EMPIRE STATE BUILDING ASSOCIATES L.L.C. - FORM 10-Q

EMPIRE STATE BUILDING ASSOCIATES L.L.C. - FORM 10-Q - May 13, 2013

Attached files

Attached files

EMPIRE STATE BUILDING ASSOCIATES L.L.C. Reports

file	filename
EXCEL - IDEA: XBRL DOCUMENT - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	Financial_Report.xls
EX-32.1 - EX-32.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex321.htm
EX-31.2 - EX-31.2 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex312.htm
EX-32.2 - EX-32.2 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex322.htm
EX-10.1 - EX-10.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex101.htm
EX-10.2 - EX-10.2 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex102.htm
EX-31.1 - EX-31.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex311.htm
EX-24.1 - EX-24.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C.	d516775dex241.htm

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the quarterly period ended March 31, 2013

¨	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 0-827

EMPIRE STATE BUILDING ASSOCIATES L.L.C.

(Exact name of Registrant as specified in its charter)

A New York Limited Liability Company

13-6084254

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Grand Central Place

60 East 42nd Street

New York, New York 10165

(Address of principal executive offices)

(212) 687-8700

(Registrant’s telephone number, including area code)

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

None

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

$33,000,000 of Participations in LLC Member Interests

Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No ¨.

Indicate by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x.

Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

Empire State Building Associates L.L.C.

(A Limited Liability Company)

Condensed Consolidated Balance Sheets


	March 31, 2013			December 31, 2012
	(Unaudited)
Assets
Real Estate:
Building:
Empire State Building, 350 Fifth Avenue, New York, N.Y.	$	38,933,801		$	38,933,801
Less: Accumulated depreciation		(10,940,398	)		(10,690,833	)

		27,993,403			28,242,968

Building improvements		49,761,834			45,641,988
Less: Accumulated depreciation		(2,070,577	)		(1,731,973	)

		47,691,257			43,910,015

Building improvements in progress		20,807,639			19,184,883

Tenant Improvements		54,774,960			43,703,979
Less: Accumulated depreciation		(8,812,839	)		(6,985,055	)

		45,962,121			36,718,924

Land		21,550,588			21,550,588

Total real estate, net		164,005,008			149,607,378
Cash and cash equivalents		57,129,505			4,359,664
Restricted cash		821,555			708,794
Due from Supervisor, a related party		324,111			324,111
Additional rent due from Sublessee, a related party		—			24,199,368
Other receivables		7,131			491,572
Due from Sublessee, a related party		8,857,023			15,174,264
Deferred costs		12,942,774			12,403,174
Other assets		8,720			61,042
Leasing costs, less accumulated amortization of $2,288,259 in 2013 and $1,928,113 in 2012		20,153,658			20,001,542
Mortgage financing costs, less accumulated amortization of $5,634,419 in 2013 and $4,375,168 in 2012		7,848,748			7,369,210

Total assets	$	272,098,233		$	234,700,119

Empire State Building Associates L.L.C.

(A Limited Liability Company)

Condensed Consolidated Balance Sheets


	March 31, 2013			December 31, 2012
	(Unaudited)
Liabilities and members’ equity (deficiency)
Liabilities:
Mortgage payable	$	269,000,000		$	219,000,000
Accrued mortgage interest		798,852			686,092
Due to Sublessee, a related party		9,950,347			3,146,689
Accrued supervisory fees, to a related party		—			846,000
Accrued expenses		26,859			26,859
Due to Supervisor, a related party		3,037,824			2,193,548

Total liabilities		282,813,882			225,899,188
Commitments and contingencies		—			—
Members’ equity (deficiency) (at March 31, 2013 and December 31, 2012, there were 3,300 units (at $10,000 per unit) of participation units outstanding)		(10,715,649	)		8,800,931

Total liabilities and members’ equity (deficiency)	$	272,098,233		$	234,700,119

See notes to condensed consolidated financial statements.

Empire State Building Associates L.L.C.

(A Limited Liability Company)

Condensed Consolidated Statements of Operations


	For the Three Months Ended March 31,
	2013			2012
	(Unaudited)			(Unaudited)
Revenue:
Rent income, from a related party	$	2,845,357		$	2,291,479
Interest and other income		571			526

Total revenue		2,845,928			2,292,005

Expenses:
Interest on mortgage		3,040,964			1,827,679
Supervisory services, to a related party		205,326			202,681
Depreciation of building and tenant improvements		2,415,953			1,549,170
Amortization of leasing costs		360,146			268,442
Formation transaction expenses		760,802			122,133
Professional fees, including amounts paid to a related party		1,296,137			221,526
Other		56,847			17,347

Total expenses		8,136,175			4,208,978

Net loss	$	(5,290,247	)	$	(1,916,973	)

Loss per $10,000 participation unit, based on 3,300 participation units outstanding during the period	$	(1,603.11	)	$	(580.90	)

Distributions per $10,000 participation unit consisted of the following:
Income	$	—		$	—
Return of capital		4,311.01			5,550.10

Total distributions	$	4,311.01		$	5,550.10

See notes to condensed consolidated financial statements.

Empire State Building Associates L.L.C.

