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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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
Exchange on which traded
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.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes       No 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes       No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
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 February 24, 2020, there were 25,516,272 units of the registrants' Series ES operating partnership units outstanding, 6,932,131 units of the Series 60 operating partnership units outstanding, and 3,490,101 units of the Series 250 operating partnership units outstanding.




DOCUMENTS INCORPORATED BY REFERENCE
Our sole general partner is Empire State Realty Trust, Inc. Portions of the Empire State Realty Trust, Inc.'s Proxy Statement for its 2020 Annual Stockholders' Meeting (which is scheduled to be held on May 14, 2020) to be filed within 120 days after the end of Empire State Realty Trust, Inc.'s fiscal year are incorporated by reference into Part III of this Annual Report on Form 10-K.

 
 




 
EMPIRE STATE REALTY OP, L.P.
 
 
FORM 10-K
 
 
TABLE OF CONTENTS
 
 
 
PAGE
PART I.
 
1.
Business
1A.
Risk Factors
1B.
Unresolved Staff Comments
2.
Properties
3.
Legal Proceedings
4.
Mine Safety Disclosures
PART II.
 
5.
Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
6.
Selected Financial Data
7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosure about Market Risk
8.
Financial Statements and Supplementary Data
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A.
Controls and Procedures
9B.
Other Information
PART III
 
10.
Directors, Executive Officers and Corporate Governance
11.
Executive Compensation
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13.
Certain Relationships and Related Transactions, and Director Independence
14.
Principal Accounting Fees and Services
PART IV
 
15.
Exhibits, Financial Statements and Schedules
16.
Form 10-K Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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DEFINITIONS

"annualized rent" represents annualized base rent and current reimbursement for operating expenses and real estate taxes;

"formation transactions" means a series of transactions pursuant to which we acquired, substantially concurrently with the completion of the Offering, through a series of contributions and merger transactions, our portfolio of real estate assets that were held by existing entities, the ownership interests in the certain management entities of our predecessor and one development parcel;

"fully diluted basis" means all outstanding shares of Empire State Realty Trust, Inc.'s Class A common stock at the time indicated plus shares of Class A common stock that may be issuable upon the exchange of operating partnership units on a one-for-one basis and shares of Class A common stock issuable upon the conversion of Class B common stock on a one-for-one basis, which is not the same as the meaning of “fully diluted” under generally accepted accounting principles in the United States of America ("GAAP");

"enterprise value" means all outstanding shares of Empire State Realty Trust, Inc.'s Class A common stock at the time indicated plus shares of Class A common stock that may be issuable upon the exchange of operating partnership units on a one-for-one basis and shares of Class A common stock issuable upon the conversion of Class B common stock on a one-for-one basis multiplied by the Class A common share price at December 31, 2019, plus private perpetual preferred units plus consolidated debt at December 31, 2019;

"Malkin Group” means all of the following, as a group: Anthony E. Malkin, Peter L. Malkin and each of their spouses and lineal descendants (including spouses of such descendants), any estates of any of the foregoing, any trusts now or hereafter established for the benefit of any of the foregoing, or any corporation, partnership, limited liability company or other legal entity controlled by Anthony E. Malkin or any permitted successor in such entity for the benefit of any of the foregoing; provided, however that solely with respect to tax protection rights and parties who entered into the contribution agreements with respect to the formation transactions, the Malkin Group shall also include the lineal descendants of Lawrence A. Wien and his spouse (including spouses of such descendants), any estates of the foregoing, any trusts now or hereafter established for the benefit of any of the foregoing, or any corporation, partnership, limited liability company or other legal entity controlled by Anthony E. Malkin for the benefit of the foregoing;

the "Offering" means the initial public offering of our Class A common stock which was completed on October 7, 2013;

"our company," "we," "us" and "our" refer to Empire State Realty OP L.P., a Delaware limited partnership, together with its consolidated subsidiaries;

"securityholder" means a holder of our Series ES, Series 250, Series 60 and Series PR operating partnership units, including those units held by Empire State Realty Trust, Inc.; and

"traded OP Units" mean our Series ES, Series 250 and Series 60 operating partnership units.










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PART I
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, manage, operate, acquire and reposition office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building, the world's most famous building. 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, 2019, our total portfolio, contained 10.1 million rentable square feet of office and retail space, and was 88.6% occupied. Including signed leases not yet commenced, our total portfolio was 91.2% leased. As of December 31, 2019, 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 88.5% occupied or 91.0% leased including signed leases not yet commenced. Nine of these 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 511,984 rentable square feet of premier retail space on their ground floor and/or contiguous levels. Our remaining 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 415,000 rentable square foot office building and garage, which we refer to herein as Metro Tower. As of December 31, 2019, 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 205,595 rentable square feet in the aggregate. As of December 31, 2019, our standalone retail properties were 96.5% leased.
The Empire State Building offers panoramic views of New York and neighboring states from its world-famous 86th and 102nd floor observatories that draw millions of visitors per year. The number of visitors to the observatories was approximately 3,505,000 and 3,805,000 for the years ended December 31, 2019 and 2018, respectively. The 86th floor observatory has a 360-degree outdoor deck as well as indoor viewing galleries to accommodate guests day and night, all year-round. The 102nd floor observatory is entirely indoors and offers a 360-degree view of New York City from 1,250 feet above ground.
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 in 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, 2019, ESRT owned approximately 60.7% of our operating partnership units.
Our Competitive Strengths
We believe that we distinguish ourselves from other owners and operators of office and retail properties due to the following competitive strengths:
Irreplaceable Portfolio of Office Properties in Midtown Manhattan. Our Manhattan office properties are located in one of the most prized office markets in the world due to a combination of supply constraints, high barriers to entry, near-term and long-term prospects for job creation, vacancy absorption and rental rate growth. Management believes these properties could not be replaced today on a cost-competitive basis, if at all. As of December 31, 2019, we owned nine Manhattan office properties (including three long-term ground leasehold interests) encompassing approximately 7.6 million rentable square feet of office space, including the Empire State Building, our flagship property. Unlike traditional office buildings, the Empire State Building provides us with a significant source of income from its observatory and broadcasting operations. All of these properties include premier retail space on their ground floor and/or contiguous levels, which comprise 511,984 rentable square feet in the aggregate and some of which have recently undergone significant redevelopments. We believe the high quality of our buildings, services and amenities, their desirable locations and commuter access to mass transportation should allow us to increase rents and occupancy to generate positive cash flow and growth.

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Attractive Retail Locations in Densely Populated Metropolitan Communities. As of December 31, 2019, our portfolio also included six standalone retail properties and retail space at the ground floor and/or lower levels of our Manhattan office properties, encompassing a total of 717,579 rentable square feet, 696,291 square feet in Manhattan and 21,288 square feet in Westport, Connecticut, which were approximately 90.3% occupied in the aggregate. All of the Manhattan properties are located in dynamic retail corridors with convenient access to mass transportation, a diverse tenant base and high pedestrian traffic and/or main destination locations, qualities which set them apart from retail properties in the high rent or low traffic corridors which have suffered in recent market conditions. Our current Manhattan retail rents are below current market rents, and as we recapture and redevelop retail space there, we expect to be able to drive strong positive spreads on newly leased space. We have retail expirations in the coming years that should allow us to increase our cash flows further. Our retail tenants cover a number of industries, and include Bank of America; Bank Santander (Sovereign Bank); Charles Schwab; Chipotle; Dr. Martens AirWair USA; Duane Reade/Walgreen's; FedEx; FootLocker; HSBC; JP Morgan Chase; Lululemon; New Cingular Wireless; Panera Bread; Potbelly Sandwich Works; Sephora; Shake Shack; Sprint; Starbucks; Target; Theory; TJ Maxx; and Urban Outfitters. Our Westport, Connecticut retail properties are located on Main Street, the main pedestrian thoroughfare in Westport, Connecticut, and have the advantage of being adjacent to one of the few available large-scale parking lots in town.
Expertise in Repositioning and Redeveloping Manhattan Office Properties. We have substantial expertise in redeveloping, upgrading and repositioning Manhattan office properties, having invested through December 31, 2019 a total of approximately $918.6 million (excluding tenant improvement costs and leasing commissions) in our Manhattan office properties since we assumed full control of the day-to-day management of these properties in 2002 through 2006. We also have substantial experience in enhanced tenant amenities, and we recently expanded the service offerings we make available to our tenants. We believe that the post-redevelopment high quality of our buildings and the service we provide also attract higher credit-quality tenants for larger spaces at rents above similar vintage buildings, and below new construction, thus defining a new price point and allowing us to drive superior returns on invested capital per square foot.
Leader in Energy Efficiency Retrofitting. We have pioneered certain practices in energy efficiency, beginning at the Empire State Building where we partnered with the Clinton Climate Initiative, Johnson Controls Inc., Jones Lang LaSalle and the Rocky Mountain Institute to create and implement a groundbreaking, replicable process for integrating 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 believe that higher quality tenants in general place a higher priority on sustainability, controlling costs, and minimizing contributions to greenhouse gases. We believe our expertise in this area gives us the opportunity to attract higher quality tenants at higher rental rates, in addition to lowering our expenses. As a result of our efforts, approximately 60% of our portfolio square feet is Energy Star certified, including the Empire State Building, even with the more stringent Energy Star scoring methodology rolled out in late 2019. As a result of the energy efficiency retrofits, we estimate that the Empire State Building has reduced energy use by 43% of its pre-retrofit level of energy use, resulting in over $6.9 million of annual energy cost savings at pre-retrofit utility rate levels. Johnson Controls Inc. has guaranteed minimum energy cost savings of $2.2 million annually, from 2010 through 2025, with respect to certain of the retrofits in which Johnson Controls Inc. was project leader. 2018 energy cost savings was $6.9 million for the whole building retrofits, out of which $5.7 million savings was achieved against the guaranteed savings. We are implementing 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. Finally, we maintain a series of management practices utilizing recycling of 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 believe that our portfolio’s attractiveness is enhanced by these practices and that this should result in higher rental rates, longer lease terms and higher quality tenants.
Environmental, Social and Governance ("ESG") Initiatives. We are committed to integrated portfolio-wide strategies for environmental, social and governance initiatives. We have requirements in our buildings for practices to enhance the health and wellness of our building occupants. Our sustainability program is structured around quantifiable improvement in key areas, including: energy efficiency, water efficiency, recycling and waste diversion and healthy work environments for our tenants and employees (indoor environmental quality). Our CEO, Anthony E. Malkin, is the Chair of the Sustainability Policy Advisory Board of the Real Estate Roundtable and was appointed to the New York City Climate Mobilization Advisory Board for the implementation of Local Law 97, the sole landlord representative on the board.
To continue to elevate our company culture, we have committed to elevate employee engagement and pursued initiatives based upon surveys and employee-led cross-departmental committees. We provide learning and

