EMPIRE STATE REALTY OP, L.P. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Unless the context otherwise requires or indicates, references in this section
to "we," "our," and "us" refer to our company and its consolidated subsidiaries.
The following discussion related to our consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual
Report on Form 10-K for the year ended December 31, 2021.

FORWARD-LOOKING STATEMENTS

   This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995 and are including this
statement for purposes of complying with those safe harbor provisions. You can
identify forward-looking statements by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates," "contemplates," "aims,"
"continues," "would" or "anticipates" or the negative of these words and phrases
or similar words or phrases. In particular, statements pertaining to our capital
resources, portfolio performance, dividend policy and results of operations
contain forward-looking statements. Likewise, all of our statements regarding
anticipated growth in our portfolio from operations, acquisitions and
anticipated market conditions, demographics and results of operations are
forward-looking statements.

Forward-looking statements are subject to substantial risks and uncertainties,
many of which are difficult to predict and are generally beyond our control, and
you should not rely on them as predictions of future events. Forward-looking
statements depend on assumptions, data or methods which may be incorrect or
imprecise, and we may not be able to realize them. We do not guarantee that the
transactions and events described will happen as described (or that they will
happen at all).

The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements: (i) economic, market, political and social impact
of, and uncertainty relating to, the COVID-19 pandemic; (ii) a failure of
conditions or performance regarding any event or transaction described herein,
(iii) resolution of legal proceedings involving the Company; (iv) reduced demand
for office, multifamily or retail space, including as a result of the COVID-19
pandemic and/or hybrid work schedules which allow work from remote locations
other than the employer's office premises; (v) changes in our business strategy;
(vi) changes in technology and market competition that affect utilization of our
office, retail, broadcast or other facilities; (vii) changes in domestic or
international tourism, including due to health crises such as the COVID-19
pandemic, geopolitical events, including global hostilities, currency exchange
rates, and/or competition from recently opened observatories in New York City,
any or all of which may cause a decline in observatory visitors; (viii) defaults
on, early terminations of, or non-renewal of, leases by tenants; (ix) increases
or uncertainty in interest rates, including the phasing out of LIBOR, which may
negatively affect the Company's borrowing costs and the market valuation of real
property assets generally; (x) declining real estate valuations and impairment
charges; (xi) termination of our ground leases; (xii) changes in our ability to
pay down, refinance, restructure or extend our indebtedness as it becomes due
and potential limitations on our ability to borrow additional funds in
compliance with drawdown conditions and financial covenants; (xiii) decreased
rental rates or increased vacancy rates; (xiv) our failure to execute any newly
planned capital project successfully or on the anticipated timeline or at the
anticipated costs; (xv) difficulties in identifying and completing acquisitions;
(xvi) risks related to our development projects (including our Metro Tower
development site); (xvii) impact of changes in governmental regulations, tax
laws and rates and similar matters; (xviii) our failure to qualify as a REIT;
(xix) environmental uncertainties and risks related to climate change, adverse
weather conditions, rising sea levels and natural disasters; and (xx) accuracy
of our methodologies and estimates regarding ESG metrics and goals, tenant
willingness and ability to collaborate in reporting ESG metrics and meeting ESG
goals, and the impact of governmental regulation on our ESG efforts; (xxi)
economic cycles involving inflation and/or recession; (xxii) supply chain
disruptions which may limit or delay our timely sourcing of supplies for the
maintenance of our facilities and equipment. For a further discussion of these
and other factors that could impact the Company's future results, performance or
transactions, see the section entitled "Risk Factors" in this Quarterly Report
on Form 10-Q, and in the Company's Annual Report on Form 10-K for the year ended
December 31, 2021, and other risks described in documents subsequently filed by
the Company from time to time with the Securities and Exchange Commission.

While forward-looking statements reflect the Company's good faith beliefs, they
are not guarantees of future performance. The Company disclaims any obligation
to update or revise publicly any forward-looking statement to reflect changes in
underlying assumptions or factors, new information, data or methods, future
events, or other changes after the date of this Quarterly
Report on Form 10-Q, except as required by applicable law. Prospective investors
should not place undue reliance on any forward-looking statements, which are
based only on information currently available to the Company.
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Overview


Empire State Realty OP, L.P. is the entity through which ESRT, a
self-administered and self-managed REIT, conducts all of its business and owns
(either directly or through subsidiaries) substantially all of its assets. We
own and manage office, retail and multifamily assets in Manhattan and the
greater New York metropolitan area. As the owner of the Empire State Building,
the World's Most Famous Building, ESRT also owns and operates its iconic, newly
reimagined Observatory Experience.