(A Limited Liability Company)

Condensed Consolidated Statements of Members’ Equity (Deficiency)


	For the Three Months Ended March 31, 2013			For the Year Ended December 31, 2012
	(Unaudited)
Members’ equity (deficiency)
January 1, 2013	$	8,800,931
January 1, 2012				$	19,447,874
Add net income (loss):
January 1, 2013 through March 31, 2013		(5,290,247	)
January 1, 2012 through December 31, 2012					10,585,390

		3,510,684			30,033,264

Less distributions:
January 1, 2013 through March 31, 2013		972,333
January 1, 2012 through December 31, 2012					3,889,333
Additional distribution March 8, 2013		13,254,000
Additional distribution March 8, 2012					17,343,000

Total distributions		14,226,333			21,232,333

Members’ equity (deficiency) at the end of the period	$	(10,715,649	)	$	8,800,931

See notes to condensed consolidated financial statements.

Empire State Building Associates L.L.C.

(A Limited Liability Company)

Condensed Consolidated Statements of Cash Flows


	For the Three Months Ended March 31, 2013			For the Three Months Ended March 31, 2012
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(5,290,247	)	$	(1,916,973	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of building and tenant improvements		2,415,953			1,549,170
Amortization of mortgage financing costs		1,259,251			617,121
Amortization of leasing costs		360,146			268,442
Changes in operating assets and liabilities:
Restricted cash		(112,761	)		(95,018	)
Other receivables		484,441			84,894
Other assets		52,322			—
Overage rent due from/to Sublessee, a related party		24,199,368			28,780,449
Due from/to Sublessee		34,623			(6,904,702	)
Leasing costs paid		(512,262	)		(398,896	)
Accrued mortgage interest		112,760			9,875
Due to Supervisor, a related party		838,794			(135,568	)
Accrued supervisory fees, to a related party		(846,000	)		(1,107,000	)
Accrued expenses		—			(59,081	)

Net cash provided by operating activities		22,996,388			20,692,713

Cash flows from investing activities:
Purchase of building and tenant improvements		(3,727,307	)		(7,168,908	)

Net cash used in investing activities		(3,727,307	)		(7,168,908	)

Cash flows from financing activities:
Proceeds from mortgage payable		50,000,000			—
Deferred costs		(534,118	)		(1,549,486	)
Financing costs		(1,738,789	)		—
Distributions to Participants		(14,226,333	)		(18,315,333	)

Net cash provided by (used in) financing activities		33,500,760			(19,864,819	)

Net increase in cash and cash equivalents		52,769,841			(6,341,014	)
Cash and cash equivalents, beginning of period		4,359,664			23,236,067

Cash and cash equivalents, end of period	$	57,129,505		$	16,895,053

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,668,953		$	1,200,683

Non-cash investing and financing activities:
Purchase of building and tenant improvements and improvements in progress included in Due to Sublessee, a related party	$	9,950,347		$	13,455,495
Deferred costs included in Due to Supervisor, a related party	$	1,404,930		$	580,854

See notes to condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note A Interim Period Reporting

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Empire State Building Associates L.L.C. (“Registrant”) reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Registrant as of March 31, 2013, its results of operations and cash flows for the three months ended March 31, 2013 and 2012. The condensed consolidated financial statements include the accounts of Registrant and its wholly-owned limited liability company, Empire State Land Associates L.L.C. All intercompany accounts and transactions have been eliminated in consolidation. Information included in the condensed balance sheet as of December 31, 2012 has been derived from the audited balance sheet included in Registrant’s Form 10-K for the year ended December 31, 2012 (the “10-K”) previously filed with the Securities and Exchange Commission (the “SEC”). Pursuant to rules and regulations of the SEC, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these consolidated financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and the other information contained in the 10-K. The consolidated results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for any interim period or the full year.

Note B Organization

Registrant was originally organized on July 11, 1961 as a general partnership. On October 1, 2001, Registrant converted from a general partnership to a limited liability company under New York law and is now known as Empire State Building Associates L.L.C. The conversion did not change any aspect of the assets and operations of Registrant other than to protect its investors from any future liability to a third party.

Registrant’s members (“Members”) are Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner, Jr. (collectively, the “Agents”), each of whom also acts as an agent for holders of participations (“Participations”) in their respective member interest in Registrant (the “Participants”).

Note C Purchase of Fee Title to The Empire State Building and Land Thereunder, Mortgage Debt, and Related Depreciation and Amortization

Through April 16, 2002, Registrant owned the tenant’s interest in a master operating leasehold of the building known as the Empire State Building (the “Building”), located at 350 Fifth Avenue, New York, New York. On April 17, 2002, Registrant acquired, through a wholly-owned limited liability company (Empire State Land Associates L.L.C.) the fee title to the Building, and the land thereunder (the “Land”) (together, the “Real Estate” or “Property”), at a price of $57,500,000, and obtained a $60,500,000 first mortgage with Capital One Bank to finance the acquisition and certain related costs.

The Real Estate is carried in the Consolidated Financial Statements at its historical cost of $60,484,389, consisting of $57,500,000 for the purchase price paid to the seller, $752,022 for acquisition costs, and $2,232,367 representing the unamortized balance of the cost of the Master Lease on the date the Real Estate was acquired. The cost of the Land was estimated to be 35.63% of the total cost of the Real Estate, and the Building 64.37%. Under the terms of the contract of sale, the deed contains language to avoid the merger of the fee estate and the leasehold, although on a Consolidated Financial Statement basis Registrant incurred no leasehold rent expense after acquiring the Real Estate.