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development opportunities to our employees through in-house training, mentorship and online courses. In addition, we provide robust health benefits and wellness programs for our employees. Our employees enjoy a diverse and inclusive culture which we constantly strive to enhance. To further diversify our team, most recently we expanded our board, hired a new Senior Vice President of Energy and Sustainability, hired a new Chief Technology Officer and promoted our long serving Senior Vice President and Lead Leasing Attorney to Director of ESG.
Our governance initiatives include annual board member outreach to over 80% of our stockholders and by-law amendments to provide proxy access and to permit stockholders to amend bylaws. Most recently, we codified the authority and duties of our lead independent director in our written corporate governance guidelines.
Experienced and Committed Management Team with Proven Track Record. Our senior management team is highly regarded in the real estate community and has extensive relationships with a broad range of brokers, owners, tenants and lenders. We have developed relationships we believe enable us to both secure high credit-quality tenants on attractive terms, as well as provide us with potential acquisition opportunities. We have substantial in-house expertise and resources in asset and property management, leasing, marketing, acquisitions, construction, development and financing and a platform that is highly scalable. Members of our senior management team have worked in the real estate industry for an average of approximately 35 years with extensive experience in greater New York area real estate, through many economic cycles. We take an intensive, hands-on approach to the management of our portfolio and quality brand building. As of December 31, 2019, our named executive officers owned 11.8% of ESRT's common stock on a fully diluted basis (including shares of common stock and operating partnership units as to which Anthony E. Malkin, our chief executive officer, disclaims beneficial ownership except to the extent of his pecuniary interest therein), and therefore their interests are aligned with those of ESRT's securityholders and they are incentivized to maximize returns to ESRT's securityholders.
Strong Balance Sheet Supportive of Future Growth. As of December 31, 2019, we had total debt outstanding of approximately $1.7 billion, with a weighted average interest rate of 4.03% and a weighted average maturity of 8.3 years. Additionally, we had approximately $1.1 billion of available borrowing capacity under our unsecured revolving and term credit facility as of December 31, 2019. We had cash and cash equivalents and short-term investments of $233.9 million at December 31, 2019. Our consolidated net debt represented 25.2% of enterprise value. Excluding principal amortization, we have no debt maturing in 2020 and 2021 and $265.0 million of debt maturing in 2022. We continue to extend and ladder our debt maturities, increase our access to a variety of capital sources and maintain low leverage with significant capacity on our balance sheet. This low level of leverage gives us flexibility to cover our capital program and to take advantage of opportunities to acquire additional properties as and when we see compelling opportunities. We believe that lower levered companies outperform over the long term.
Business and Growth Strategies
Our primary business objectives are to maximize cash flow and total returns to our securityholders and to increase the value of our properties through the pursuit of the following business and growth strategies:
Increase Existing Below-Market Rents and Exploit our Price Position in the Market. To date, we have capitalized on the opportunity to capture the significant embedded, de-risked growth from repositioning of our Manhattan office portfolio. For example, we expect to benefit from the re-leasing of 7.4%, or approximately 558,246 rentable square feet (including month-to-month leases), of our Manhattan office leases expiring during 2020, which we generally believe are currently at below market rates. These expiring leases represent a weighted average base rent of $54.43 per square foot based on current measurements. As older leases expire, we expect to continue to upgrade certain space to increase rents further. Our concentration in Manhattan and the greater New York metropolitan area should also enable us to benefit from increased rents associated with current stability in the financial and economic environment in New York. We also expect to benefit from our price positioning, as we command prices that are above comparable vintage properties due to the quality of our newly developed space and our attractive amenities, but below new construction.
Complete the Redevelopment and Repositioning of Our Current Portfolio. We intend to continue to increase occupancy, improve tenant quality and enhance cash flow and value by completing the redevelopment and repositioning of our Manhattan office properties. We intend selectively to continue to allow leases for smaller spaces to expire or relocate smaller tenants in order to aggregate, demolish and re-demise existing office space into larger blocks of vacant space, which we believe will attract higher credit-quality tenants at higher rental rates, while achieving returns of approximately 10%. We apply rigorous underwriting analysis to determine if aggregation of vacant space for future leasing to larger tenants will improve our cash flows over the long term. In addition, we are a

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leader in developing economically justified energy efficiency retrofitting and sustainability and have made it a portfolio-wide initiative. We believe this makes our properties desirable to high credit-quality tenants at higher rental rates and longer lease terms.
Pursue Attractive Acquisition and Development Opportunities. We will opportunistically pursue attractive opportunities to acquire office and retail properties. For the foreseeable future, we intend to focus our acquisition strategy primarily on Manhattan office properties and, to a lesser extent, office and multi-tenanted retail properties in densely populated communities in the greater New York metropolitan area and other markets we may identify in the future. We believe we can utilize our industry relationships (including well-known real estate owners in Manhattan), brand recognition, and our expertise in redeveloping and repositioning office properties to identify significant acquisition opportunities where we believe we can increase occupancy and rental rates. We also believe there is growth opportunity to acquire and reposition additional stand-alone retail spaces. Our strong balance sheet, access to capital, and ability to offer operating partnership units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions. 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 415,000 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 204 tenant expansions within our portfolio totaling over 1.6 million square feet since 2013.
Enhanced our Observatory Operations. In 2019 we completed a multi-year re-imagination and redevelopment of the entire Observatory experience at the Empire State Building. The new Observatory entrance on 34th Street, opened in August 2018, improved the experience for Observatory visitors as well as office tenants- and has increased pedestrian traffic in front of the retail space on the 34th street side of the building.  A new 2nd floor immersive museum, opened in July 2019, provides guests with numerous, distinct experiences as they progress through the tour. The 2nd floor museum includes 10,000 square feet of exhibits such as a history of the Empire State Building, from its initial construction to its leadership role in sustainability, an exclusive series of interactive kiosks programmed by NYC & Company through which visitors may compose itineraries for their visits to New York City, a panorama of the skyline of New York City rendered in wallpaper derived from the exclusive artwork of memory artist Stephen Wiltshire, a seventy screen display that highlights the Empire State Building's starring role in pop culture in every decade since the 1930's, and an opportunity to take a photograph in King Kong's hand, to name a few. The new 102nd floor Observatory, accessed via a new glass elevator from the 86th floor, enclosed by 24 eight-foot tall floor to ceiling windows, provides a climate-controlled platform for New York City's finest views. Visitor and industry feedback have been positive.
Leasing    
We are focused on maintaining a brand that tenants associate with a consistently high level of quality of services, installations, maintenance and amenities, 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.


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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 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 better 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 real estate assets. Our observatory segment operates the 86th and 102nd floor observatories at the Empire State Building. These two lines of businesses are managed separately because each business requires different support 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, that is, at current market prices.
For more information about our segments, refer to “Financial Statements-Note 12-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

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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 used for industrial or commercial purposes or that 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.
In addition, 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

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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.

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 19% coinsurance under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) and the difference between the TRIPRA captive deductible and policy deductible of $25,000 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 19% 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 January 12, 2015, the President of the United States signed into law TRIPRA, which extends TRIA through December 31, 2020. 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 81% coinsurance provided by the United States Treasury in excess of a statutorily calculated deductible. ESRT Captive Insurance reinsures 100% of its 19% coinsurance for non-NBCR exposures. The 19% 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.

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

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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 securityholders. 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.
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. During the past ten years of our annual observatory revenue, approximately 16% to 18% 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.

Employees
As of December 31, 2019, we had 831 employees, 136 of whom were managers and professionals. There are currently collective bargaining agreements which cover the workforce that services all of our office properties. Management believes that its relationship with employees is good.
Offices
Our principal executive offices are located at 111 West 33rd Street, 12th floor, New York, New York 10120. In addition, we have six 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.empirestaterealtytrust.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 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

RISK FACTORS
You should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could have a material effect on our results of operations, cash flow, financial condition, market price of our securities, and our ability to service debt make distributions to our securityholders (including those necessary to maintain ESRT’s REIT qualification). In such case, the value of our securities and the trading price of our traded OP units could decline, and you may lose all or a significant part of your investment. Some statements in the following risk factors, constitute forward looking statements. See the section entitled “Forward-Looking Statements.”
Risks Related to Our Properties and Our Business
All of our properties are located in Manhattan and the greater New York metropolitan area, in particular midtown Manhattan, and adverse economic or regulatory developments in this area could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
All of our properties are located in Manhattan and the greater New York metropolitan area, in particular midtown Manhattan, as well as nearby markets in Fairfield County, Connecticut and Westchester County, New York. Nine of our 14 office properties are located in midtown Manhattan. As a result, our business is dependent on the condition of the New York City economy in general and the market for office space in midtown Manhattan in particular, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio. We are susceptible to adverse developments in the New York City economic and regulatory environment (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation). Federal tax limits on the deductibility of state and local taxes may negatively impact demographic trends in high tax states like New York and Connecticut. Such adverse developments could materially reduce the value of our real estate portfolio and our rental revenues, and thus materially and adversely affect our ability to service current debt and to pay distributions to securityholders. We could also be impacted by adverse developments in the Fairfield County, Connecticut and Westchester County, New York markets. We cannot assure you that these markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of office or retail properties. Our operations may also be affected if competing properties are built in either of these markets.
Adverse economic and geopolitical conditions in general and in Manhattan and the greater New York metropolitan area commercial office and retail markets in particular, could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
Our business may be affected by volatility and illiquidity in the financial and credit markets, a general global economic recession and other market or economic challenges experienced by the real estate industry or the U.S. economy as a whole. Our business may also be materially and adversely affected by local economic conditions, as substantially all of our revenues are derived from our properties located in Manhattan and the greater New York metropolitan area, particularly in Manhattan, Fairfield County and Westchester County.
Because our portfolio consists primarily of commercial office and retail buildings located principally in Manhattan, we are significantly more vulnerable to risks in these industries and in this geography than if we owned a more diversified real estate portfolio. In particular, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States.
General conditions that might materially and adversely affect our results of operations, cash flow, financial condition, ability to service current debt and to make distributions to our securityholders include:

a general consumer shift to online shopping has reduced demand for physical retail space and thus reduced the value of street level premises, which typically commanded the highest rental rates per square foot in office;
the financial condition of our tenants, many of which are consumer goods, financial, legal and other professional firms, may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons;
significant job losses in the financial and professional services industries have occurred and may continue to occur, which may decrease demand for our office space, causing market rental rates and property values to be impacted negatively;