Highlights for the three months ended June 30, 2022



•Incurred net income attributable to common unitholders of $47.8 million and
achieved Core Funds From Operations attributable to common unitholders ("Core
FFO") of $79.2 million.
•Total commercial portfolio 87.8% leased, New York City office portfolio 88.3%
leased.

•Signed a total of 320,225 rentable square feet of new, renewal, and expansion
leases.


•Empire State Building observatory revenue was $27.4 million and observatory net
operating income was $19.6 million for the second quarter of 2022.
•ESRT repurchased $53.7 million of its common stock at a weighted average price
of $7.90 per share in the second quarter of 2022 and through July 21, 2022.
Since the stock repurchase program began on March 5, 2020 through July 21, 2022,
approximately $256 million at a weighted average price of $8.48 per share has
been repurchased.

Results of Operations

Overview

The discussion below relates to our financial condition and results of
operations for the three months ended June 30, 2022 and 2021, respectively.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021

The following table summarizes our historical results of operations for the
three months ended June 30, 2022 and 2021 (amounts in thousands):

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                                              Three Months Ended June 30,
                                               2022                  2021               Change                 %
Revenues:
Rental revenue                           $      149,339          $  140,797          $   8,542                    6.1  %

Observatory revenue                              27,368               8,359             19,009                  227.4  %
Lease termination fees                           18,859               3,339             15,520                  464.8  %
Third-party management and other fees               326                 327                 (1)                  (0.3) %
Other revenues and fees                           2,130                 586              1,544                  263.5  %
Total revenues                                  198,022             153,408             44,614                   29.1  %
Operating expenses:
Property operating expenses                      37,433              28,793             (8,640)                 (30.0) %
Ground rent expenses                              2,332               2,332                  -                      -  %
General and administrative expenses              15,876              14,089             (1,787)                 (12.7) %
Observatory expenses                              7,776               5,268             (2,508)                 (47.6) %
Real estate taxes                                29,802              31,354              1,552                    4.9  %

Depreciation and amortization                    58,304              45,088            (13,216)                 (29.3) %
Total operating expenses                        151,523             126,924            (24,599)                 (19.4) %
Operating income                                 46,499              26,484             20,015                   75.6  %
Other income (expense):
Interest income                                     431                 164                267                  162.8  %
Interest expense                                (25,042)            (23,422)            (1,620)                  (6.9) %

Gain on disposition of property                  27,170                   -             27,170                  100.0  %
Income before income taxes                       49,058               3,226             45,832               (1,420.7) %
Income tax (expense) benefit                       (363)              1,185             (1,548)                 130.6  %
Net income                                       48,695               4,411             44,284               (1,003.9) %
Private perpetual preferred unit
distributions                                    (1,051)             (1,051)                 -                      -  %
Net loss attributable to non-controlling
interests in other partnerships                     159                   -                159                  100.0  %
Net income attributable to common
unitholders                              $       47,803          $    3,360          $  44,443               (1,322.7) %



Rental Revenue

The increase in rental revenue reflects the inclusion of revenue from our
recently acquired multifamily properties.

Observatory Revenue

Observatory revenues were higher driven by increased visitation

Other Revenues and Fees

The increase in other revenues and fees was due to higher food and beverage
sales, insurance claim income, parking income and bad debt recovery income.

Property Operating Expenses


The increase in property operating expenses reflects higher payroll, utilities,
cleaning and other operating expenses, and the inclusion of operating expenses
from our recently acquired multifamily properties.

General and Administrative Expenses

The increase in general and administrative expenses reflects higher equity
compensation and payroll costs, information technology costs and professional
fees.

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Observatory Expenses

The increase in observatory expenses was driven by increased operating hours,
which increased variable costs such as labor, union, security, cleaning and
maintenance costs.

Real Estate Taxes

Lower real estate taxes were attributable to the overall reduction in property
tax assessment values.

Depreciation and Amortization

The increase in depreciation and amortization reflects accelerated
depreciation at one property due to an impairment charge taken in the fourth
quarter of 2021 and additional depreciation from our recently acquired
multifamily properties.

Interest Expense


The increase reflects additional interest expense from our recently acquired
multifamily properties, partially offset by the cancellation of debt from 383
Main Avenue, Norwalk CT.