On July 26, 2011, Registrant entered into a three-year term loan (the “Secured Term Loan”) with institutional lenders, including HSBC Bank USA, National Association as agent and HSBC Bank USA, National Association and DekaBank Deutsche Girozentrale as lead arrangers. The Secured Term Loan is secured by a mortgage on the Property. The Secured Term Loan was amended by the First Amendment to Loan Agreement, Ratification of Loan Documents and Omnibus Amendment dated as of November 2, 2011 to provide for additional commitments from Capital One, National Association and Bank of America, N.A. so that, collectively, the maximum amount of the loan was increased to $300,000,000. The Secured Term Loan was further amended on November 23, 2011 clarifying certain terms upon which the Property is permitted to be transferred into a consolidated entity without accelerating the Secured Term Loan. The Secured Term Loan was further amended by the Third Amendment to Loan Agreement, Ratification of Loan Documents and Omnibus Amendment dated as of October 11, 2012 to provide for additional commitments from the lenders so that, collectively, the maximum amount of the loan was increased to $500,000,000. A condition to the lenders’ obligation to loan the additional amounts (in addition to the other conditions in the loan agreement) is that the loan-to-value ratio (as defied therein), based on an updated appraisal, does not then exceed 50%. Upon execution of the amendment, Registrant paid the lenders a facility fee of 0.75% of such increase ($1,500,000) and an arrangement fee of 0.25% of such increase ($500,000).

On July 26, 2011, the lenders provided Registrant with an advance of $159,000,000 (of which $92,000,000 refinanced existing indebtedness). An additional $30,000,000 was drawn on April 5, 2012 (in accordance with the Fourth Modification of Sublease dated April 5, 2012 by and between Registrant and Sublessee), an additional $30,000,000 was drawn on July 9, 2012 (in accordance with the Fifth Modification of Sublease dated July 9, 2012 by and between Registrant and Sublessee) and an additional $50,000,000 was drawn on February 26, 2013 (in accordance with the Sixth Modification of Sublease dated February 26, 2013 by and between Registrant and Sublessee) bringing the total amount advanced through March 31, 2013 to $269,000,000. Based on the terms of the Secured Term Loan (as amended) and subject to the conditions set forth in the Secured Term Loan (as amended), additional advances of up to $231,000,000 were available under the Secured Term Loan after the $50,000,000 drawn on February 26, 2013. Any further advances under the Secured Term Loan are subject to the consent of the Sublessee.

Pursuant to the terms of the Secured Term Loan agreement, Registrant and Sublessee entered into an amendment dated July 26, 2011 to the Sublease (“Third Modification of Sublease”) pursuant to which (i) Sublessee consented to the advance of up to $159,000,000 under the Secured Term Loan and (ii) in accordance with the terms of the existing Sublease agreement (which terminates on January 4, 2076) between Sublessee and Registrant, the Basic Rent payable by Sublessee was increased by an amount equal to the debt service on the portion of the borrowing from the Secured Term Loan associated with improvements (excluding any principal payable upon maturity). In connection with additional advances aggregating $110,000,000, Registrant and Sublessee entered into a Fourth Modification of Sublease, a Fifth Modification of Sublease and a Sixth Modification of Sublease dated as of April 5, 2012, July 9, 2012 and February 26, 2013, respectively, under which the basic rent payable by Sublessee was further increased by an amount equal to the debt service on the aggregate additional advance of $110,000,000. The original Basic Rent payable by Sublessee is more than sufficient to pay the debt service on the portion of the borrowing associated with purchasing the fee position in 2002. The Sublessee and Empire State Realty Observatory TRS, LLC (formerly known as ESB Observatory LLC), a subsidiary of Sublessee, also entered into subordination agreements with the agent on behalf of the lenders pursuant to which the Sublease and the lease of the observatory were subordinated to the mortgage securing the Secured Term Loan. As a result, the Sublease and the observatory lease can be terminated in connection with a foreclosure by Secured Term Loan lenders.

Subject to the terms and conditions of the Secured Term Loan agreement, the outstanding principal amount of the Secured Term Loan shall bear interest at a rate equal to 2.5% per annum above 30-day LIBOR, unless such rate is not available, in which event the Secured Term Loan would bear interest at 2.5% per annum in excess of (i) HSBC’s prime rate or (ii) the BBA LIBOR Daily Floating Rate. The aggregate rate in accordance with the foregoing was 2.7% at March 31, 2013. In connection with this loan, Registrant issued promissory notes, a mortgage encumbering the Property in favor of the agent for the lenders, and other customary security and other loan documents. The maturity date of this loan is July 26, 2014, which Registrant may extend to July 26, 2015 and thereafter to July 26, 2016, in each case upon payment of an extension fee of 0.25% of the total availability under the Secured Term Loan agreement at the time of such extension. Such extensions are subject to customary conditions, including the satisfaction of certain loan-to-value and debt yield ratios and the absence of an event of default.

The initial advance was used to pay and discharge the then existing secured mortgage loans relating to the Property and to fund operations and working capital requirements related to the Property (including for improvements), including reimbursements to Sublessee for expenditures relating to improvements previously incurred by Sublessee, and certain other general entity purposes permitted by the Secured Term Loan including costs of the financing. Subsequent advances were or will be used for the foregoing purposes except for the discharge of existing secured mortgage loans which had been discharged from proceeds of the initial advance.