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our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities, engage in our redevelopment and repositioning activities and refinance existing debt, reduce our returns from both our existing operations and our acquisition and development activities and increase our future interest expense;
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;
reduced liquidity in debt markets and increased credit risk premiums for certain market participants may impair our ability to access capital or make such access more expensive; and
the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors.
These conditions may continue or worsen in the future, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
There can be no assurance that the redevelopment and repositioning program of our Manhattan office properties will be completed in accordance with the anticipated timing or at the anticipated cost, or that it will achieve its expected results , which could materially and adversely affect our results of operations, cash flow and financial condition.
We have been undertaking a comprehensive redevelopment and repositioning program of our Manhattan office properties which has included physical improvements through upgrades and modernization of, and tenant upgrades in, such properties. Circumstances we might not be able to anticipate or control may delay or preclude program completion. Further, the program may lead to temporary increased vacancy rates at the properties undergoing redevelopment. In addition, we may not be able to lease available space on favorable terms or at all. There can be no assurance that our redevelopment and repositioning program will be completed in its entirety in accordance with the anticipated timing or at the anticipated cost, or that it will achieve its expected results, which could materially and adversely affect our results of operations, cash flow and financial condition.
We rely on six properties for a significant portion of our rental revenue.
For the year ended December 31, 2019, six of our properties, the Empire State Building, One Grand Central Place, 111 West 33rd Street, 1400 Broadway, 250 West 57th Street and First Stamford Place together accounted for approximately 73.1% of our portfolio’s rental revenues, and no other property accounted for more than approximately 5.0% of our portfolio’s rental revenues. For the year ended December 31, 2019, the Empire State Building individually accounted for approximately 32.9% of our portfolio’s rental revenues. Our revenue and cash available for distribution to our securityholders would be materially and adversely affected if the Empire State Building, One Grand Central Place, 111 West 33rd Street, 1400 Broadway, 250 West 57th Street or First Stamford Place were materially damaged or destroyed. Additionally, our revenue and cash available for distribution to our securityholders would be materially adversely affected if a significant number of our tenants at these properties experienced a downturn in their business which may weaken their financial condition and result in their failure to make timely rental payments, defaulting under their leases or filing for bankruptcy.
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 the novel coronavirus (COVID-19), among other factors, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
During the year ended December 31, 2019, we derived approximately $128.8 million of revenue from the Empire State Building’s observatory operations, representing approximately 39.2% of the Empire State Building’s total revenue for this period. The Empire State Building’s observatory is one of New York City’s main destination attractions and we have undertaken various projects to modernize and optimize visitor experience, which was substantially completed in November 2019.
We currently compete against two existing observatories in New York City, and additional observatories are in the construction pipeline, with the Hudson Yards observatory projected to be completed in the first quarter 2020 and the One Vanderbilt observatory projected to be completed by year end 2021, which could have a negative impact on revenues from our observatory operations.  Despite the Empire State Building’s iconic status, location, and updated visitor experience, existing and new observatory competition may divert visitors from our observatory and negatively impact observatory revenue. Visitor demand for our observatory is highly dependent on domestic and international tourism. While New York City tourism has been consistent in recent years, economic and geopolitical factors might negatively impact tourist influx in the future. Additionally, we are susceptible to reductions in visitor demand due to adverse weather patterns, in particular during peak visitor periods. 
Increased competition, a downturn in domestic and international tourist trends and adverse weather may negatively impact visitor demand for our observatory, which could have a material adverse effect on our results of operations, cash flow,

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financial condition, and our ability to service debt and make distributions to our securityholders.

We may be unable to renew leases or re-lease vacant space on favorable terms or at all as leases expire, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
As of December 31, 2019, we had approximately 0.9 million rentable square feet of vacant space (excluding leases signed but not yet commenced). In addition, leases representing 7.6% and 6.5% of the square footage of the properties in our portfolio will expire in 2020 and 2021, respectively (including month to month leases). We cannot assure you that expiring leases will be renewed or that our properties will be re-leased at net effective rental rates equal to or above the current average net effective rental rates. Above-market rental rates at some of the properties in our portfolio may force us to renew some expiring leases or re-lease properties at lower rates. If existing tenants do not renew their leases on current or similar terms or we are unable to release vacant space on favorable terms or at all, our financial condition, results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders could be materially and adversely affected.
The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience a decline in realized rental rates from time to time, which could have a material adverse effect on our results of operations, cash flow, and financial condition.
As a result of various factors, including competitive pricing pressure in our markets, a general economic downturn and the desirability of our properties compared to other properties in our markets, we may be unable to realize our asking rents across the properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain sufficient rental rates across our portfolio, then our ability to generate cash flow growth will be negatively impacted. In addition, depending on market rental rates at any given time as compared to expiring leases in our portfolio, rental rates for expiring leases may be higher than starting rental rates for new leases.
We are exposed to risks associated with property redevelopment and development that could have a material adverse effect on our results of operations, cash flow and financial condition.
We have engaged, and continue to engage, in development and redevelopment activities with respect to our Manhattan office properties. In addition, we own entitled land at the Stamford Transportation Center in Stamford, Connecticut that can support the development of an approximately 415,000 rentable square foot office building and garage. To the extent that we continue to engage in development and redevelopment activities, we will be subject to certain risks, including, without limitation:
the availability and pricing of financing on favorable terms or at all;
the availability and timely receipt of zoning and other regulatory approvals;
the potential for the fluctuation of occupancy rates and rents due to a number of factors, including market and economic conditions, which may result in our investment not being profitable;
start up, repositioning and redevelopment costs may be higher than anticipated;
the cost and timely completion of construction (including risks beyond our control, such as weather or labor conditions, or material shortages);
the potential that we may fail to recover expenses already incurred if we abandon development or redevelopment opportunities after we begin to explore them;
the potential that we may expend funds on and devote management time to projects which we do not complete;
the inability to complete construction and leasing of a property on schedule, resulting in increased debt service expense and construction or redevelopment costs; and
the possibility that properties will be leased at below expected rental rates.
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent the initiation of development and redevelopment activities or the completion of such activities once undertaken, any of which could have a material adverse effect on our results of operations, cash flow and financial condition.
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, which could have a material adverse effect on our results of operations, cash flow and financial condition.
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

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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, we may need to raise capital to make such expenditures. If we are unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases and our vacant space remaining untenanted, which could have a material adverse effect on our results of operations, cash flow and financial condition. As of December 31, 2019, we had approximately 0.9 million rentable square feet of vacant space (excluding leases signed but not yet commenced), and leases representing 7.6% and 6.5% of the square footage of the properties in our portfolio will expire in the in 2020 and 2021, respectively (including month to month leases).
Our five largest tenants - Global Brands Group, LinkedIn, Coty, Inc., PVH Corp. and Sephora - represented approximately 17.1% of our total portfolio’s annualized rent as of December 31, 2019.
As of December 31, 2019, our five largest tenants together represented 17.1% of our total portfolio’s annualized rent. As of December 31, 2019, our largest tenant leased an aggregate of 0.7 million rentable square feet of office space at two of our office properties, representing approximately 6.6% of our total portfolio rentable square feet and approximately 6.6% of our total portfolio annualized rent. General and regional economic conditions, may adversely affect our significant tenants, as well as other existing and potential tenants in our markets. Our significant tenants may experience a material business downturn, weakening their financial condition and potentially resulting in their failure to make timely rental payments and/or a default under their leases. In many cases, we have made substantial up front investments in the applicable leases, through tenant improvement allowances and other concessions, as well as typical transaction costs (including professional fees and commissions) that we may not be able to recover. In the event of any tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.
Our results of operations, cash flow and financial condition could be materially adversely affected if any of our significant tenants were to suffer a downturn in their business, and/or become bankrupt or insolvent, default under their leases, fail to renew their leases or renew their leases on terms less favorable to us than their current terms.
The bankruptcy or insolvency of any of our tenants could result in the termination of such tenant’s lease and material losses to us, which could have a material adverse effect on our results of operations, cash flow and financial condition.
The occurrence of a tenant bankruptcy or insolvency could diminish or terminate the income we receive from that tenant’s lease or leases. In particular, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. In addition, any claim we have for unpaid past rent, if any, may not be paid in full. We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms. As a result, tenant bankruptcies could have a material adverse effect on our results of operations, cash flow and financial condition.
Competition may impede our ability to attract or retain tenants or re-lease space, which could have a material adverse effect on our results of operations, cash flow and financial condition.
The leasing of real estate in the greater New York metropolitan area is highly competitive. The principal means of competition are rent charged, location, services provided and the nature and condition of the premises to be leased. We directly compete with lessors and developers of similar space in the areas where our properties are located as well as properties in other adjacent submarkets. Additionally, we have seen increased competition from lessors that have converted traditional office space to co-working office space and offer additional amenities. Demand for retail space may be impacted by the bankruptcy of retail companies, a general trend toward consolidation in the retail industry, and the impact of Internet retailing which could adversely affect our ability to attract and retain tenants and, in turn (i) reduce rents payable to us, (ii) reduce our ability to attract and retain tenants at our properties and (iii) lead to increased vacancy rates at our properties, any of which could have a material adverse effect on our results of operations, cash flow and financial condition.
Our office properties are concentrated in highly developed areas of midtown Manhattan and densely populated metropolitan communities in Fairfield County and Westchester County. Manhattan is the largest office market in the United States. Increased competition in the markets in which our office properties are located (through potentially newer or better equipped or located properties) could have a material adverse effect on our ability to lease or re-lease office space at our properties, and on the effective rents we are able to charge.
Our tenants' inability to secure financing necessary to continue to operate their businesses and pay us rent could have a material adverse effect on our results of operations, cash flow and financial condition.
Many of our tenants rely on external sources of financing to operate their businesses. If our tenants are unable to secure the financing necessary to continue to operate their businesses, they may be unable to meet their rent obligations or be

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forced to declare bankruptcy and reject their leases, which could have a material adverse effect on our results of operations, cash flow and financial condition.
Our dependence on smaller businesses to rent our office space could have a material adverse effect on our results of operations, cash flow and financial condition.
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 may be at higher risk of bankruptcy. Consequently, we may be exposed to a higher rate of tenant defaults or turnover by our smaller businesses tenants, which could have a material adverse effect on our results of operations, cash flow and financial condition.
Our dependence on rental income could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
A substantial portion of our income is derived from rental income from real property. As a result, our performance depends on our ability to collect rent from tenants. Our results of operations, cash flow, financial condition and our ability to service debt and make distributions to our securityholders could be negatively affected if a significant number of our tenants, or any of our significant tenants:
delay lease commencements;
decline to extend or renew leases upon expiration;
fail to make rental payments when due; or
declare bankruptcy.
Any of these actions could result in the termination of the tenants’ leases and the loss of rental income attributable to the terminated leases. We cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms or at all. The loss of rental revenues from terminated tenants or tenants that decide not to renew their leases, and our inability to replace such tenants could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
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, which could materially and adversely affect us.
The Empire State Building and its broadcasting mast provides radio and data communications services and supports 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, 2019, we derived approximately $13.5 million of revenue (excluding tenant reimbursement income) from the Empire State Building’s broadcasting licenses and related leased space, representing approximately 4.1% of the Empire State Building’s total revenue for this period. 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 television and radio licensees also face a range of competition from advances in technologies and alternative methods of content delivery in their respective industries, as well as from changes in consumer behavior driven by new technologies and methods of content delivery, which may reduce the demand for over-the-air broadcast licenses in the future. New government regulations affecting broadcasters, including the implementation of the Federal Communications Commission's (the "FCC") National Broadband Plan, (the "FCC Plan"), also might materially and adversely affect our results of operations by reducing the demand for broadcast licenses. Among other things, the FCC Plan urges Congress to make more spectrum available for wireless broadband service providers by encouraging over-the-air broadcast licensees to relinquish spectrum through a voluntary auction process, which raises many issues that could impact the broadcast industry. At this time, we cannot predict how the existing legislation and FCC regulations will impact future demand from broadcasters to lease/license our broadcast space nor can we predict how further legislation or FCC regulations might otherwise affect our broadcasting operations. Any of these risks might materially and adversely affect us.
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, which could have a material adverse effect on our results of operations, cash flow and financial condition.
Our financial results depend substantially on leasing space in our properties to tenants on terms favorable to us. 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 from the property. As a result, cash flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to lease our properties on favorable terms or at all. Under such circumstances, we might not be able to enforce our rights as landlord without delays and may incur substantial legal costs. The terms of our leases may also limit our ability to charge our tenants for all or a portion of these expenses. Additionally, new properties that we may acquire, develop or