Income Taxes
The decrease in income tax benefit was attributable to higher net operating
income for the observatory segment.

Gain on disposition of property

Represents a gain on the transfer of 383 Main Avenue, Norwalk CT, which was
encumbered by a $30.0 million mortgage, back to the lender in a consensual
foreclosure.




































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Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

The following table summarizes our historical results of operations for the six
months ended June 30, 2022 and 2021 (dollars in thousands):

                                               Six Months Ended June 30,
                                               2022                  2021               Change                 %
Revenues:
Rental revenue                           $      296,853          $  281,028          $  15,825                    5.6  %

Observatory revenue                              40,609              10,962             29,647                  270.5  %
Lease termination fees                           20,032               4,628             15,404                  332.8  %
Third-party management and other fees               636                 603                 33                    5.5  %
Other revenues and fees                           3,926               1,491              2,435                  163.3  %
Total revenues                                  362,056             298,712             63,344                   21.2  %
Operating expenses:
Property operating expenses                      76,077              59,072            (17,005)                 (28.8) %
Ground rent expenses                              4,663               4,663                  -                      -  %
General and administrative expenses              29,562              27,942             (1,620)                  (5.8) %
Observatory expenses                             13,991               9,856             (4,135)                 (42.0) %
Real estate taxes                                59,806              62,801              2,995                    4.8  %

Depreciation and amortization                   125,410              89,545            (35,865)                 (40.1) %
Total operating expenses                        309,509             253,879            (55,630)                 (21.9) %
Operating income                                 52,547              44,833              7,714                   17.2  %
Other income (expense):
Interest income                                     580                 286                294                  102.8  %
Interest expense                                (50,056)            (46,976)            (3,080)                  (6.6) %
Loss on early extinguishment of debt                  -                (214)               214                  100.0  %
Gain on disposition of property                  27,170                   -             27,170                  100.0  %
Income (loss) before income taxes                30,241              (2,071)            32,312                1,560.2  %
Income tax benefit                                1,233               3,291             (2,058)                 (62.5) %
Net income                                       31,474               1,220             30,254               (2,479.8) %
Private perpetual preferred unit
distributions                                    (2,101)             (2,101)                 -                      -  %
Net loss attributable to non-controlling
interests in other partnerships                     222                   -                222                  100.0  %
Net income (loss) attributable to common
unitholders                              $       29,595          $     (881)         $  30,476                3,459.3  %


Rental Revenue

The increase in rental revenue reflects the inclusion of revenue from our
recently acquired multifamily properties.

Observatory Revenue

Observatory revenues were higher driven by increased visitation.

Other Revenues and Fees

The increase in other revenues and fees was due to higher food and beverage
sales, insurance claim income, parking income and bad debt recovery income.

Property Operating Expenses

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The increase in property operating expenses reflects higher payroll, utilities,
repairs and maintenance costs, cleaning and other operating expenses, and the
inclusion of operating expenses from our recently acquired multifamily
properties.

General and Administrative Expenses

The increase in general and administrative expenses reflects higher equity
compensation and payroll costs, information technology costs and professional
fees.


Observatory Expenses

The increase in observatory expenses was driven by increased operating hours,
which increased variable costs such as labor, union, security, cleaning and
maintenance costs.

Real Estate Taxes

Lower real estate taxes were attributable to the overall reduction in property
tax assessment values.

Depreciation and Amortization

The increase in depreciation and amortization reflects accelerated
depreciation at one property due to an impairment charge in the fourth quarter
of 2021 and additional depreciation from our recently acquired multifamily
properties.

Interest Expense


The increase in interest expense reflects additional interest expense from our
recently acquired multifamily properties, partially offset by the cancellation
of debt from 383 Main Avenue, Norwalk CT.

Income Taxes
The decrease in income tax benefit was attributable to higher net operating
income for the observatory segment.

Gain on disposition of property

Represents a gain on the transfer of 383 Main Avenue, Norwalk CT, which was
encumbered by a $30.0 million mortgage, back to the lender in a consensual
foreclosure.

Liquidity and Capital Resources


Liquidity is a measure of our ability to meet potential cash requirements,
including ongoing commitments to repay borrowings, fund and maintain our assets
and operations, including lease-up costs, fund our redevelopment and
repositioning programs, acquire properties, make distributions to our
securityholders and fulfill other general business needs. Based on the
historical experience of our management and our business strategy, in the
foreseeable future we anticipate we will generate positive cash flows from
operations. In order for ESRT to qualify as a REIT, ESRT is required under the
Internal Revenue Code of 1986 to distribute to its stockholders, 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. We expect to make
quarterly distributions, as required, to our securityholders.