Payment obligations relating to the Secured Term Loan may be accelerated upon the occurrence of an event of default under the Secured Term Loan agreement. Events of default under the Secured Term Loan agreement include, subject in some cases to specified cure periods: payment defaults; failure by Registrant to pay taxes; failure to keep certain insurance policies in effect; breaches of representations and covenants contained in the mortgage; defaults in the observance or performance of covenants; inaccuracy of representations and warranties in any material respect; bankruptcy and insolvency related defaults; and the entry of one or more final judgments for the payment of more than $1,000,000 that are not satisfied within 30 days.

The Secured Term Loan agreement contains affirmative and negative covenants customary for financings of this type. Negative covenants in the Secured Term Loan agreement limit Registrant’s ability, subject to certain exceptions, to transfer all or substantially all of its property; incur indebtedness and liens; dissolve, liquidate or enter into mergers or similar transactions; change its line of business; cancel debt; enter into transactions with affiliates; rezone its property; sell its assets; make certain distributions to investors; and change its organizational documents. The Registrant must also maintain a debt yield as specified in the Secured Term Loan agreement.

Registrant as both the fee owner and the ground lessor of the Empire State Building is mortgagor and each of its estates is therefore mortgaged. Sublessee and the observatory tenant agreed to subordinate their respective leasehold interest to the mortgage. Accordingly, in the event of a foreclosure, their leasehold estates could be terminated.

The estimated fair value of Registrant’s Secured Term Loan debt based on available market information is approximately $269,000,000 as of March 31, 2013. The fair value of borrowings is estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made by Registrant.

Restricted cash at March 31, 2013 and December 31, 2012 represents funds in an account held at HSBC Bank pursuant to the terms of the Secured Term Loan, to be used for Registrant’s monthly loan interest obligation.

The Building and Building improvements are being depreciated on the straight-line basis over their estimated useful lives of 39 years. Tenant improvements are being depreciated and leasing commissions are being amortized over the remaining lease term or useful life, whichever is shorter. Mortgage financing costs relating to the Secured Term Loan, totaling $13,483,167, are being amortized ratably over the life of the loan. As the prior first and second mortgages relating to these loans were repaid on July 26, 2011, the remaining unamortized balance of applicable financing costs were written-off. The unamortized loan costs and the prepayment penalty on early repayment of such mortgages were included in interest expense.

Note D Sublease

Registrant does not operate the Building. It subleases the Building to Empire State Building Company L.L.C. (“Sublessee”) pursuant to a net operating sublease (the “Sublease”) which included an initial term which expired on January 4, 1992. The Sublease provided four separate options for Sublessee to renew the term, in each case for an additional 21 years, on the terms of the original Sublease. Such renewals have been exercised by Sublessee (a) on January 30, 1989, for the first renewal period from January 5, 1992 through January 4, 2013 and (b) as of February 11, 2010, for the remaining three renewal periods from January 5, 2013 through January 4, 2076 (the last two such renewals being exercised by Sublessee with Registrant’s consent for early exercise).

Sublessee is required to pay annual basic rent (“Basic Rent”) of $6,018,750 from January 1, 1992 through January 4, 2013 and $5,895,625 from January 5, 2013 through the expiration of all renewal terms. Sublessee is also required to pay Registrant overage rent of 50% of Sublessee’s net operating profit, as defined in the Sublease, in excess of $1,000,000 for each lease year ending December 31 (“Overage Rent”). In addition to the above, Sublessee is required to pay for all operating and maintenance expenses, real estate taxes, and necessary repairs and replacements, and keep the Property adequately insured against fire and accident.

In accordance with the second sublease modification dated February 25, 2009, Basic Rent described above had been increased to cover debt service on the $31,500,000 second mortgage that closed on February 25, 2009. In accordance with the third sublease modification dated July 26, 2011, Basic Rent was increased to cover debt service relating to the Secured Term Loan, refinancing that prepaid the first and second mortgages aggregating $92,000,000 (Note C), to the extent the Secured Term Loan debt exceeds the previous first mortgage of $60,500,000. In accordance with the fourth, fifth and sixth modifications of the Sublease, Basic Rent was further increased to cover debt service on additional advances aggregating $110,000,000 ($30,000,000 on each of April 5, 2012 and July 9, 2012 and $50,000,000 on February 26, 2013). Basic Rent increased by $553,878 for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012, representing an increase in debt service of $584,659, which consists only of interest on the balance of the Secured Term Loan in excess of $60,500,000, and a decrease in Basic Rent of $30,781.

Basic Rent will be increased to cover debt service on any refinancing of such debt so long as the aggregate amount refinanced does not exceed the then existing amount of debt plus refinancing costs.

Due to Sublessee, a related party of $9,950,347 and $3,146,689 at March 31, 2013 and December 31, 2012, respectively, represents the payable to Sublessee for building and tenant improvements and leasing costs. Due from Sublessee, a related party, of $8,857,023 and $15,174,264 at March 31, 2013 and December 31, 2012, respectively, represents funds held in escrow by Sublessee for tenant improvements and includes Basic Rent due from the Sublessee.