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redevelop may not produce significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and principal and interest on debt associated with such properties until they are fully leased.
Our breach or the expiration of our ground leases could have a material adverse effect on our results of operations, cash flow and financial condition. Additionally, we will not share in any increase in the value of the land or improvements beyond the term of our ground leases, and we may only receive a portion of compensation paid in any eminent domain proceeding with respect to these properties.
Our interest in three of our commercial office properties, 1350 Broadway, 111 West 33rd Street and 1400 Broadway, are long-term leaseholds of the land and the improvements, also known as ground leases, 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, as landlords, with respect to our subtenants. In addition to collecting rent from our subtenants, we also maintain the properties and pay expenses relating to the properties. We do not have a right, pursuant to the terms of the ground leases or otherwise, 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 these ground leases, the fee owner of the properties may initiate proceedings to terminate the leases 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 before expiration on terms significantly comparable to current terms, we will lose our right to operate these properties and our leasehold interests upon expiration of the leases, or we will continue to operate them at much lower profitability, which could have a material adverse effect on our results of operations, cash flow and financial condition.
Additionally, we have no economic interest in the land or improvements at the expiration of our ground leases at 1350 Broadway, 111 West 33rd Street and 1400 Broadway, and therefore 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, notwithstanding our capital outlay to purchase our interest in the properties. Furthermore, if the state or federal government seizes the properties subject to the ground leases under its eminent domain power, we may only be entitled to a portion of any compensation awarded for the seizure. In addition, if the value of the properties has increased, it may be more expensive for us to renew our ground leases, to the extent renewal is available at all.
We may be unable to identify and successfully complete acquisitions and even if acquisitions are identified and completed, we may fail to operate successfully acquired properties, which could materially and adversely affect us and impede our growth.
Our current portfolio consists entirely of properties that we acquired (or received the right to acquire) in connection with the formation transactions. Our ability to identify and acquire additional properties on favorable terms and successfully operate or redevelop them may be exposed to the following risks:
even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction and other conditions that are not within our control, which may not be satisfied, and we may be unable to complete an acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;
we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;
we may spend more than budgeted to make necessary improvements or redevelopments to acquired properties;
we may not be able to obtain adequate insurance coverage for new properties;
acquired properties may be located in new markets where we may face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures;
we may be unable to integrate quickly and efficiently new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result our results of operations, cash flow and financial condition could be adversely affected;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete.

Any delay or failure on our part to identify, negotiate, finance and consummate such acquisitions in a timely manner and on favorable terms, or operate acquired properties to meet our financial expectations, could impede our growth and have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

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Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions, which may impede our growth.
We plan to acquire properties as we are presented with attractive opportunities. We may face significant competition for acquisition opportunities in the greater New York metropolitan area with other investors, particularly private investors who can incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:
an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, commercial developers, partnerships and individual investors; and
an increase in the purchase price for such acquisition property, in the event we are able to acquire such desired property.
The significant competition for acquisitions of commercial office and retail properties in the greater New York metropolitan area may impede our growth.
Acquired properties may expose us to unknown liability, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders. Unknown liabilities with respect to acquired properties might include:
liabilities for clean-up of undisclosed environmental contamination;
claims by tenants, vendors or other persons against the former owners of the properties;
liabilities incurred in the ordinary course of business; and
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
We may acquire properties or portfolios of 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 or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in our company, which may result in dilution to securityholders. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the 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.
Should we decide at some point in the future to expand into new markets, we may not be successful, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
If opportunities arise, we may explore acquisitions of properties in new markets. Each of the risks applicable to our ability to acquire and integrate successfully and operate properties in our current markets is also applicable to our ability to acquire and integrate successfully and operate properties in new markets. In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect the results of our expansion into those markets, and we may be unable to build a significant market share or achieve a desired return on our investments in new markets. Our inability to successfully expand into new markets, could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

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Our growth depends on external sources of capital that are outside of our control, the unavailability of which may affect our ability to seize strategic opportunities, and could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.
In order for ESRT to qualify as a REIT, it must distribute to its securityholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for distributions paid and excluding net capital gains. In addition, it will be subject to U.S. federal income tax at the generally applicable corporate tax rate to the extent that it distributes less than 100% of its net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which its distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these distribution requirements and to avoid U.S. federal corporate income tax and the 4% excise tax. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs. We may not be able to obtain financing on favorable terms, in the time period we desire, or at all. Any additional debt we incur will increase our leverage. Our access to third-party sources of capital depends, in part, on:
general market conditions;
the market’s perception of our growth potential;
our current debt levels;
our current and expected future earnings;
our cash flow and cash distributions; and
the market price per share/unit of ESRT's Class A common stock and our traded OP units.
If we cannot obtain capital from third-party sources, we may not be able to acquire or redevelop properties when strategic opportunities exist, satisfy our principal and interest obligations or make the cash distributions to our securityholders necessary to maintain ESRT's qualification as a REIT.
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, and our business may be adversely affected.
The real estate investments made, and to be made, by us are relatively difficult to sell quickly. Return of capital and realization of gains from an investment generally will occur upon disposition or refinancing of the underlying property. 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, which limit our ability to sell properties without adversely affecting ESRT. We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of jurisdictions in which our properties are located.
Our outstanding indebtedness, including preferred units, reduces cash available for distribution and may expose us to the risk of default under our debt obligations and may include covenants that restrict our financial and operational flexibility and our ability to make distributions to our securityholders.
As of December 31, 2019, we had total debt outstanding of approximately $1.7 billion. As of December 31, 2019, we had approximately $265.0 million of debt maturing in 2022. As of December 31, 2019, our mortgages had an aggregate estimated principal balance of approximately $610.8 million with maturity dates ranging from 2024 through 2033. See Note 4 to our consolidated financial statements for required payments of our indebtedness. We may incur significant additional debt to finance future acquisition and redevelopment activities. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to allow ESRT to qualify as a REIT. Our level of debt and the limitations imposed on us by our loan documents could have significant adverse consequences, including the following:
our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on favorable terms;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;

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we may default on our obligations or violate restrictive covenants, in which case the lenders or mortgagees may accelerate our debt obligations, foreclose on the properties that secure their loans and/or take control of our properties that secure their loans and collect rents and other property income;
we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations or reduce our ability to make, or prohibit us from making, distributions; and
our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness.
In addition, our unsecured revolving credit and term loan facility and our Senior Unsecured Notes require us to maintain designated ratios, including but not limited to, total debt-to-assets, secured debt-to-assets, adjusted EBITDA to consolidated fixed charges, net operating income from unencumbered properties to interest expense on unsecured debt, and unsecured debt to unencumbered assets, and contain a minimum tangible net worth requirement. Our unsecured revolving credit and term loan facility and our Senior Unsecured Notes do not generally contain restrictions on the payment of dividends or other distributions. The indenture governing our outstanding senior unsecured notes - exchangeable does not contain financial or operational covenants or restrictions on the payments of dividends; however, upon the occurrence of fundamental changes described in the indenture, holders of our outstanding senior unsecured notes - exchangeable may require our operating partnership to repurchase for cash all or part of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, subject to certain conditions. Further, upon the occurrence of any make-whole fundamental change described in the indenture, the exchange rate for holders who exchange their notes in connection with any such make-whole fundamental change may be increased. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
    
The provisions in the partnership agreement of our operating partnership that govern the preferred units may restrict our ability to pay dividends if we fail to pay the cumulative preferential cash distributions thereon. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Private Perpetual Preferred Units.”
If any one of these events were to occur, our results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders could be adversely affected. In addition, in connection with a limited number of our debt agreements we may enter into lockbox and cash management agreements pursuant to which substantially all of the income generated by our properties will be deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders and from which cash will be distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of principal and interest on our debt, insurance, taxes, operating expenses and extraordinary capital expenditures and leasing expenses. As a result, we may be forced to borrow additional funds in order to make distributions to our securityholders (including, potentially, to make distributions necessary to allow ESRT satisfy the requirements applicable to REITs). See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
Our degree of leverage and the lack of a limitation on the amount of indebtedness we may incur could have a material adverse effect on our results of operations, cash flow and financial condition.
Neither our nor ESRT's organizational documents contain any limitation on the amount of indebtedness we may incur. We consider various factors in determining the amount of indebtedness we incur, including debt-to-EBITDA, the purchase price of properties to be acquired with debt financing, the estimated market value of our properties upon refinancing and the ability of particular properties and our business as a whole to generate cash flow to cover expected debt service.
Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally. If we become more leveraged in the future, the resulting increase in debt service requirements could cause us to default on our obligations, which could have a material adverse effect on our results of operations, cash flow and financial condition.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is

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subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to make distributions to ESRT in order to allow it to meet the distribution requirements applicable to REITs under the Code. Foreclosures could also trigger our tax indemnification obligations under the terms of our agreements with certain continuing investors with respect to sales of certain properties, and obligate us to make certain levels of indebtedness available for them to guarantee which, among other things, allows them to defer the recognition of gain in connection with the formation transactions.
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, or to refinance on favorable terms. If interest rates are higher when we refinance our properties, our income could be reduced. If any of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our securityholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money. In addition, to the extent we are unable to refinance the properties when the loans become due, we will have fewer debt guarantee opportunities available to offer under our tax protection agreement. If we are unable to offer certain guarantee opportunities to the protected parties under the tax protection agreement, or otherwise are unable to allocate sufficient liabilities of our company to those parties, it could trigger an indemnification obligation of our company under the tax protection agreement.
Some of our financing arrangements involve balloon payment obligations, which may adversely affect our ability to make distributions to our securityholders.
Some of our financing arrangements require us to make a lump-sum or "balloon" payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to securityholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to make distributions necessary to allow ESRT to meet the distribution requirements applicable to REITs under the Code.
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 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 (who was one of the original landowners and was involved in the development of the property) against certain tax liabilities if those tax liabilities result from (i) our sale, transfer, conveyance, or other taxable disposition of four specified properties (First Stamford Place, Metro Center, 10 Bank Street and 1542 Third Avenue) acquired by us in 2013 for a period of 12 years with respect to First Stamford Place and for the later of (x) October 2021 or (y) the death of both Peter L. Malkin and Isabel W. Malkin who are 86 and 83 years old, respectively, for the three other properties, (ii) our failing to maintain until maturity the indebtedness secured by those properties or failing to use commercially reasonable efforts to refinance such indebtedness upon maturity in an amount equal to the principal balance of such indebtedness, or, if we are unable to refinance such indebtedness at its current principal amount, at the highest principal amount possible, or (iii) our failing to make available to any of these continuing investors the opportunity to guarantee, or otherwise bear the risk of loss, for U.S. federal income tax purposes, of their allocable share of $160 million of aggregate indebtedness meeting certain requirements, until such continuing investor owns less than the aggregate number of operating partnership units and shares of ESRT common stock equal to 50% of the aggregate number of such units and shares such continuing investor received in the formation transactions. In addition, in connection with our and ESRT's sale of a 9.9% fully diluted interest in us to Q REIT Holding LLC, a Qatar Financial Centre limited liability company and a wholly owned subsidiary of the Qatar Investment Authority, a governmental authority of the State of Qatar ("QREIT", and together with any eligible transferee, "QIA") in August 2016, ESRT agreed, subject to certain minimum thresholds and conditions, to indemnify QIA for certain U.S. federal and state taxes payable by QIA in connection with any dividends ESRT pays that are attributable to capital gains from the sale or exchange of any U.S. real property interests. If ESRT were to trigger the tax indemnification obligations under this agreement, we would be required to pay damages for the resulting tax consequences to the Malkin Group, the additional third

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party investor in Metro Center or QIA, as applicable, and we have acknowledged that a calculation of damages with respect to the tax protection agreement with the Malkin Group and the additional third party investor in Metro Center will not be based on the time value of money or the time remaining within the restricted period. Moreover, these obligations may restrict our and ESRT's ability to engage in a strategic transaction, require us to maintain more or different indebtedness than we would otherwise require for our business, and/or inhibit our selling or disposing of a property that might otherwise be in the best interest of the securityholders to do so.