While we may be able to anticipate and plan for certain liquidity needs, there
may be unexpected increases in uses of cash that are beyond our control and
which would affect our financial condition and results of operations. For
example, we may be required to comply with new laws or regulations that cause us
to incur unanticipated capital expenditures for our properties, thereby
increasing our liquidity needs. Even if there are no material changes to our
anticipated liquidity requirements, our sources of liquidity may be fewer than,
and the funds available from such sources may be less than, anticipated or
needed. Our primary sources of liquidity will generally consist of cash on hand
and cash generated from our operating activities, debt issuances and unused
borrowing capacity under our unsecured revolving credit facility. We expect to
meet our short-term liquidity requirements, including distributions, operating
expenses, working capital, debt service, and capital expenditures from cash
flows from operations, cash on hand, debt issuances, and available borrowing
capacity under our unsecured revolving credit facility. The availability of
these borrowings is subject to the conditions set forth in the applicable loan
agreements. We expect to meet our long-term capital requirements, including
acquisitions, redevelopments and capital expenditures through our cash flows
from operations, cash on hand, our unsecured revolving credit facility, mortgage
financings, debt issuances, common and/or preferred equity issuances and asset
sales. Our properties require periodic

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investments of capital for individual lease related tenant improvements
allowances, general capital improvements and costs associated with capital
expenditures. Our overall leverage will depend on our mix of investments and the
cost of leverage. ESRT's charter does not restrict the amount of leverage that
we may use.

At June 30, 2022, we had $359.4 million available in cash and cash equivalents,
and $850 million available under our unsecured revolving credit facility.


As of June 30, 2022, we had approximately $2.3 billion of total consolidated
indebtedness outstanding, with a weighted average interest rate of 3.9% and a
weighted average maturity of 6.9 years. As of June 30, 2022, excluding principal
amortization, we have no outstanding debt maturing until November 2024. Our
consolidated net debt to total market capitalization was 49.0% as of June 30,
2022.


Unsecured Revolving Credit and Term Loan Facilities

See “Financial Statements – Note 5. Debt” for a summary of our unsecured
revolving credit and term loan facilities.

Mortgage Debt

As of June 30, 2022, mortgage notes payable amounted to $935.1 million. The
first maturity is in 2024. See “Financial Statements – Note 5. Debt” for more
information on mortgage debt.

Senior Unsecured Notes


The terms of the senior unsecured notes include customary covenants, including
limitations on liens, investment, distributions, debt, fundamental changes, and
transactions with affiliates and require certain customary financial reports. It
also requires compliance with financial ratios including a maximum leverage
ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio,
a minimum unencumbered interest coverage ratio, and a maximum unsecured leverage
ratio. The agreements also contain customary events of default (subject in
certain cases to specified cure periods), including but not limited to
non-payment, breach of covenants, representations or warranties, cross defaults,
bankruptcy or other insolvency events, judgments, ERISA events, the occurrence
of certain change of control transactions and loss of real estate investment
trust qualification. As of June 30, 2022, we were in compliance with the
covenants under the outstanding senior unsecured notes.

Financial Covenants


As of June 30, 2022, we were in compliance with the following financial
covenants:

Financial covenant                         Required    June 30, 2022    In Compliance
Maximum total leverage                          < 60%         31.6  %        Yes
Maximum secured leverage                        < 40%         12.7  %        Yes
Minimum fixed charge coverage                 > 1.50x            3.4x       

Yes

Minimum unencumbered interest coverage        > 1.75x            6.6x        Yes
Maximum unsecured leverage                      < 60%         23.2  %        Yes




Leverage Policies

We expect to employ leverage in our capital structure in amounts determined from
time to time by ESRT's board of directors. Although ESRT's board of directors
has not adopted a policy that limits the total amount of indebtedness that we
may incur, we anticipate that ESRT's board of directors will consider a number
of factors in evaluating our level of indebtedness from time to time, as well as
the amount of such indebtedness that will be either fixed or floating rate.
ESRT's charter and bylaws do not limit the amount or percentage of indebtedness
that we may incur nor do they restrict the form in which our indebtedness will
be taken (including, but not limited to, recourse or non-recourse debt and
cross-collateralized debt). Our overall leverage will depend on our mix of
investments and the cost of leverage, however, we initially intend to maintain a
level of indebtedness consistent with our plan to seek an investment grade
credit rating. ESRT's board of directors may from time to time modify our
leverage policies in light of the then-current economic conditions, relative
costs of debt and equity capital, market values of our properties, general
market conditions for debt and equity securities, fluctuations in the market
price of ESRT's common stock and our traded OP units, growth and acquisition
opportunities and other factors.
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Capital Expenditures


The following tables summarize our leasing commission costs, tenant improvement
costs and our capital expenditures for each of the periods presented (dollars in
thousands, except per square foot amounts).