Overage Rent and any interest and dividends accumulated thereon are distributed annually after deduction for any additional payment described in Note E below, other expenses and additions to general contingencies management judges to be suitable under the circumstances. Overage Rent income is recognized when earned from the Sublessee, at the close of the year ending December 31. Such income is not determinable until Sublessee, pursuant to the Sublease, provides Registrant with a certified operating report from a certified public accountant on the Sublessee’s operation of the Real Estate. The Sublease requires that this report be delivered to Registrant annually within 60 days after the end of each such fiscal year. Accordingly, all Overage Rent income and the additional payment to Supervisor are reflected in the fourth quarter of each year. The Sublease does not provide for the Sublessee to render interim reports to Registrant.

On March 8, 2013, registrant made an additional distribution to participants of $13,254,000 ($4,016 for each $10,000 Participation), representing Overage Rent of $24,199,368 for the year ended December 31, 2012, less (i ) $10,094,843, mainly for fees relating to the proposed consolidation and IPO and for the increase in the supervisory fee to Supervisor, accounting fees, set-aside for a portion of interest expense and general contingencies, (ii) annual New York State filing fees of $4,525, and (iii) the Additional Payment (as defined in Note E below) to supervisor of $846,000 (representing the Additional Payment of $905,417 less $59,417 previously paid). See Notes C and D to the condensed consolidated financial statements herein.

Sublessee is a New York limited liability company in which Peter L. Malkin is a member and entities for Peter L. Malkin’s family members are beneficial owners.

The Supervisor of the Registrant is in the process of soliciting consents of Participants in the Registrant and other public limited liability companies supervised by the Supervisor to a proposed consolidation of Registrant, other public and private entities supervised by the Supervisor and the Supervisor and certain affiliated management companies into Empire State Realty Trust, Inc. (collectively the “Consolidation”) and the initial public offering of Class A common stock of Empire State Realty Trust, Inc. (the “IPO”) pursuant to a prospectus/consent solicitation statement included in a registration statement on Form S-4 declared effective by the SEC. In the proposed transaction, (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies would be contributed to the operating partnership of Empire State Realty Trust, Inc., a newly organized real estate investment trust.

Consents are required from Participants in the Registrant and such other public limited liability companies for them to contribute their interests in the Consolidation. Consents have been obtained from participants in the private entities and the Supervisor and certain affiliated companies and affiliates of the Supervisor for them to make such contributions. The consideration to be paid to the contributing companies and entities in the Consolidation will be allocated in accordance with exchange values determined based on appraisals by an independent third party.

Note E Supervisory Services

Supervisory and other services are provided to Registrant by its supervisor, Malkin Holdings LLC (“Malkin Holdings” or “Supervisor”), a related party. Beneficial interests in Registrant are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

Registrant pays Supervisor for supervisory services and disbursements. The basic fee (the “Basic Payment”) had been payable at the rate of $100,000 per annum, payable $8,333 per month, since inception in 1961. The Basic Payment was increased, with the approval of the Agents, by an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the Basic Payment to $725,000 per annum effective July 1, 2010 to be adjusted annually for any subsequent increase in the Consumer Price Index. The Basic Payment was adjusted to $761,888 effective July 1, 2012. The Basic Payment is payable (i) not less than $8,333 per month and (ii) the balance out of available reserves from Overage Rent. If Overage Rent is insufficient to pay such balance, any deficiency shall be payable in the next year in which Overage Rent is sufficient. The Agents also approved payment by Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services related to maintenance of Registrant’s books and records. Such expenses were previously paid by Supervisor.

Registrant pays Supervisor an additional payment (“Additional Payment”) equal to 6% of distributions to Participants in Registrant in excess of 9% per annum on their remaining cash investment in Registrant (which remaining cash investment at March 31, 2013 was equal to the Participants’ original cash investment of $33,000,000). For tax purposes, any Additional Payment is recognized as a profits interest and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distributions.

The basic supervisory services provided to Registrant by Supervisor include, but are not limited to, maintaining all of its entity and Participant records, performing physical inspections of the Building, providing or coordinating certain counsel services to Registrant, reviewing insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from Sublessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, active review of financial statements submitted to Registrant by Sublessee and financial statements audited by and tax information prepared by Registrant’s independent registered public accounting firm, and distribution of related materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the SEC and applicable state authorities.

Registrant pays Supervisor for other services at hourly rates. Pursuant to the fee arrangements described herein, Registrant incurred supervisory fees of $190,472 and $187,827 for the three month periods ended March 31, 2013 and 2012, respectively, plus additional fees totaling $14,854 in each period representing 6% of the annual rent and debt service reductions from which Registrant has benefited. No remuneration was paid during the three-month periods ended March 31, 2013 and 2012 by Registrant to any of the Members. Accrued supervisory fees were $0 and $846,000 at March 31, 2013 and December 31, 2012, respectively. Included in professional fees are amounts to a related party of $314,821 and $195,980 for the three months ended March 31, 2013 and 2012, respectively.

Distributions are paid from a cash account held by Supervisor. That account is included in the Condensed Consolidated Balance Sheets as “Due from Supervisor, a related party.” The funds of $324,111 at March 31, 2013 and December 31, 2012 were paid to Participants on April 1, 2013 and January 1, 2013, respectively.

Reference is made to Note D above for a description of the terms of the Sublease between Registrant and Sublessee. The respective interests of the Members in Registrant and in Sublessee arise solely from ownership of their respective Participations in Registrant and, in the case of Peter L. Malkin, his family entities’ ownership of member interests in Sublessee. The Members as such receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or members in Sublessee. However, all of the Members hold senior positions at Supervisor (which supervises Registrant and Sublessee) and, by reason of their positions at Supervisor, may receive income attributable to supervisory or other remuneration paid by Registrant to Supervisor and Sublessee.

