7,035		7,209		SOFR plus 2.24%		3.56	%	11/1/2030
561 10th Avenue - Series A	114,500		114,500		70% of SOFR plus 1.07%		3.85	%	11/1/2033
561 10th Avenue - Series B	15,375		15,801		SOFR plus 2.45%		3.85	%	11/1/2033
Total mortgage debt	890,529		891,998
Senior unsecured notes:(4)
Series A	100,000		100,000		3.93	%	3.96	%	3/27/2025
Series B	125,000		125,000		4.09	%	4.12	%	3/27/2027
Series C	125,000		125,000		4.18	%	4.21	%	3/27/2030
Series D	115,000		115,000		4.08	%	4.11	%	1/22/2028
Series E	160,000		160,000		4.26	%	4.27	%	3/22/2030
Series F	175,000		175,000		4.44	%	4.45	%	3/22/2033
Series G	100,000		100,000		3.61	%	4.89	%	3/17/2032
Series H	75,000		75,000		3.73	%	5.00	%	3/17/2035
Unsecured term loan facility (4)	175,000		175,000		SOFR plus 1.50%		4.51	%	12/31/2026
Unsecured term loan facility (4)	95,000		215,000		SOFR plus 1.50%		4.47	%	3/8/2029
Unsecured revolving credit facility (4)	120,000		—		SOFR plus 1.30%		4.03	%	3/8/2029
Total principal	2,255,529		2,256,998
Deferred financing costs, net	(9,834)		(9,488)


Unamortized debt discount	(6,769)		(6,964)
Total	$	2,238,926	$	2,240,546

______________

(1)The effective rate is the yield as of March 31, 2024 and includes the stated interest rate, deferred financing cost amortization and interest associated with variable to fixed interest rate swap agreements.

(2)Pre-payment is generally allowed for each loan upon payment of a customary pre-payment penalty.

(3)Represents a $164 million mortgage loan bearing interest at 4.09% and a $11.9 million loan bearing interest at 6.25%. In April 2024, we worked with the First Stamford Place mortgage lender to structure a cooperative consensual foreclosure, which is anticipated to be completed by June 30, 2024. Upon completion, this transaction is expected to eliminate a $175.9 million liability that matures in July 2027 from the balance sheet.

(4)At March 31, 2024, we were in compliance with all debt covenants.

Principal Payments

Aggregate required principal payments at March 31, 2024 are as follows (amounts in thousands):


Year	Amortization		Maturities		Total
2024	$	7,392	$	77,675	$	85,067
2025	6,893		100,000		106,893
2026	7,330		225,000		232,330
2027	6,461		319,000		325,461
2028	3,556		146,092		149,648
Thereafter	18,523		1,337,607		1,356,130
Total	$	50,155	$	2,205,374	$	2,255,529

Deferred Financing Costs

Deferred financing costs, net, consisted of the following at March 31, 2024 and December 31, 2023 (amounts in thousands):


	March 31, 2024		December 31, 2023
Financing costs	$	52,200	$	43,473
Less: accumulated amortization	(32,128)		(31,108)
Total deferred financing costs, net	$	20,072	$	12,365

Amortization expense related to deferred financing costs was $1.0 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

Unsecured Revolving Credit and Term Loan Facilities

On March 8, 2024, through our Operating Partnership, we entered into a second amended and restated credit agreement with Bank of America, N.A., as administrative agent and the other lenders party thereto, that amends and restates the amended and restated credit agreement, dated August 29, 2017 which governs our senior unsecured revolving credit facility and term loan facility (collectively, the “BofA Credit Facilities”). The BofA Credit Facilities are comprised of a $620 million senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $95 million term loan facility (the “BofA Term Loan Facility”). We may request that the BofA Credit Facilities be increased through one or more increases in the Revolving Credit Facility or one or more increases in the BofA Term Loan Facility or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount under the second amended and restated credit agreement not to exceed $1.5 billion.