Office Properties(1)


                                                                       Six Months Ended June 30,
Total New Leases, Expansions, and Renewals                            2022                   2021
Number of leases signed(2)                                                     76                    57
Total square feet                                                         634,582               350,196
Leasing commission costs per square foot(3)                     $        22.14          $      18.27
Tenant improvement costs per square foot(3)                              62.15                 58.62
Total leasing commissions and tenant improvement costs per
square foot(3)                                                  $        84.29          $      76.89


Retail Properties(4)

                                                                       Six Months Ended June 30,
Total New Leases, Expansions, and Renewals                             2022                  2021
Number of leases signed(2)                                                   5                     4
Total square feet                                                        4,289                12,459
Leasing commission costs per square foot(3)                      $       16.64          $      46.03
Tenant improvement costs per square foot(3)                                  -                 32.49
Total leasing commissions and tenant improvement costs per
square foot(3)                                                   $       16.64          $      78.52


_______________

(1)Excludes an aggregate of 496,311 and 504,284 rentable square feet of retail
space in our Manhattan office properties in 2022 and 2021, respectively.
Includes the Empire State Building broadcasting licenses and observatory
operations.
(2)Presents a renewed and expansion lease as one lease signed.
(3)Presents all tenant improvement and leasing commission costs as if they were
incurred in the period in which the lease was signed, which may be different
than the period in which they were actually paid.
(4)Includes an aggregate of 496,311 and 504,284 rentable square feet of retail
space in our Manhattan office properties in 2022 and 2021, respectively.
Excludes the Empire State Building broadcasting licenses and observatory
operations.

                                              Six Months Ended June 30,
                                                  2022                 2021
            Total Portfolio
            Capital expenditures (1)   $       19,697                $ 9,331


_______________

(1)Excludes tenant improvements and leasing commission costs.


As of June 30, 2022, we expect to incur additional costs relating to obligations
under existing lease agreements of approximately $105.3 million for tenant
improvements and leasing commissions. We intend to fund the tenant improvements
and leasing commission costs through a combination of operating cash flow, cash
on hand, additional property level mortgage financings and borrowings under the
unsecured revolving credit facility.

Capital expenditures are considered part of both our short-term and long-term
liquidity requirements. We intend to fund capital improvements through a
combination of operating cash flow, cash on hand and borrowings under the
unsecured revolving credit facility.

Off-Balance Sheet Arrangements

As of June 30, 2022, we did not have any off-balance sheet arrangements.

Distribution Policy

We intend to distribute our net taxable income to our security holders in a
manner intended to satisfy REIT distribution requirements and to avoid U.S.
federal income tax liability on our income.

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Before we pay any distribution, whether for U.S. federal income tax purposes or
otherwise, we must first meet both our operating requirements and obligations to
make payments of principal and interest, if any. However, under some
circumstances, we may be required to use cash reserves, incur debt or liquidate
assets at rates or times that we regard as unfavorable or make a taxable
distribution of our shares in order to satisfy REIT distribution requirements.

Distribution to Equity Holders


Distributions and dividends amounting to $21.6 million and $11.6 million have
been made to equity holders for the six months ended June 30, 2022 and 2021,
respectively.

Stock and Publicly Traded Operating Partnership Unit Repurchase Program


  ESRT's Board of Directors authorized the repurchase of up to $500 million of
ESRT Class A common stock and the Operating Partnership's Series ES, Series 250
and Series 60 operating partnership units through December 31, 2023. Under the
program, ESRT may purchase ESRT Class A common stock and we may purchase our
Series ES, Series 250 and Series 60 operating partnership units in accordance
with applicable securities laws from time to time in the open market or in
privately negotiated transactions. The timing, manner, price and amount of any
repurchases will be determined by ESRT and us at our discretion and will be
subject to stock price, availability, trading volume and general market
conditions. The authorization does not obligate ESRT or us to acquire any
particular amount of securities, and the program may be suspended or
discontinued at ESRT and our discretion without prior notice. re any particular
amount of securities, and the program may be suspended or discontinued at our
discretion without prior notice. See "Financial Statements - Note 10. Capital"
for a summary of ESRT's purchases of equity securities in each of the three
months ended June 30, 2022.