Note F Subsequent Events

Except as disclosed in “Part II, Other Information, Item 1(b),” there have not been any events that have occurred that would require adjustments to or disclosure in this Quarterly Report on Form 10-Q.

Note G Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Financial Accounting Standards Board guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).

The Registrant uses the following methods and assumptions in estimating fair value disclosures for financial instruments.

Cash and cash equivalents, restricted cash, due from Supervisor, a related party, additional rent due from sublessee, a related party other receivables, due from Sublessee, a related party, accrued mortgage interest, due to Sublessee, a related party, accrued supervisory fees, a related party, accrued expenses, due to Supervisor, a related part,. The carrying amount of cash and cash equivalents, restricted cash, due from Supervisor, a related party, additional rent due from sublessee, a related party other receivables, due from Sublessee, a related party, accrued mortgage interest, due to Sublessee, a related party, accrued supervisory fees, a related party, accrued expenses, and due to Supervisor, a related party reported in the Registrant’s Condensed Consolidated Balance Sheets approximate fair value due to the short term maturity of these instruments.

Mortgages payable: The fair value of borrowings, as disclosed in Note D, is estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made to the Registrant.

The methodologies used for valuing financial instruments have been categorized into three broad levels as follows:

Level 1—Quoted prices in active markets for identical instruments.

Level 2—Valuations based principally on other observable market parameters, including:

•

Quoted prices in active markets for similar instruments;

•

Quoted prices in less active or inactive markets for identical or similar instruments;

•

Other observable inputs (such as risk free interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates); and

•

Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3—Valuations based significantly on unobservable inputs.

•

Valuations based on third-party indications (broker quotes or counterparty quotes) which were, in turn, based significantly on unobservable inputs or were otherwise not supportable as Level 2 valuations.

•

Valuations based on internal models with significant unobservable inputs.

These levels form a hierarchy. The Registrant follows this hierarchy for its financial instruments measured at fair value on a recurring and nonrecurring basis and other required fair value disclosures. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies as discussed in Fair Value Measurements. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Registrant could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The mortgages payable had an estimated fair value based on discounted cash flow models, based on Level 3 inputs, of approximately $269,000,000 compared to the book value of the related debt of $269,000,000 at March 31, 2013.

Disclosure about fair value of financial instruments is based on pertinent information available to the Registrant as of March 31, 2013. Although the Registrant is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Note H Offering Costs and Formation Transaction Expenses

In connection with the Consolidation and IPO the Registrant has incurred or will incur incremental accounting fees, legal fees and other professional fees. Such costs will be deferred and recorded as a reduction of proceeds of the Consolidation and IPO, or expensed if the Consolidation and IPO is not consummated. Certain costs associated with the Consolidation and IPO not directly attributable to the solicitation of consents and the IPO, but rather related to structuring the formation transaction, are expensed as incurred.

Through March 31, 2013, Registrant has incurred capitalized external offering costs of $12,942,774, of which the Registrant has incurred $539,600 and $1,043,600 for the three months ended March 31, 2013 and 2012, respectively. A total of $1,404,930 and $1,399,448 of these costs are in Due to Supervisor at March 31, 2013 and December 31, 2012, respectively. Additional offering costs for work done by employees of the Supervisor of $314,821 and $195,980 for the three months ended March 31, 2013 and 2012, respectively, were incurred and advanced by the Supervisor and have been or will be reimbursed to the Supervisor by the Registrant.

Correction of an Immaterial Error in the Financial Statements

The Registrant’s prior period financial results have been adjusted to reflect an immaterial correction which has no impact to the net change in cash reported on the statement of cash flows. During fiscal year 2012, the Registrant determined that certain costs related to the structuring of the consolidation transaction that were previously included in deferred offering costs should have been expensed in the periods incurred. The correction impacted the 2012, 2011 and 2010 periods and had accumulated to an amount of $1,939,427 as of March 31, 2012. Adhering to applicable guidance for accounting changes and error corrections, the Registrant concluded that the error was not material to any of the prior period financial statements. The correction resulted in immaterial changes to deferred costs and formation transaction expenses for the years ended December 31, 2011 and 2010, and for interim periods within those years and within 2012.

The Registrant applied the guidance for accounting changes and error corrections and revised the prior period financial statements presented. The following table presents the effect this correction had on our prior period reported financial statements. Additionally, financial information included elsewhere in this Form 10-Q that is impacted by the adjustment have been revised, as applicable.


	For the three months ended March 31, 2012
	As reported			Adjustment			As adjusted
Formation transaction expenses	$	—		$	122,133		$	122,133
Net loss		(1,794,840	)		(122,133	)		(1,916,973	)
Net cash provided by operating activities		20,814,846			(122,133	)		20,692,713
Net cash (used in) financing activities		(19,986,952	)		122,133			(19,864,819	)
Net change in cash and cash equivalents		(6,341,014	)		—			(6,341,014	)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Readers of this discussion are advised that the discussion should be read in conjunction with the condensed Consolidated Financial Statements of Registrant (including related notes thereto) appearing elsewhere in this Form 10-Q. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Registrant’s current expectations regarding future results of operations, economic performance, financial condition and achievements of Registrant, and do not relate strictly to historical or current facts. Registrant has tried, wherever possible, to identify these forward-looking statements by using words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or words of similar meaning.