The new Revolving Credit Facility matures on March 8, 2029, inclusive of two six-month extension periods and replaced the existing revolving credit facility that was due to mature in March 2025. The new BofA Term Loan Facility matures on March 8, 2029, inclusive of two twelve-month extension periods and replaced the existing term loan facility that was due to mature in March 2025. Initial interest rates on the new BofA Credit Facilities, which may change based on our leverage levels, are SOFR plus a benchmark adjustment of 10.0 basis points ("adjusted SOFR") plus 130 basis points for any drawn portion of the Revolving Credit Facility and adjusted SOFR plus 150 basis points for the BofA Term Loan Facility. In addition, the BofA Credit Facilities have a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are

achieved each year. As of March 31, 2024, we had $120.0 million borrowings drawn on the Revolving Credit Facility and $95.0 million under the BofA Term Loan Facility.

On March 13, 2024, through our Operating Partnership, we entered into a third amendment to our credit agreement dated March 19, 2020 with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto, which governs a senior unsecured term loan facility (the “Wells Term Loan Facility”). The Wells Term Loan Facility is in the original principal amount of $175.0 million and matures on December 31, 2026. The third amendment provides for, among other things, certain conforming changes to the BofA Credit Facilities agreement, including increases to the capitalization rate for certain of our properties. No other changes were made to the amount of the commitments, the maturity date of the outstanding loans or the covenants. We may request the Wells Term Loan Facility be increased through one or more increases or the addition of new pari passu term loan tranches, for a maximum aggregate principal amount not to exceed $225 million. As of March 31, 2024, our borrowings amounted to $175.0 million under the Wells Term Loan Facility.

The terms of both the BofA Credit Facilities and the Wells Term Loan Facility include customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. Both facilities also require compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. The agreements governing both facilities also contain customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control. As of March 31, 2024, we were in compliance with these covenants.

Senior Unsecured Notes

The terms of the senior unsecured notes include customary covenants, including limitations on liens, investment, distributions, debt, fundamental changes, and transactions with affiliates and require certain customary financial reports. The terms also require compliance with financial ratios including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage ratio. The agreements also contain customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency events, judgments, ERISA events, the occurrence of certain change of control transactions and loss of real estate investment trust qualification. As of March 31, 2024, we were in compliance with these covenants.

On April 10, 2024, we entered into a Note Purchase Agreement with the purchasers named therein (the “Purchase Agreement”) in connection with a private placement of our Series I-K green guaranteed senior unsecured notes (the “Notes”). Under the Purchase Agreement, we will issue and sell $225 million aggregate principal amount of Notes, consisting of (a) $155 million aggregate principal amount of 7.20% Series I Green Guaranteed Senior Notes due June 17, 2029, (b) $45 million aggregate principal amount of 7.32% Series J Green Guaranteed Senior Notes due June 17, 2031 and (c) $25 million aggregate principal amount of 7.41% Series K Green Guaranteed Senior Notes due June 17, 2034. The sale and purchase of the Notes is scheduled to be held on June 17, 2024, subject to customary closing conditions. The issue price for the Notes is 100% of the aggregate principal amount thereof. Pursuant to the terms of the Purchase Agreement, we may prepay all or a portion of the Notes upon notice to the holders at a price equal to 100% of the principal amount so prepaid plus a make-whole premium as set forth in the Purchase Agreement. The Purchase Agreement contains customary covenants and customary events of default similar to those in our Series A-H senior unsecured notes.

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	March 31, 2024		December 31, 2023
Accrued capital expenditures	$	48,771	$	51,815
Accounts payable and accrued expenses	37,674		44,169
Interest rate swap agreements liability	—		85
Accrued interest payable	4,560		3,687
Total accounts payable and accrued expenses	$	91,005	$	99,756

7. Financial Instruments and Fair Values

Derivative Financial Instruments

We use derivative financial instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and forward agreements, and the primary objective is to minimize interest rate risks associated with investing and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties; however, we currently do not anticipate that any of the counterparties will fail to meet their obligations.

We have agreements with our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. As of March 31, 2024, we did not have derivatives in a net liability position.