Cash Flows

Comparison of Six Months Ended June 30, 2022 to the Six Months Ended June 30,
2021


Net cash. Cash and cash equivalents and restricted cash were $412.8 million and
$578.6 million, respectively, as of June 30, 2022 and 2021. The decrease was
primarily due to the acquisition of real estate property at the end of 2021 and
higher spending for capital expenditures, higher repurchases of common shares
and higher dividends paid in 2022.

Operating activities. Net cash provided by operating activities was $83.7
million
, equal to prior year.

Investing activities. Net cash used in investing activities increased by $8.2
million
to $56.6 million due to higher capital expenditures.


Financing activities. Net cash used in financing activities increased by $64.2
million to $88.9 million primarily due to higher repurchases of common shares
and higher dividends and distributions.


Net Operating Income (“NOI”)


Our financial reports include a discussion of property net operating income, or
NOI. NOI is a non-GAAP financial measure of performance. NOI is used by our
management to evaluate and compare the performance of our properties and to
determine trends in earnings and to compute the fair value of our properties as
it is not affected by: (i) the cost of funds of the property owner, (ii) the
impact of depreciation and amortization expenses as well as gains or losses from
the sale of operating real estate assets that are included in net income
computed in accordance with GAAP, (iii) acquisition expenses, loss on early
extinguishment of debt and loss from derivative financial instruments, or (iv)
general and administrative expenses and other gains and losses that are specific
to the property owner. The cost of funds is eliminated from NOI because it is
specific to the particular financing capabilities and constraints of the owner
and because it is dependent on historical interest rates and other costs of
capital as well as past decisions made by us regarding the appropriate mix of
capital which may have changed or may change in the future. Depreciation and
amortization expenses as well as gains or losses from the sale of operating real
estate assets are eliminated because they may not accurately represent the
actual change in value in our office or retail properties that result from use
of the properties or changes in market conditions. While certain aspects of real
property do decline in value over time in a manner that is reasonably captured
by depreciation and amortization, the value of the properties as a whole have
historically increased or decreased as a result of changes in overall economic
conditions instead of from actual use of the property or the passage of time.
Gains and losses from the sale of real property vary from property to property
and are affected by market conditions at the time of sale which will usually
change from period to period. These gains and losses can create distortions when
comparing one period to another or when comparing our operating results to the
operating results of other real estate companies that have not made
similarly-timed purchases or sales. We believe that eliminating these costs from
net income is useful to investors because the resulting
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measure captures the actual revenue, generated and actual expenses incurred in
operating our properties as well as trends in occupancy rates, rental rates and
operating costs.




However, the usefulness of NOI is limited because it excludes general and
administrative costs, interest expense, depreciation and amortization expense
and gains or losses from the sale of properties, and other gains and losses as
stipulated by GAAP, the level of capital expenditures and leasing costs
necessary to maintain the operating performance of our properties, all of which
are significant economic costs. NOI may fail to capture significant trends in
these components of net income which further limits its usefulness.

  NOI is a measure of the operating performance of our properties but does not
measure our performance as a whole. NOI is therefore not a substitute for net
income as computed in accordance with GAAP. This measure should be analyzed in
conjunction with net income computed in accordance with GAAP and discussions
elsewhere in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the components of net income that are
eliminated in the calculation of NOI. Other companies may use different methods
for calculating NOI or similarly titled measures and, accordingly, our NOI may
not be comparable to similarly titled measures reported by other companies that
do not define the measure exactly as we do.