Although Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those anticipated in the forward looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in Registrant’s real estate market, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements.

Financial Condition and Results of Operations

At the time of its organization, Registrant acquired the Master Lease of the Property subject to the Sublease. Basic Rent received by Registrant was used to pay annual rent due under the Master Lease and the Basic Payment for supervisory services to Supervisor; the balance of such Basic Rent was distributed to the Participants. Basic Rent received by Registrant is used to pay the Basic Payment and a portion of debt service on the Secured Term Loan; the balance of such Basic Rent is distributed to the Participants. Commencing July 26, 2011, Basic Rent was increased to cover debt service on the refinanced loan balance to the extent the Secured Term Loan debt exceeds $60,500,000 which was the balance of the prior first mortgage fully paid on July 26, 2011.

Overage Rent and any interest and dividends accumulated thereon less any expenses and additions to general contingencies and other reserves are distributed to the Participants after the Additional Payment to Supervisor. See Note D to the condensed Consolidated Financial Statements herein. Pursuant to the Sublease, Sublessee has assumed responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant is not required to maintain liquid assets to defray any operating expenses of the Property.

During the three-month period ended March 31, 2013, Registrant made regular monthly distributions of $98.22 for each $10,000 Participation ($1,178.59 per annum for each $10,000 Participation). There are no restrictions on Registrant’s present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Overage Rent, depends solely on Sublessee’s ability to make payments of Basic Rent and Overage Rent to Registrant. Registrant expects to make monthly distributions in the future so long as it receives the payments provided for under the Sublease.

On March 8, 2013, registrant made an additional distribution to participants of $13,254,000 ($4,016 for each $10,000 Participation), representing Overage Rent of $24,199,368 for the year ended December 31, 2012, less (i ) $10,094,843, mainly for fees relating to the proposed Consolidation and IPO and for the increase in the supervisory fee to Supervisor, accounting fees, interest expense and general contingencies, (ii) annual New York State filing fees of $4,525, and (iii) the Additional Payment to supervisor of $846,000 (representing the Additional Payment of $905,417 less $59,417 previously paid). See Notes C and D to the condensed consolidated financial statements herein.

Registrant’s results of operations are affected primarily by the amount of rent payable to it under the Sublease. The amount of Overage Rent payable to Registrant is affected by the New York City economy and real estate rental and tourist attraction markets, which are difficult for management to forecast, and by the amount of unfinanced improvements undertaken at the Property. The following summarizes, with respect to the current period and the corresponding period of the previous year, the material factors regarding Registrant’s results of operations for such periods:

Total revenues increased by $553,923 for the three-month period ended March 31, 2013 as compared with the corresponding period of the prior year primarily attributable to a net increase in Basic Rent income from the Sublessee of $553,878, consisting of an increase of $584,659 to cover the increase in debt service on the increased loan balance and a decrease in Basic Rent of $30,781 for the three-month period ended March 31, 2013 as compared with the corresponding period of the prior year.

Total expenses increased by $3,927,197 for the three-month period ended March 31, 2013 as compared with the corresponding period of the prior year attributable to: (i) a increase in interest on the mortgage of $1,213,285, consisting of $571,155 for an increase in interest expense and an increase of $642,130 for amortization of refinancing costs in connection with additional advances on the Secured Term Loan aggregating $110,000,000 since March 31, 2012, consisting of $30,000,000 on April 12, 2012, $30,000,000 on July 12, 2012 and $50,000,000 on February 26, 2013, (ii) an increase in depreciation of building and tenant improvements of $866,783 attributable to depreciation on improvements placed in service in 2012 and the first three months of 2013, (iii) an increase of $2,645 in supervisory fees, consisting of a cost-of-living increase, (iv) an increase in amortization of leasing costs of $91,704 attributable to amortization on leasing costs capitalized in 2012 and the first three months of 2013, (v) an increase in professional fees of $1,074,611 including (a) a net increase in fees to Malkin Holdings of $118,841 and legal and accounting fees for services rendered in connection with the Consolidation and IPO, (b) an increase in consulting fees for the design and implementation of a new accounting system, and (c) matters pertaining to the class action litigation (as described in Legal Proceedings), (vi) an increase in miscellaneous expenses of $39,500, mainly attributable to allocated officers and directors insurance which commenced in the second quarter of 2012, and (vii) an increase in formation transaction expenses of $638,669. The increase in formation transaction expenses is mainly attributable to the solicitation of consents from Participants in the Registrant and other public limited liability companies supervised by the Supervisor to the proposed Consolidation and IPO.

Liquidity, Capital Resources and Distributions

Registrant’s liquidity has decreased as of March 31, 2013, as compared with December 31, 2012 primarily attributable to (i) costs incurred in connection with the Consolidation and IPO, and (ii) commitments to the Sublessee for building improvements and tenanting costs. Adverse developments in economic, credit and investment markets over the last several years impaired general liquidity (although some improvement in such markets has arisen recently) and the developments may negatively impact Registrant and/or tenants at the Building. Any such impact should be ameliorated by the fact that (a) each of Registrant and its Sublessee has very low debt in relation to asset value, (b) the Building’s rental revenue is derived from a substantial number of tenants in diverse businesses with lease termination dates spread over numerous years.