As of March 31, 2024 and December 31, 2023, we had interest rate swaps and caps with an aggregate notional value of $586.3 million and $573.2 million, respectively. The notional value does not represent exposure to credit, interest rate or market risks. As of March 31, 2024, the fair value of our derivative instruments in an asset position amounted to $16.7 million, which is included in prepaid expenses and other assets on the condensed consolidated balance sheet. As of December 31, 2023, the fair value of our derivative instruments amounted to $11.8 million which is included in prepaid expenses and other assets, and ($0.1 million) which is included in accounts payable and accrued expenses on the condensed consolidated balance sheet. These interest rate swaps have been designated as cash flow hedges and hedge the variability in future cash flows associated with our existing variable-rate term loan facilities. Interest rate caps not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements.

As of March 31, 2024 and 2023, our cash flow hedges are deemed highly effective and a net unrealized gain (loss) of $5.9 million and $(6.7) million for the three months ended March 31, 2024 and 2023, respectively, relating to both active and terminated hedges of interest rate risk, are reflected in the condensed consolidated statements of comprehensive income. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the debt. We estimate that $6.8 million net gain of the current balance held in accumulated other comprehensive income (loss) will be reclassified into interest expense within the next 12 months.

The table below summarizes the terms of agreements and the fair values of our derivative financial instruments as of March 31, 2024 and December 31, 2023 (amounts in thousands):


							March 31, 2024				December 31, 2023
Derivative	Notional Amount		Receive Rate	Pay Rate	Effective Date	Expiration Date	Asset		Liability		Asset		Liability
Interest rate swap	$	36,820	70% of 1 Month SOFR	2.5000%	December 1, 2021	November 1, 2030	$	659	$	—	$	64	$	—
Interest rate swap	103,790		70% of 1 Month SOFR	2.5000%	December 1, 2021	November 1, 2033	1,898		—		—		(85)
Interest rate swap	10,710		70% of 1 Month SOFR	1.7570%	December 1, 2021	November 1, 2033	716		—		546		—
Interest rate swap	15,518		1 Month SOFR	2.2540%	December 1, 2021	November 1, 2030	951		—		782		—
Interest rate cap	6,780		70% of 1 Month SOFR	4.5000%	December 1, 2021	October 1, 2024	—		—		—		—
Interest rate cap	9,188		1 Month SOFR	5.5000%	December 1, 2021	October 1, 2024	2		—		4		—
Interest rate swap	175,000		SOFR Compound	2.5620%	August 31, 2022	December 31, 2026	7,633		—		5,637		—
Interest rate swap	107,500		SOFR Compound	2.6260%	August 19, 2022	March 19, 2025	2,364		—		2,384		—
Interest rate swap	107,500		SOFR OIS Compound	2.6280%	August 19, 2022	March 19, 2025	2,363		—		2,383		—
Interest rate cap	6,780		70% of 1 Month SOFR	4.5000%	October 1, 2024	November 1, 2030	44		—		—		—
Interest rate cap	6,676		1 Month SOFR	5.5000%	October 1, 2024	November 1, 2030	96		—		—		—
							$	16,726	$	—	$	11,800	$	(85)

The table below shows the effect of our derivative financial instruments designated as cash flow hedges on accumulated other comprehensive income (loss) for the three months ended March 31, 2024 and 2023 (amounts in thousands):


	Three Months Ended
Effects of Cash Flow Hedges		March 31, 2024		March 31, 2023
Amount of gain (loss) recognized in other comprehensive income (loss)		$	8,198	$	(5,402)
Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense		2,324		1,272

The table below shows the effect of our derivative financial instruments designated as cash flow hedges on the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 (amounts in thousands):


	Three Months Ended
Effects of Cash Flow Hedges		March 31, 2024		March 31, 2023
Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded		$	(25,128)	$	(25,304)
Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense		2,324		1,272

Fair Valuation

The estimated fair values at March 31, 2024 and December 31, 2023 were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The fair value of derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Although the majority of the inputs used to value

our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. The impact of such credit valuation adjustments, determined based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all our derivatives were classified as Level 2 of the fair value hierarchy.