We face risks which would arise if any of our tenants were designated “Prohibited Persons” by the Office of Foreign Assets Control. 
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or whose assets are otherwise blocked or who are banned from conducting business or engaging in transactions with U.S. persons (“Prohibited Persons”). OFAC regulations and other laws prohibit us from conducting business or engaging in transactions with Prohibited Persons (the “OFAC Requirements”).  We have established a compliance program whereby tenants are checked against the OFAC list of Prohibited Persons prior to entering into any lease.  Our leases and other agreements, in general, require the other party to comply with OFAC Requirements.  If a tenant or other party with whom we contract is a Prohibited Person or is otherwise a party with which we are prohibited from doing business, we may be required by the OFAC Requirements to terminate the lease or other agreement.  Any such termination could result in a loss of revenue or otherwise have a material adverse effect on our results of operations, cash flow and financial condition.
The continuing threat of a terrorist event may materially and adversely affect our properties, their value and our ability to generate cash flow.
In the aftermath of a terrorist event, tenants in Manhattan and the greater New York metropolitan area may choose to relocate their businesses to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity. This in turn could trigger a decrease in the demand for space in Manhattan and the greater New York metropolitan area, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. Further, certain of our properties, including the Empire State Building, may be considered to be susceptible to an increased risk of a future terrorist event due to their high-profile. In addition, a terrorist event could cause insurance premiums at certain of our properties to increase significantly. As a result, the value of our properties and the level of our revenues could materially decline.
Potential losses, such as those from adverse weather conditions, natural disasters, possible rise in ocean levels, terrorist events and title claims, may not be fully covered by our insurance policies, and such losses could materially and adversely affect us.
Our business operations are susceptible to, and could be significantly affected by, adverse weather conditions, natural disasters, possible rise in ocean levels and terrorist events that could cause significant damage to the properties in our portfolio. Our insurance may not be adequate to cover business interruption or losses resulting from such events. In addition, our insurance policies include substantial self-insurance portions and significant deductibles and co-payments for such events, and hurricanes in the United States have affected the availability and price of such insurance. As a result, we may incur significant costs in the event of adverse weather conditions, natural disasters, possible rise in ocean levels and terrorist events. 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. See "Item 1. Business - Insurance."
Furthermore, we do not carry insurance for certain losses, including, but not limited to, losses caused by war. 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. As a result, we may not have sufficient coverage against all losses that we may experience, including from adverse title claims.
If we experience a loss that is uninsured or that exceeds our policy limits, we could incur significant costs and lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

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In addition, certain of our properties could not be rebuilt to their existing height or size at their existing location under current land-use laws and policies. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications and otherwise may have to upgrade such property to meet current code requirements.
Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), ground leases, our senior unsecured debt and our unsecured revolving credit and term loan facility, contain customary covenants requiring us to maintain insurance, including terrorism insurance. While we do not believe it is likely, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from “all-risk” insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments that allows the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions for those properties in our portfolio which are not insured against terrorist events. In addition, if lenders insist on full coverage for these risks and prevail in asserting that we are required to maintain such coverage, it could result in substantially higher insurance premiums.
Certain mortgages on our properties contain requirements concerning the financial ratings of the insurers who provide policies covering the property. We provide the lenders on a regular basis with the identity of the insurance companies in our insurance programs. While the ratings of our insurers currently satisfy the rating requirements in our loan agreements, in the future, we may be unable to obtain insurance with insurers that satisfy the rating requirements which could give rise to an event of default under such loan agreements. Additionally, in the future, our ability to obtain debt financing secured by individual properties, or the terms of such financing, may be adversely affected if lenders generally insist on ratings for insurers that are difficult to obtain or result in a commercially unreasonable premium.
We may become subject to liability relating to environmental and health and safety matters, which have a material adverse effect on our results of operations, cash flow and financial condition.
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. For example, our property at 69-97 Main Street is subject to an Environmental Land Use Restriction that imposes certain restrictions on the use, occupancy and activities of the affected land beneath the property. This restriction may prevent us from conducting certain redevelopment activities at the property, which may adversely affect its resale value and may adversely affect our ability to finance or refinance this property. See “Item 1. Business - Environmental Matters.”
Some of our properties are adjacent to or near other properties used for industrial or commercial purposes or that 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.
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

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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.
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.
In addition, 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 cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our securityholders or that such costs, liabilities, or other remedial measures will not have a material adverse effect on our results of operations, cash flow and financial condition.
Failure to hedge interest rates effectively could have a material adverse effect on our results of operations, cash flow and financial condition.
We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve various risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes. Moreover, there can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our initial obligation under the hedging agreement. Failure to hedge effectively against interest rate changes could have a material adverse effect on our results of operations, cash flow and financial condition.
When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty maintains a specified credit rating. When there is volatility in the financial markets, there is an increased risk that hedge counterparties could have their credit rating downgraded to a level that would not be acceptable under the loan provisions. If we were unable to renegotiate the credit rating condition with the lender or find an alternative counterparty with acceptable credit rating, we could be in default under the loan and the lender could seize that property through foreclosure.
We may incur significant costs complying with the ADA and similar laws, which could have a material adverse effect on our results of operations, cash flow and financial condition.
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. If one or more of the properties in our portfolio is not in compliance with the ADA, we would be required to incur additional costs to bring the property into compliance. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. We cannot predict the ultimate cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our results of operations, cash flow and financial condition could be materially and adversely affected.

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Our state and local taxes could increase due to property tax rate changes, reassessment and/or changes in state and local tax laws which could have a material adverse effect on our results of operations, cash flow, financial condition and our ability to service debt and make distributions to our securityholders.
Even if ESRT qualifies as a REIT for U.S. federal income tax purposes, we will be 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. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our results of operations, cash flow and financial condition.
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 results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders could be materially and adversely affected.
We or ESRT may become subject to litigation, which could have a material adverse effect on our results of operations, cash flow and financial condition.
In the future we or ESRT 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. Resolution of these types of matters against us or ESRT may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flow and per share/unit trading price of ESRT's Class A common stock and our traded OP units. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations, cash flow and financial condition, expose us to increased risks that would be uninsured, and/or adversely impact ESRT's ability to attract officers and directors. Please see Note 8 “Commitments and Contingencies” to the financial statements of this Annual Report in Form 10-K for a further description.
Potential security breaches through cybersecurity attacks and our failure to comply with increasingly complex related legislation could negatively impact our business.
We rely extensively on computer systems to process transactions and manage our business, and our business is increasingly at risk from, and may be impacted by, cybersecurity attacks that continue to increase in number, intensity and sophistication. These could include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of processes, procedures and controls to prevent, detect and mitigate these threats, which include password protection, frequent password change events, firewall detection systems, frequent backups, a redundant data system for core applications and annual penetration testing; however, there is no guarantee such measures, as well as our increased awareness of a risk of a cybersecurity attack, will be successful in preventing such an attack. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk. A cybersecurity attack could compromise the confidential information of our employees, tenants, customers and vendors, and could disrupt and materially affect our business operations, including by damaging business relationships.
Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevated compliance costs across multiple domestic and foreign jurisdictions where we might be exposed to liability, and any failure to comply with such laws and regulations could result in significant penalties

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and legal liability.

Our failure to maintain satisfactory labor relations could have a material adverse effect on our business, results of operations, cash flow and financial condition.

As of December 31, 2019, we employed 831 employees. There are currently collective bargaining agreements which cover 591 employees, or 71% of our workforce, that service all of our office properties. We have not experienced a strike or work stoppage at any of our properties and in the opinion of management overall employee relations are good and no labor stoppages are anticipated. Our inability to negotiate acceptable contracts with any of these unions as existing agreements expire could result in strikes or work stoppages by the affected workers. If our unionized employees were to engage in a strike or other work stoppage, we could experience a significant disruption of our operations, which could adversely affect our business, results of operations, cash flow and financial condition. In the event of a work stoppage for any extended period of time, we would likely seek to engage temporary workers to provide tenant services, which would result in increased operating costs.
Risks Related to Our Organization and Structure
Holders of ESRT Class B common stock have a significant vote in matters submitted to a vote of ESRT Securityholders.
As part of our formation, we sought to give each contributing investor an option to hold equity interests which would allow such investor to vote on Company matters in proportion to such investor’s economic ownership in the consolidated entity, whether such investor elected taxable Class A common stock or tax-deferred operating partnership units. Thus, the original investors were offered the opportunity to contribute their interests to us in exchange for (a) ESRT Class A common stock, (b) operating partnership units, (c) a mix of one share of ESRT Class B common stock and 49 operating partnership units for each 50 operating partnership units to which an investor was otherwise entitled, or (d) any combination of items (a), (b) and (c). Each outstanding share of ESRT Class B common stock, when accompanied by 49 operating partnership units, entitles the holder thereof to 50 votes on all matters on which ESRT Class A common securityholders are entitled to vote, including the election of directors.
Holders of ESRT Class B common stock may have interests that differ from those 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. ESRT Class B common stock has been issued only in connection with the formation transactions, and any such share is automatically converted to a share of ESRT Class A common stock (having a single vote) upon its holder conveying the related 49 operating partnership units to any person other than a family member, affiliate or controlled entity of such person.
The departure of any of ESRT key personnel could materially and adversely affect us.
Our success depends on the efforts of ESRT key personnel, particularly Anthony E. Malkin, ESRT's and Chief Executive Officer. Among the reasons Anthony E. Malkin is important to our success is that he has a national industry reputation that benefits us in many ways. He has led the acquisition, operating and repositioning of our assets for the last two decades. If we lost his services, our external relationships and internal leadership resources would be materially diminished.
Other members of ESRT senior management team also have strong industry reputations and experience, which aid us in attracting, identifying and exploiting opportunities. The loss of the services of one or more members of ESRT's senior management team, particularly Anthony E. Malkin, could materially and adversely affect us.
Tax consequences to holders of operating partnership units upon a sale or refinancing of our properties may cause the interests of certain members of ESRT 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 Anthony E. Malkin and 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