The following table presents a reconciliation of our net income, the most
directly comparable GAAP measure, to NOI for the periods presented (amounts in
thousands):

                                                    Three Months Ended June 30,                 Six Months Ended June 30,
                                                       2022                 2021                 2022                  2021
                                                            (unaudited)                                (unaudited)
Net income                                      $        48,695          $  4,411          $       31,474          $   1,220
Add:
General and administrative expenses                      15,876            14,089                  29,562             27,942
Depreciation and amortization                            58,304            45,088                 125,410             89,545
Interest expense                                         25,042            23,422                  50,056             46,976
Loss on early extinguishment of debt                          -                 -                       -                214

Income tax expense (benefit)                                363            (1,185)                 (1,233)            (3,291)

Less:

Gain on disposition of property                         (27,170)                -                 (27,170)                 -
Third-party management and other fees                      (326)             (327)                   (636)              (603)
Interest income                                            (431)             (164)                   (580)              (286)
Net operating income                            $       120,353          $ 85,334          $      206,883          $ 161,717
Other Net Operating Income Data
Straight-line rental revenue                    $         8,597          $  3,763          $       11,192          $  10,110
Net increase in rental revenue from the
amortization of above-and below-market lease
assets and liabilities                          $         1,675          $    717          $        3,459          $   1,371
Amortization of acquired below-market ground
leases                                          $         1,958          $  1,958          $        3,916          $   3,916



Funds from Operations ("FFO")

  We present below a discussion of FFO. We compute FFO in accordance with the
"White Paper" on FFO published by the National Association of Real Estate
Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined
in accordance with GAAP), excluding impairment write-off of investments in
depreciable real estate and investments in in-substance real estate investments,
gains or losses from debt restructurings and sales of depreciable operating
properties, plus real estate-related depreciation and amortization (excluding
amortization of deferred financing costs), less distributions to non-controlling
interests and gains/losses from discontinued operations and after adjustments
for unconsolidated partnerships and joint ventures. FFO is a widely recognized
non-GAAP financial measure for REITs that we believe, when considered with
financial statements determined in accordance with GAAP, is useful to investors
in understanding financial performance and providing a relevant basis for
comparison among REITs. In addition, we believe
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FFO is useful to investors as it captures features particular to real estate
performance by recognizing that real estate has generally appreciated over time
or maintains residual value to a much greater extent than do other depreciable
assets. Investors should review FFO, along with GAAP net income, when trying to
understand an equity REIT's operating performance. We present FFO because we
consider it an important supplemental measure of our operating performance and
believe that it is frequently used by securities analysts, investors and other
interested parties in the evaluation of REITs. However, because FFO excludes
depreciation and amortization and captures neither the changes in the value of
our properties that result from use or market conditions nor the level of
capital expenditures and leasing commissions necessary to maintain the operating
performance of our properties, all of which have real economic effect and could
materially impact our results of operations, the utility of FFO as a measure of
performance is limited. There can be no assurance that FFO presented by us is
comparable to similarly titled measures of other REITs. FFO does not represent
cash generated from operating activities and should not be considered as an
alternative to net income (loss) determined in accordance with GAAP or to cash
flow from operating activities determined in accordance with GAAP. FFO is not
indicative of cash available to fund ongoing cash needs, including the ability
to make cash distributions. Although FFO is a measure used for comparability in
assessing the performance of REITs, as the NAREIT White Paper only provides
guidelines for computing FFO, the computation of FFO may vary from one company
to another.

Modified Funds From Operations (“Modified FFO”)


  Modified FFO adds back an adjustment for any above or below-market ground
lease amortization to traditionally defined FFO. We believe this a useful
supplemental measure in evaluating our operating performance due to the non-cash
accounting treatment under GAAP, which stems from the third quarter 2014
acquisition of two option properties following our formation transactions as
they carry significantly below market ground leases, the amortization of which
is material to our overall results. We present Modified FFO because we believe
it is an important supplemental measure of our operating performance in that it
adds back the non-cash amortization of below-market ground leases. There can be
no assurance that Modified FFO presented by us is comparable to similarly titled
measures of other REITs. Modified FFO does not represent cash generated from
operating activities and should not be considered as an alternative to net
income (loss) determined in accordance with GAAP or to cash flow from operating
activities determined in accordance with GAAP. Modified FFO is not indicative of
cash available to fund ongoing cash needs, including the ability to make cash
distributions.

Core Funds From Operations

  Core FFO adds back to Modified FFO the following items: IPO litigation
expense, severance expenses and loss on early extinguishment of debt. The
company believes Core FFO is an important supplemental measure of its operating
performance because it excludes items associated with its IPO and formation
transactions and other non-recurring items. There can be no assurance that Core
FFO presented by the company is comparable to similarly titled measures of other
REITs. Core FFO does not represent cash generated from operating activities and
should not be considered as an alternative to net income (loss) determined in
accordance with GAAP or to cash flow from operating activities determined in
accordance with GAAP. Core FFO is not indicative of cash available to fund
ongoing cash needs, including the ability to make cash distributions. In future
periods, we may also exclude other items from Core FFO that we believe may help
investors compare our results.