The fair values of our mortgage notes payable, senior unsecured notes (Series A, B, C, D, E, F, G and H), unsecured term loan facilities and unsecured revolving credit facility which are determined using Level 3 inputs are estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made by us.

The following tables summarize the carrying and estimated fair values of our financial instruments as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	March 31, 2024
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
Interest rate swaps and caps included in prepaid expenses and other assets	$	16,726	$	16,726	$	—	$	16,726	$	—

Mortgage notes payable	876,497		765,660		—		—		765,660
Senior unsecured notes - Series A, B, C, D, E, F, G and H	973,926		872,714		—		—		872,714
Unsecured term loan facilities	268,503		270,000		—		—		270,000
Unsecured revolving credit facility	120,000		120,000		—		—		120,000


	December 31, 2023
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
Interest rate swaps and caps included in prepaid expenses and other assets	$	11,800	$	11,800	$	—	$	11,800	$	—
Interest rate swaps included in accounts payable and accrued expenses	85		85		—		85		—
Mortgage notes payable	877,388		774,280		—		—		774,280
Senior unsecured notes - Series A, B, C, D, E, F, G and H	973,872		882,242		—		—		882,242
Unsecured term loan facilities	389,286		390,000		—		—		390,000

Disclosure about the fair value of financial instruments is based on pertinent information available to us as of March 31, 2024 and December 31, 2023. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

8. Leases

Lessor

We lease various spaces to tenants over terms ranging from one to 31 years. Certain leases have renewal options for additional terms. The leases provide for base monthly rentals and reimbursements for real estate taxes, escalations linked to the consumer price index or common area maintenance known as operating expense escalation. Operating expense reimbursements are reflected in our March 31, 2024 and 2023 condensed consolidated statements of operations as rental revenue.

Rental revenue includes fixed and variable payments. Fixed payments primarily relate to base rent and variable payments primarily relate to tenant expense reimbursements for certain property operating costs. The components of rental revenue for the three months ended March 31, 2024 and 2023 are as follows (amounts in thousands):


	Three Months Ended
Rental revenue		March 31, 2024		March 31, 2023
Fixed payments		$	136,353	$	124,564
Variable payments		17,529		15,527
Total rental revenue

Empire State Realty OP, L.P. [ESBA] Filings
Empire State Realty OP, L.P. [FISK] Filings
Empire State Realty OP, L.P. [OGCP] Filings
10-Q	[2024-05-07]
10-K	[2024-02-28]
10-Q	[2023-11-08]
10-Q	[2023-08-04]
10-Q	[2023-05-04]
10-K	[2023-02-28]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-25]
10-Q	[2021-11-05]
10-Q	[2021-08-05]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-11-05]
10-Q	[2020-08-10]
10-Q	[2020-05-06]
10-K	[2020-02-28]
10-Q	[2019-10-31]
10-Q	[2019-07-31]
10-Q	[2019-05-02]
10-K	[2019-02-28]
10-Q	[2018-11-06]
10-Q	[2018-08-03]
10-Q	[2018-05-03]
10-K	[2018-02-28]
10-Q	[2017-11-06]
10-Q	[2017-08-03]
10-Q	[2017-05-03]
10-K	[2017-02-27]
10-Q	[2016-11-08]
10-Q	[2016-08-03]
10-Q	[2016-05-05]
10-K	[2016-02-26]
10-Q	[2015-11-06]
10-Q	[2015-08-05]
10-Q	[2015-05-06]
10-K	[2015-02-27]
10-Q	[2014-11-10]
10-Q	[2014-08-05]
10-Q	[2014-05-07]
10-K	[2014-03-24]
10-Q	[2013-11-12]

Empire State Realty OP, L.P. [ESBA] Filings

Empire State Realty OP, L.P. [FISK] Filings

Empire State Realty OP, L.P. [OGCP] Filings