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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 Anthony E. Malkin and Peter L. Malkin may influence their decisions affecting these properties and may cause such members of ESRT senior management team to attempt to delay, defer or prevent a transaction that might otherwise be in the best interests of our other securityholders. In connection with the formation transactions, we and ESRT entered into a tax protection agreement with 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 (who was one of the original landowners and was involved in the development of the property) against certain tax liabilities if those tax liabilities result from (i) our sale, transfer, conveyance, or other taxable disposition of four specified properties (First Stamford Place, Metro Center, 10 Bank Street and 1542 Third Avenue) acquired by us in the consolidation for a period of 12 years from the consolidation in 2013 with respect to First Stamford Place and for the later of (x) eight years from the consolidation in 2013 or (y) the death of both Peter L. Malkin and Isabel W. Malkin who are 86 and 83 years old, respectively, for the three other properties, (ii) our failing to maintain until maturity the indebtedness secured by those properties or failing to use commercially reasonable efforts to refinance such indebtedness upon maturity in an amount equal to the principal balance of such indebtedness, or, if we are unable to refinance such indebtedness at its current principal amount, at the highest principal amount possible, or (iii) our failing to make available to any of these continuing investors the opportunity to guarantee, or otherwise bear the risk of loss, for U.S. federal income tax purposes, of their allocable share of $160 million of aggregate indebtedness meeting certain requirements, until such continuing investor owns less than the aggregate number of operating partnership units and shares of ESRT common stock equal to 50% of the aggregate number of such units and shares such continuing investor received in the formation transactions. As a result of entering into the tax protection agreement, Anthony E. Malkin and Peter L. Malkin may have an incentive to cause us to enter into transactions from which they may personally benefit.
ESRT's Chairman and Chief Executive Officer has outside business interests that take his time and attention away from us, which could materially and adversely affect us.
Anthony E. Malkin, ESRT's Chairman and Chief Executive Officer, has agreed to devote a majority of his business time and attention to our business and, under his employment agreement, he may also devote time to the excluded properties, the excluded businesses and certain family investments to the extent that such activities do not materially interfere with the performance of his duties to us. He owns interests in the excluded properties and excluded businesses that were not contributed to us in the formation transactions, some of which are managed by our company and certain non-real estate family investments. In some cases, Anthony E. Malkin or his affiliates have certain management and fiduciary obligations that may conflict with such person’s responsibilities as an officer or director of ESRT and may adversely affect our operations. In addition, under his employment agreement, Anthony E. Malkin has agreed not to engage in certain business activities in competition with us (both during, and for a period of time following, his employment with us). We may choose not to enforce, or to enforce less vigorously, our rights under this agreement because of our desire to maintain our ongoing relationship with our Chairman and Chief Executive Officer given his significant 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.
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 ESRT's 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 it 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. As a result, ESRT and its securityholders may have limited rights against ESRT's present and former directors and officers, as well as persons who served as members, managers, shareholders, directors, partners, officers, controlling persons certain agents of our predecessor, which could limit your recourse in the event of actions not in your best interest.
Conflicts of interest exist or could arise in the future between the interests of ESRT Securityholders and the interests of holders of operating partnership units, which may impede business decisions that could benefit our securityholders.
Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and ESRT or any stockholder thereof, on the other. ESRT directors and officers have duties to ESRT under applicable Maryland law in connection with their management of ESRT. At the same time, ESRT, as the general partner of our company, has fiduciary duties and obligations to our company and our limited partners under Delaware law and our partnership

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agreement in connection with the management of us. ESRT’s fiduciary duties and obligations as general partner to our company and our partners may come into conflict with the duties of ESRT’s directors and officers to ESRT. 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.
Additionally, the partnership agreement provides that ESRT and its directors and officers will not be liable or accountable to us for losses sustained, liabilities incurred or benefits not derived if ESRT, or such director or officer acted in good faith. The partnership agreement also provides that ESRT will not be liable to us or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by us or any limited partner, except for liability for ESRT’s intentional harm or gross negligence. Moreover, the partnership agreement provides that we are required to indemnify our directors and officers, ESRT and its directors and officers and authorizes us to indemnify present and former members, managers, shareholders, directors, limited partners, general partners, officers or controlling persons of our predecessor and authorizes us to indemnify members, partners, employees and agents of us or our predecessor, in each case for actions taken by them in those capacities from and against any and all claims that relate to the operations of our company, except (1) if the act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) for any transaction for which the indemnified party received an improper personal benefit, in money, property or services or otherwise, in violation or breach of any provision of the partnership agreement or (3) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that the act or omission was unlawful. No reported decision of a Delaware appellate court has interpreted provisions similar to the provisions of our partnership agreement that modify and reduce ESRT’s fiduciary duties or obligations as the general partner or reduce or eliminate ESRT’s liability for money damages to us and our partners, and ESRT has not obtained an opinion of counsel as to the enforceability of the provisions set forth in the partnership agreement that purport to modify or reduce the fiduciary duties that would be in effect were it not for the partnership agreement.
ESRT could increase or decrease the number of authorized shares of ESRT stock, classify and reclassify unissued ESRT stock and issue ESRT stock without ESRT stockholder approval, which could prevent a change in control of ESRT and negatively affect the market value of ESRT's shares.
ESRT’s board of directors, without stockholder approval, has the power under ESRT’s charter to amend its charter from time to time to increase or decrease the aggregate number of ESRT shares of stock or the number of ESRT shares of stock of any class or series that ESRT is authorized to issue, to authorize ESRT to issue authorized but unissued shares of ESRT common stock or preferred stock and to classify or reclassify any unissued shares of ESRT common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares. As a result, ESRT may issue series or classes of ESRT common stock or preferred stock with preferences, distributions, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of ESRT common stock. Any such issuance could dilute existing ESRT securityholders’ interests. Although ESRT’s board of directors has no such intention at the present time, it could establish a class or series of ESRT preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for ESRT's common stock or that our ESRT securityholders otherwise believe to be in their best interest.
We may issue additional operating partnership units without the consent of our securityholders, which could have a dilutive effect on our securityholders and ESRT’s Securityholders.
We may issue additional operating partnership units to third parties without the consent of our securityholders, which would reduce ESRT’s ownership percentage in us and would have a dilutive effect on the interests of our existing securityholders and on the amount of distributions made to ESRT, our securityholders and to us and, therefore, the amount of distributions ESRT can make to its securityholders. Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of ESRT's Class A common stock or our traded OP units.
Certain provisions in our partnership agreement may delay or prevent unsolicited acquisitions of us.
Provisions in our partnership agreement may delay or make more difficult unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some of our securityholders might consider such proposals, if made, desirable. These provisions include, among others:
redemption rights of qualifying parties;

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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 of us or ESRT without the consent of the limited partners;
the right of the limited partners to consent to transfers of the general partnership interest and mergers or other transactions involving us under specified circumstances; and
a redemption premium payable to the holders of our operating partnership’s preferred units if our operating partnership decides, at its option, to redeem preferred units for cash upon the occurrence of certain fundamental transactions, such as a change of control.
ESRT's charter, bylaws, our partnership agreement and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our units or that of our securityholders or ESRT's common stock or that its securityholders otherwise believe to be in their best interest.
ESRT's charter contains stock ownership limits, which may delay or prevent a change of control.
In order for ESRT to qualify as a REIT no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own its stock during at least 335 days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year. “Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts and some charitable trusts. To assist ESRT in complying with these limitations, among other purposes, ESRT’s charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT’s capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT’s common stock. These ownership limitations could have the effect of discouraging a takeover or other transaction in which holders of ESRT’s common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests. ESRT has entered into a waiver of the 9.8% ownership limit with an institutional investor to permit this investor to own up to 15% of the outstanding shares of ESRT's Class A common stock, as well as an additional waiver to permit affiliates of QIA to own (or, where applicable for QIA or its affiliates to refrain from acquiring, purchasing or intentionally becoming the beneficial or constructive owner of any common stock in excess of) an aggregate amount of Class A common stock equal to up to a 9.9% fully diluted economic interest in ESRT (inclusive of all outstanding common OP units and LTIP units), which currently equals approximately 16.5% of ESRT's outstanding Class A common stock.
ESRT’s charter’s constructive ownership rules are complex and may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than these percentages of the outstanding shares by an individual or entity could cause that individual or entity to own constructively in excess of these percentages of the outstanding shares and thus violate the share ownership limits. ESRT’s charter also provides that any attempt to own or transfer shares of its common stock or preferred stock (if and when issued) in excess of the stock ownership limits without the consent of ESRT’s board of directors or in a manner that would cause ESRT to be “closely held” under Section 856(h) of the Code (without regard to whether the shares are held during the last half of a taxable year) will result in the shares being deemed to be transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the share ownership limits or the restrictions on ownership and transfer of ESRT shares, any such transfer of ESRT’s shares will be null and void.
The concentration of ESRT's voting power may adversely affect the ability of new investors to influence our policies.
As of December 31, 2019, Anthony E. Malkin, ESRT’s Chairman and Chief Executive Officer, together with the Malkin Group, has the right to vote 40,859,706 shares of ESRT’s common stock, which represents approximately 17.6% of the voting power of ESRT’s outstanding common stock. Consequently, Mr. Malkin has the ability to influence the outcome of matters presented to ESRT securityholders, including the election of ESRT’s board of directors and approval of significant corporate transactions, including business combinations, consolidations and mergers and the determination of ESRT’s day-to-day corporate and management policies.

As of December 31, 2019, QIA had a 10.0% fully diluted interest in us, which represented 16.5% of the outstanding ESRT Class A common stock. 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 ESRT or we 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

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cast, QIA has also agreed to vote its shares in favor of the election of all director nominees recommended by ESRT's board of directors.
The interests of Mr. Malkin and QIA could conflict with or differ from your interests as a securityholder, 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 and ESRT's securityholders. This concentration of voting power might also have the effect of delaying or preventing a change of control that our or ESRT's securityholders may view as beneficial.
Our sole general partner, ESRT, acting through its board of directors may change our strategies, policies or procedures without stockholder consent, which may subject us to different and more significant risks in the future.
Our investment, financing, leverage and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our sole general partner, ESRT, acting through its board of directors. These policies may be amended or revised at any time and from time to time at the discretion of ESRT without notice to or a vote of our securityholders. This could result in us conducting operational matters, making investments or pursuing different business or growth strategies. Under these circumstances, ESRT may expose us to different and more significant risks in the future, which could have a material adverse effect on our business and growth. In addition, ESRT may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders.
Risks Related to ESRT Common Stock and our Traded OP Units
Our cash available for distribution may not be sufficient to make distributions at expected levels.
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 of directors, and will depend on our earnings, financial condition, maintenance of ESRT’s REIT qualification and other factors as ESRT’s board of directors 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. Any distributions we pay in the future will depend upon our actual results of operations, economic conditions and other factors that could differ materially from our current expectations.
The market price of shares of ESRT's Class A common stock and our traded OP units could be adversely affected by our level of cash distributions.
The market value of the equity securities of a REIT is based primarily upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, ESRT's Class A common stock and traded OP units may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of ESRT's Class A common stock and traded OP units. 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 common stock.
We or ESRT cannot predict whether future issuances of shares of ESRT's common stock or our operating partnership units or the availability of shares for resale in the open market will decrease the market price per share/unit of ESRT's common stock and traded OP units. In August 2016, ESRT entered into a registration rights agreement with QIA in connection with its purchase of 29,610,854 shares of ESRT Class A common stock, which required ESRT to use commercially reasonable efforts to file with the Securities and Exchange Commission within 180 days following the closing of the sale, a resale shelf registration statement providing for the resale of QIA’s shares. ESRT filed the resale shelf registration statement with the SEC on February 2, 2017 and renewed it on August 3, 2017. Subsequently, QIA is entitled to cause ESRT to include in the registration statement such additional shares of ESRT's Class A common stock as QIA may acquire from time to time, up to a 9.9% fully diluted interest in ESRT. We and ESRT will bear the costs of registering the securities subject to the registration rights agreement, and once these shares are registered, they will be freely tradable, subject to any applicable lock-up agreements. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market