The following table presents a reconciliation of our net income, the most
directly comparable GAAP measure, to FFO, Modified FFO and Core FFO for the
periods presented (amounts in thousands):

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                                                   Three Months Ended June 30,                Six Months Ended June 30,
                                                     2022                 2021                 2022                 2021
                                                           (unaudited)                               (unaudited)
Net income                                     $       48,695          $  4,411          $       31,474          $  1,220
Noncontrolling interests in other partnerships            159                 -                     222                 -

Private perpetual preferred unit distributions (1,051) (1,051)

                 (2,101)           (2,101)
Real estate depreciation and amortization              56,571            43,480                 121,985            86,584
Gain on disposition of property                       (27,170)                -                 (27,170)                -
FFO attributable to common unitholders                 77,204            46,840                 124,410            85,703
Amortization of below-market ground leases              1,958             1,958                   3,916             3,916
Modified FFO attributable to common
unitholders                                            79,162            48,798                 128,326            89,619

Loss on early extinguishment of debt                        -                 -                       -               214

Core FFO attributable to common unitholders $ 79,162 $ 48,798 $ 128,326 $ 89,833


Weighted average Operating Partnership units
Basic                                                 270,078           277,893                 271,834           277,887
Diluted                                               270,085           278,436                 271,837           277,887



Factors That May Influence Future Results of Operations

Leasing


  Due to the relatively small number of leases that are signed in any particular
quarter, one or more larger leases may have a disproportionately positive or
negative impact on average rent, tenant improvement and leasing commission costs
for that period. As a result, we believe it is more appropriate when analyzing
trends in average rent and tenant improvement and leasing commission costs to
review activity over multiple quarters or years. Tenant improvement costs
include expenditures for general improvements occurring concurrently with, but
that are not directly related to, the cost of installing a new tenant. Leasing
commission costs are similarly subject to significant fluctuations depending
upon the length of leases being signed and the mix of tenants from quarter to
quarter.

  As of June 30, 2022, there were approximately 1.2 million rentable square feet
of space in our portfolio available to lease (excluding leases signed but not
yet commenced) representing 12.2% of the net rentable square footage of the
properties in our portfolio. In addition, leases representing 3.4% and 6.2% of
net rentable square footage of the properties in our portfolio will expire in
2022 and in 2023, respectively. These leases are expected to represent
approximately 4.0% and 7.2%, respectively, of our annualized rent for such
periods. Our revenues and results of operations can be impacted by expiring
leases that are not renewed or re-leased or that are renewed or re-leased at
base rental rates equal to, above or below the current average base rental
rates. Further, our revenues and results of operations can also be affected by
the costs we incur to re-lease available space, including payment of leasing
commissions, redevelopments and build-to-suit remodeling that may not be borne
by the tenant.

  Despite the challenge of the uncertain near-term environment, we continue to
believe that as we have largely completed the redevelopment and repositioning of
our properties we will, over the long-term, experience increased occupancy
levels and rental revenues. Over the short-term, as we renovate and reposition
our properties, including aggregating smaller spaces to offer large blocks of
space, we may experience lower occupancy levels as a result of having to
relocate tenants to alternative space and the strategic expiration of existing
leases. We believe that despite the short-term lower occupancy levels we may
experience, we will continue to obtain better quality tenants, whom have higher
likelihood for growth within the portfolio, following the redevelopment and
repositioning of our properties.

Observatory Operations


For the three months ended June 30, 2022, the observatory hosted 573,000
visitors, compared to 162,000 visitors for the same period in 2021. Our return
of attendance to pre-COVID-19 levels is closely tied to national and
international travel trends and these remain adversely impacted by developments
around the COVID-19 pandemic.

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  Observatory revenue for the three months ended June 30, 2022 was $27.4
million, compared to $8.4 million for the three months ended June 30, 2021.
Observatory revenues and admissions are dependent upon the following: (i) the
number of tourists (domestic and international) who come to New York City and
visit the observatory, as well as any related tourism trends; (ii) the prices
per admission that can be charged; (iii) seasonal trends affecting the number of
visitors to the observatory; (iv) competition, in particular from other new and
existing observatories; and (v) weather trends.

Critical Accounting Estimates


  Refer to our Annual Report on Form 10-K for the year ended December 31, 2021
for a discussion of our critical accounting estimates. There were no material
changes to our critical accounting estimates disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2021.
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