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price of ESRT's common stock and our traded OP units and could impair ESRT's and our ability to raise additional capital through the sale of equity securities in the future. In particular, as of December 31, 2019, QIA owns approximately 16.5% of the outstanding shares of ESRT's Class A common stock. If QIA decides to sell all or a substantial portion of its shares, it could have a material adverse impact on the market price of ESRT's common stock and our traded OP units.
Future issuances of debt securities or preferred units and future issuances of equity securities (including operating partnership units), may materially and adversely affect the market price of shares of ESRT's Class A common stock and traded OP units.
In the future, we or ESRT may issue debt or equity securities or make other borrowings. Upon liquidation, holders of our or ESRT’s 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’s 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 Class A common stock or our traded OP units. 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 ESRT’s common stock. Because our or ESRT’s decision to issue debt or equity securities or otherwise incur debt in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our or ESRT's future capital raising efforts. Thus, holders of shares of ESRT’s common stock or our securityholders bear the risk that our or ESRT’s future issuances of debt or equity securities or ESRT's other borrowings will reduce the market price of shares of ESRT’s Class A common stock and our traded OP units and dilute their ownership in us or ESRT, as applicable.
Our balance sheet includes significant amounts of goodwill. The impairment of a significant portion of this goodwill could negatively affect our business, results of operations, cash flow and financial condition.
Our balance sheet includes goodwill of approximately $491.5 million at December 31, 2019. These assets consist 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. We also expect to engage in additional acquisitions, which may result in our recognition of additional goodwill. Under accounting standards goodwill is not amortized. On an annual basis and whenever events or changes in circumstances indicate the carrying value or goodwill may be impaired, we are required to assess whether there have been impairments in the carrying value of goodwill. If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating earnings. An impairment of goodwill could have a material adverse effect on our business, results of operations, cash flow and financial condition.
There remains uncertainty as to how the recently-revised partnership tax audits will be applied.
 
The Bipartisan Budget Act of 2015, effective for taxable years beginning after December 31, 2017, requires us and any subsidiary partnership 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. However, it is possible, that we and 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.
Tax Risks Related to Ownership of Our Units
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 that we qualify as a partnership for U.S. federal income tax purposes. Assuming that we qualify as a partnership for U.S. federal income tax purposes, we 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 publicly traded partnership under the Code, and accordingly we will be treated as a corporation for U.S. federal income tax purposes unless we meet certain requirements. In particular, in order to qualify as a partnership for U.S federal income tax purposes, at least 90% of our gross income must be derived from certain specified sources of qualifying income,

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which generally includes income treated as qualifying rental income for purposes of the REIT gross income tests and other income from passive sources. We believe that we satisfy this test. No assurance can be provided, however, that the IRS will not challenge our status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating us as a corporation for U.S. federal income tax purposes, we would be subject to U.S. federal, state and local corporate income tax, which would significantly reduce the amount of cash available to satisfy obligations to make principal and interest payments on our debt and to make distribution to our securityholders, and the tax consequences of holding our operating partnership units could be adversely affected. In addition, ESRT would cease to qualify as a REIT.
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 operating partnership 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 U.S. federal income tax liability of a holder of our operating partnership units with respect to its allocable share of our earnings in a particular taxable year could exceed the cash distributions we make to the 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 publicly traded 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 operating partnership units should consult with their tax advisor regarding the potential application of 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 indebtedness or refinance such indebtedness with unsecured debt, which may reduce the amount of our liabilities allocable to a holder of operating partnership units. In addition, certain commitments pursuant to our tax protection agreements could result in less liabilities available to be allocated to holders of operating partnership units as a result of our obligation to offer to certain parties opportunities to guarantee certain indebtedness. Over time, property depreciation, capital improvements made to the properties and debt amortization and repayment, among other things, may reduce the share of our liabilities allocated to a holder of operating partnership units. A reduction in the share of our liabilities allocated to a holder of operating partnership units (such as from a pay down of mortgage debt over time) that exceeds the holder's U.S. federal income tax basis in its operating partnership units is treated as taxable gain from the sale or exchange of such units. Holders of our operating partnership units should consult their tax advisors with regard to their share of our liabilities.
Failure of ESRT to qualify as a REIT would have a material adverse effect on us.
We, in general, and the holders of our operating partnership units, in particular, 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 involves the application of highly technical and complex Code provisions and Treasury Regulations promulgated thereunder for which there are limited judicial and administrative interpretations. Furthermore, ESRT's qualification as a REIT depends in part on the nature of our assets and income and the results of our operations. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for ESRT to qualify as a REIT. Thus, while we and ESRT intend to operate so that ESRT will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in circumstances, no assurance can be given 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.

32



If ESRT fails to qualify as a REIT it will face serious tax consequences which will directly and adversely impact us and may substantially reduce the funds available for payment of distributions to our securityholders, and it will be not be able to qualify as a REIT for four years following such failure. If ESRT fails to qualify as a REIT but is eligible for certain relief provisions, then it may retain its status as a REIT but may be required to pay a penalty tax, which could be substantial.
In order to enable ESRT to comply with the REIT requirements, we may be required to forego and/or liquidate otherwise 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 partnership 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 take or forego taking actions that we would otherwise consider advantageous. For instance, we may be required to forego investments that we otherwise would make. Furthermore, we may be required 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. Thus, operating in a manner that allows ESRT to comply with the REIT requirements and causes us to continue to be treated as a partnership for U.S. federal income tax purposes may hinder our investment performance.
In order to allow ESRT to comply with the REIT distribution requirements, we may be required to borrow funds during unfavorable market conditions or may be subject to tax, which would reduce the cash available for distribution to our securityholders.
In order for ESRT to qualify as a REIT, it must distribute to its securityholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. In addition, ESRT will be subject to U.S. federal income tax at the generally applicable corporate tax rate to the extent that it distributes less than 100% of its net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which its distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these distribution requirements and to avoid U.S. federal corporate income tax and the 4% excise tax.
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 TCJA (as defined below) could cause our taxable income to exceed our net income as determined by GAAP. As a result of the foregoing, we may generate less cash flow than taxable income in a particular year. As a result, we may 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 the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax in that year.
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 operating partnership 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 operating partnership units with the respective transferee of such operating partnership units, and we have therefore adopted certain income tax accounting positions that may not conform with all aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect the tax consequences, liquidity and market price of such operating partnership units.
Because we cannot match the transferor of particular Series 60, Series 250, or Series ES operating partnership units with the respective transferee of such operating partnership units, we have adopted certain depreciation, amortization and other

33



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 operating partnership units and could have a negative impact on the value of such operating partnership units or result in audits of and adjustments to the tax returns of holders of Series 60, Series 250, or Series ES operating partnership 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 operating partnership 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 transferee’s acquisition of operating partnership units 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 not able to lease the Empire State Building observatory to a TRS in a manner consistent with the ruling that ESRT has received from the IRS, or if we are not able to maintain our broadcast licenses in a manner consistent with the ruling ESRT has received from the IRS, we would be required to restructure our operations in a manner that could adversely affect the value of our operating partnership units.
Rents from real property are generally not qualifying income for purposes of the REIT gross income tests and the gross income test that we must satisfy in order to be treated as a partnership for U.S. federal income tax purposes 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 taxable REIT subsidiary, or 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. ESRT has jointly elected with ESRT Observatory TRS, L.L.C., or Observatory TRS, our wholly owned subsidiary and the current lessee and operator of the observatory, for Observatory TRS to be treated as a TRS of ESRT for U.S. federal income tax purposes. Observatory TRS leases the Empire State Building observatory from us 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, ESRT does not believe that there is any space in the Empire State Building or in the same geographic area as the Empire State Building that would likely be considered sufficiently comparable to the observatory for the purpose of applying the exception to related party rent described above. ESRT has received from the IRS a private letter ruling that its allocable share of the rent that we receive from Observatory TRS pursuant to the lease described above 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, we are party to 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. ESRT has received from the IRS a private letter ruling that its allocable share of the license fees that we receive under the license agreements described above are qualifying income for purposes of the REIT gross income tests.
ESRT is entitled to rely upon these private letter rulings only to the extent that it did not misstate or omit a material fact in the ruling request and that we and ESRT continue to operate in accordance with the material facts described in such request, and no assurance can be given that we or ESRT will always be able to do so. If ESRT were not able to treat its allocable share of the rent that the we receive from Observatory TRS as qualifying income for purposes of the REIT gross income tests, in order to qualify as a partnership for U.S. federal income tax purposes and in order to allow ESRT to continue to qualify as a REIT, 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 ESRT were not able to treat its allocable share of the license fees that we receive from the license agreements described above as qualifying income for purposes of the REIT gross income tests, in order to continue to be treated as a partnership for U.S.

34



federal income tax purposes and in order to allow ESRT to continue to qualify as a REIT, we would be required to enter into the license agreements described above through a corporate subsidiary that elects to be treated as a TRS of ESRT, 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, ESRT 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, and we could fail to be treated as a partnership for U.S. federal income tax purposes.
We may have inherited tax liabilities from the entities that have been merged into us or our subsidiaries in the formation transactions.
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, and which subsidiary was subsequently contributed to us. 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 transaction, we 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. 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 a subsidiary of us in the formation transactions, and as a result, we may have inherited any liabilities, including any tax liabilities, of Malkin Holdings LLC.
Prospective investors are urged to consult with their tax advisors regarding the effects of recently enacted tax legislation and other legislative, regulatory and administrative developments.
On December 22, 2017, President Trump signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their shareholders. Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other noncorporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends, allocations of income from certain publicly-traded partnerships (including us) and certain trade or business income of non-corporate taxpayers for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax and self-employment tax). The TCJA also imposes new limitations on the deduction of net operating losses, which may result in our having to make additional taxable distributions to our shareholders in order to comply with REIT distribution requirements or to avoid taxes on retained income and gains. The effect of the significant changes made by the TCJA remains uncertain, and administrative guidance, which has and will continue to be issued on an ongoing basis, is required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the TCJA could have an adverse effect on us or our shareholders. Investors should consult their tax advisors regarding the implications of the TCJA on their investment in our interests.
Legislative or regulatory tax changes related to REITs and other business entities could materially and adversely affect our business.
               At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect.  We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively.  We and our securityholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.


35




Your investment has various tax risks.
Although this section describes certain tax risks relevant to an investment in our securities, you should consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in our securities.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis.
From time to time we may dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits would increase. This could increase the dividend income to our stockholders by reducing any return of capital they received. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. In addition, if the underlying property is a dealer property, our gains from the sale of the property would be subject to a 100% tax. As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or impossible for us to dispose of properties on a tax deferred basis.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As of December 31, 2019, we did not have any unresolved comments from the staff of the SEC.
    

36



ITEM 2. PROPERTIES

Our Portfolio Summary
As of December 31, 2019, our portfolio consisted of 14 office properties and six standalone retail properties totaling approximately 10.1 million rentable square feet and was approximately 88.6% occupied, yielding approximately $554.8 million of annualized rent. Giving effect to leases signed but not yet commenced, our portfolio was approximately 91.2% leased as of December 31, 2019. In addition, we owned entitled land that will support the development of an approximately 415,000 rentable square foot office building and garage ("Metro Tower") at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties. The table below presents an overview of our portfolio as of December 31, 2019.
 
 
 
 
 
 
 
 
 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
2,711,163

95.0
%
 
$
155,183,111

 
$
60.25

168

One Grand Central Place
Grand Central
1,249,248

87.2
%
 
64,693,231

 
59.39

187

1400 Broadway (7)
Penn Station -Times Sq. South
914,983

88.3
%
 
43,275,161

 
53.56

24

111 West 33rd Street (8)
Penn Station -Times Sq. South
641,067

95.4
%
 
36,721,047

 
60.03

23

250 West 57th Street
Columbus Circle - West Side
473,811

72.3
%
 
21,181,440

 
61.87

43

501 Seventh Avenue
Penn Station -Times Sq. South
461,652

81.6
%
 
18,610,631

 
49.42

28

1359 Broadway
Penn Station -Times Sq. South
455,849

97.5
%
 
24,472,645

 
55.09

33

1350 Broadway (9)
Penn Station -Times Sq. South
372,643

85.3
%
 
18,856,099

 
59.29

56

1333 Broadway
Penn Station -Times Sq. South
292,835

80.3
%
 
12,430,192

 
52.88

9

Manhattan Office Properties - Office
 
7,573,251

89.8
%
 
395,423,557

 
58.14

571



 


 

 


Manhattan Office Properties - Retail
 


 

 


The Empire State Building (10)
Penn Station -Times Sq. South
104,862

69.5
%
 
13,533,939

 
185.82

13

One Grand Central Place
Grand Central
68,732

79.0
%
 
6,438,552

 
118.57

13

1400 Broadway (7)
Penn Station -Times Sq. South
20,418

77.4
%
 
2,049,950

 
129.64

8

112 West 34th Street (8)
Penn Station -Times Sq. South
90,132

100.0
%
 
23,273,046

 
258.21

4

250 West 57th Street
Columbus Circle - West Side
67,927

100.0
%
 
10,315,884

 
151.87

8

501 Seventh Avenue
Penn Station -Times Sq. South
33,632

87.3
%
 
2,018,064

 
68.74

8

1359 Broadway
Penn Station -Times Sq. South
27,506

100.0
%
 
2,346,399

 
85.30

6

1350 Broadway
Penn Station -Times Sq. South
31,774

95.6
%
 
7,126,817

 
234.52

5

1333 Broadway
Penn Station -Times Sq. South
67,001

100.0
%
 
9,318,123

 
139.07

4

Manhattan Office Properties - Retail

511,984

88.9
%
 
76,420,774

 
167.86

69

Sub-Total/Weighted Average Manhattan Office Properties - Office and Retail
8,085,235

89.7
%
 
471,844,331

 
65.03

640






 

 


 

37



Greater New York Metropolitan Area Office Properties



 

 


First Stamford Place (11)
Stamford, CT
779,098

87.9
%
 
29,645,250

 
43.31

44

Metro Center
Stamford, CT
287,909

86.5
%
 
15,566,110

 
62.51

24

383 Main Street
Norwalk, CT
260,546

49.7
%
 
3,853,921

 
29.74

20

500 Mamaroneck Avenue
Harrison, NY
287,157

82.8
%
 
7,152,838

 
30.10

29

10 Bank Street
White Plains, NY
232,517

100.0
%
 
8,361,727

 
35.96

36

Sub-Total/Weighted Average Greater New York Metropolitan Office Properties
1,847,227

83.0
%
 
64,579,846

 
42.12

153



 


 

 


Standalone Retail Properties
 


 

 


10 Union Square
Union Square
58,007

92.6
%
 
6,099,375

 
113.55

11

1542 Third Avenue
Upper East Side
56,250

100.0
%
 
4,151,047

 
73.80

4

1010 Third Avenue
Upper East Side
44,662

100.0
%
 
3,612,691

 
80.89

2

77 West 55th Street
Midtown
25,388

100.0
%
 
2,773,026

 
109.23

3

69-97 Main Street
Westport, CT
16,958

48.5
%
 
985,964

 
119.90

2

103-107 Main Street
Westport, CT
4,330

100.0
%
 
770,916

 
178.04

1

Sub-Total/Weighted Average Standalone Retail Properties
 
205,595

93.7
%
 
18,393,019

 
95.52

23

Portfolio Total
 
10,138,057

88.6
%
 
$
554,817,196

 
$
61.77

816





 

 


Total/Weighted Average Office Properties
 
9,420,478

88.5
%
 
$
460,003,403

 
$
55.19

724

Total/Weighted Average Retail Properties (12)
 
717,579

90.3
%
 
94,813,793

 
146.36

92

Portfolio Total
 
10,138,057

88.6
%
 
$
554,817,196

 
$
61.77

816


(1)
Excludes (i) 193,268 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, 2019 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, 2019 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 36,970 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 44 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 58 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 31 years (expiring July 31, 2050).
(10)
Includes 5,300 rentable square feet of space leased by WDFG North America, a licensee of our observatory.
(11)
First Stamford Place consists of three buildings.
(12)
Includes 511,984 rentable square feet of retail space in our Manhattan office properties.











38



Tenant Diversification
As of December 31, 2019, our office and retail portfolios were leased to a diverse tenant base consisting of approximately 816 leases. Our tenants represent a broad array of industries as follows:
Diversification by Industry
Percent (1)
Arts and entertainment
2.5
%
Broadcast
1.0
%
Consumer goods
20.3
%
Finance, insurance, real estate
16.4
%
Government entity
1.7
%
Healthcare
2.0
%
Legal services
4.9
%
Media and advertising
4.4
%
Non-profit
3.9
%
Professional services (not including legal services)
10.2
%
Retail
17.0
%
Technology
10.1
%
Others
5.6
%
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, 2019.
 
 
 
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)
Global Brands Group
ESB, 1333 Broadway
Oct 2023-Oct. 2028
 8.1 years
668,942

6.6
%
 
$
36,579,836

6.6
%
LinkedIn
Empire State Building
Aug. 2036
16.7 years
312,947

3.1
%
 
18,434,225

3.3
%
Coty Inc.
Empire State Building
Apr. 2020 - Jan. 2030
5.3 years
312,471

3.1
%
 
17,712,823

3.2
%
PVH Corp.
501 Seventh Avenue
Oct. 2028
 8.8 years
237,281

2.3
%
 
11,716,228

2.1
%
Sephora
112 West 34th Street
Jan. 2029
9.1 years
11,334

0.1
%
 
10,468,996

1.9
%
Li & Fung
1359 Broadway
Oct. 2021-Oct. 2027
4.3 years
149,436

1.5
%
 
7,701,934

1.4
%
Signature Bank
1333 & 1400 Broadway
Jul. 2030 - Apr. 2035
14.8 years
124,884

1.2
%
 
7,540,459

1.4
%
Urban Outfitters
1333 Broadway
Sept. 2029
9.8 years
56,730

0.6
%
 
7,367,374

1.3
%
Macy's
111 West 33rd Street
May 2030
 10.4 years
131,117

1.3
%
 
7,157,511

1.3
%
Foot Locker
112 West 34th Street
Sept. 2031
 11.8 years
34,192

0.3
%
 
6,898,262

1.2
%
Federal Deposit Insurance Corp.
Empire State Building
Dec. 2024
5.0 years
119,226

1.2
%
 
6,837,182

1.2
%
Duane Reade/Walgreen's
ESB, 1350 B'Way, 250 West 57th
Feb. 2021-Sept. 2027
4.9 years
47,541

0.5
%
 
6,704,508

1.2
%
HNTB Corporation
Empire State Building
Feb. 2029
9.2 years
105,143

1.0
%
 
6,666,632

1.2
%
The Interpublic Group of Co's, Inc.
111 West 33rd Street & 1400 B'way
Jul. 2024 0 Feb. 2025
4.8 years
124,884

1.2
%
 
6,443,584

1.2
%
Legg Mason
First Stamford Place
Sept. 2024
4.8 years
137,583

1.4
%
 
6,407,814

1.2
%
Shutterstock
Empire State Building
Apr. 2029
9.3 years
104,386

1.0
%
 
5,953,855

1.1
%
Fragoman
1400 Broadway
Feb. 2035
15.2 years
107,680

1.1
%
 
5,922,400

1.1
%
WDFG North America
Empire State Building
Dec. 2025
 6.0 years
5,300

0.1
%
 
5,863,030

1.1
%
The Michael J. Fox Foundation
111West 33rd Street
Nov. 2029
9.9 years
86,492

0.9
%
 
5,390,818

1.0
%
ASCAP
250 West 57th Street
Aug. 2034
14.7 years
87,943

0.9
%
 
5,345,814

1.0
%
  Total
 
 
 
$
2,965,512

29.4
%
 
$
193,113,285

35.0
%
(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, 2019.

39



(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
We expect to benefit from the re-leasing of 7.4%, or approximately 558,246 rentable square feet, of our Manhattan office leases expiring during 2020, which we generally believe are currently at below-market rates. During 2017, 2018 and 2019, we generally obtained higher base rents on new and renewed leases at our Manhattan office properties. 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,
 
2019
 
2018
 
2017
New and renewal leases entered into during the year (square feet)
970,443

 
837,487

 
865,251

 
 
 
 
 
 
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year
$
65.91

 
$
61.39

 
$
59.26

 
 
 
 
 
 
Weighted average annualized cash rent per square foot for previous leases
$
54.72

 
$
49.29

 
$
43.70

 
 
 
 
 
 
Increase in mark-to-market rent
20.4
%
 
24.5
%
 
35.6
%

The following tables set forth a summary schedule of the lease expirations for leases in place as of December 31, 2019 plus available space for each of the ten calendar years beginning with the year ended December 31, 2019 at the properties in our portfolio. The information set forth in the table assumes that tenants exercise no renewal options and all early termination rights.

All 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

893,363

8.8
%
 
$

%
 
$

Signed leases not commenced
25

262,621

2.6
%
 

%
 

Fourth quarter 2019
12

52,705

0.5
%
 
2,512,326

0.5
%
 
47.67

2020
124

769,772

7.6
%
 
44,838,023

8.1
%
 
58.25

2021
104

660,924

6.5
%
 
38,190,079

6.9
%
 
57.78

2022
110

570,712

5.6
%
 
36,716,025

6.6
%
 
64.33

2023
86

684,157

6.7
%
 
42,811,151

7.7
%
 
62.58

2024
84

806,258

8.0
%
 
48,199,253

8.7
%
 
59.78

2025
68

449,796

4.4
%
 
33,119,723

6.0
%
 
73.63

2026
55

730,874

7.2
%
 
40,651,456

7.3
%
 
55.62

2027
46

541,363

5.3
%
 
32,345,164

5.8
%
 
59.75

2028
28

1,038,287

10.2
%
 
56,895,634

10.3
%
 
54.80

2029
34

855,645

8.4
%
 
60,777,278

11.0
%
 
71.03

Thereafter
65

1,821,580

18.2
%
 
117,761,084

21.1
%
 
65.65

Total
841

10,138,057

100.0
%
 
$
554,817,196

100.0
%
 
$
61.77


40





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

553,707

7.3
%
 
$

%
 
$