Pursuant to the terms of the Secured Term Loan agreement, Registrant and Sublessee entered into an amendment dated July 26, 2011 to the Sublease (“Third Modification of Sublease”) pursuant to which (i) Sublessee consented to the advance of up to $159,000,000 under the Secured Term Loan and (ii) in accordance with the terms of the existing Sublease agreement (which terminates on January 4, 2076) between Sublessee and Registrant, the Basic Rent payable by Sublessee was increased by an amount equal to the debt service on the portion of the borrowing from the Secured Term Loan associated with improvements (excluding any principal payable upon maturity). In connection with additional advances aggregating $110,000,000, Registrant and Sublessee entered into a Fourth Modification of Sublease, a Fifth Modification of Sublease and a Sixth Modification of Sublease dated as of April 5, 2012, July 9, 2012 and February 26, 2013, respectively, under which the Basic Rent payable by Sublessee was further increased by an amount equal to the debt service on the aggregate additional advance of $110,000,000. The original Basic Rent payable by Sublessee is more than sufficient to pay the debt service on the portion of the borrowing associated with purchasing the fee position in 2002. The Sublessee and Empire State Realty Observatory TRS, LLC (formerly known as ESB Observatory LLC), a subsidiary of Sublessee, also entered into subordination agreements with the agent on behalf of the lenders pursuant to which the Sublease and the lease of the observatory were subordinated to the mortgage securing the Secured Term Loan. As a result, the Sublease and the observatory lease can be terminated in connection with a foreclosure by Secured Term Loan lenders.

Registrant anticipates that funds for short-term working capital requirements for the Real Estate will be provided by cash on hand, rental payments received from the Sublessee (which entity is required under the Sublease to make payments of Basic Rent and, subject to cash flow, Overage Rent) and from additional advances of up to $231,000,000 available under the Secured Term Loan after the $50,000,000 drawn on February 26, 2013. Long-term sources of working capital will be provided by a combination of rental payments from the Sublessee and borrowings.

Sublessee is to maintain the Building as a high-class office building as required by the terms of the Sublease.

In connection with the July 2011 refinancing of the mortgage on the fee position of the Empire State Building with the Secured Term Loan, it is now intended that the Registrant generally to the extent of available financing will incur all capital improvement and tenanting costs commencing with expenditures incurred January 1, 2011 and thereafter. Registrant has incurred fixed asset additions of $16,813,583 and leasing costs of $512,262 during the three months ended March 31, 2013 and reimbursed Sublessee $4,239,569, resulting in a payable to Sublessee of $9,950,347 (including unpaid building improvements and tenant improvements) at March 31, 2013.

Since the Supervisor gained day-to-day management of the Empire State Building in August 2006, a total of approximately $180,300,000 has been invested through March 31, 2013 in connection with the restoration and renovation program at the Property. The Registrant currently estimates that between $150,000,000 and $190,000,000 of additional capital is needed to complete this renovation program, which the Registrant expects to be substantially complete by 2016. These estimates are based on the Supervisor’s current budgets (which do not include tenant improvement and leasing commission costs) and are subject to change. The Registrant’s renovation program at the Property has taken substantial time to design and implement due to many factors, including the overall scale of the program, the market timing of re-leasing upgraded spaces to existing and prospective tenants, the Registrant’s desire to minimize existing tenant disruptions, and the need to obtain consents of investors to complete financings.

Due to Sublessee at March 31, 2013 represents the payable to Sublessee for purchased building improvements and tenanting costs. The costs of the Program will be financed through a combination of borrowings and operating cash flow.

The Sublessee is advancing costs of the Program and is reimbursed by Registrant from available financing. The Program (1) grants the ownership of the improvements to Registrant to the extent of its reimbursements to Sublessee and (2) allows for the increased mortgage charges to be paid by Registrant from an equivalent increase in the Basic Rent paid by the Sublessee to Registrant. Since any Overage Rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Registrant and the Sublessee share the costs of the Program equally, assuming Overage Rent continues to be earned.

The Supervisor of the Registrant is in the process of soliciting consents of Participants in the Registrant and other public limited liability companies supervised by the Supervisor to the proposed Consolidation pursuant to a prospectus/consent solicitation statement included in a registration statement on Form S-4 declared effective by the SEC. In the proposed transaction, (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies would be contributed to the operating partnership of Empire State Realty Trust, Inc.

Inflation

Registrant believes that there has been no material change in the impact of inflation on its operations since the filing of its report on Form 10-K for the year ended December 31, 2012. Inflationary trends in the economy do not directly affect Registrant’s operations since Registrant does not actively engage in the operation of the Property. Inflation may impact the operations of Sublessee. Sublessee is required to pay Basic Rent, regardless of the results of its operations. Inflation and other operating factors affect the amount of Overage Rent payable by Sublessee, which is based on Sublessee’s net operating profit.

Security Ownership

As of March 31, 2013, the Members of Registrant owned of record and beneficially an aggregate of $41,042 of Participations in Registrant, representing less than 0.124% of the currently outstanding Participations therein totaling $33,000,000.

As of March 31, 2013, certain of the Members of Registrant held additional Participations as follows:

Entities for the benefit of members of Peter L. Malkin’s family owned of record and beneficially $1,064,583 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations, except that related trusts are required to complete scheduled payments to Peter L. Malkin.

Peter L. Malkin owned of record as trustee or co-trustee, but not beneficially, $171,667 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations.

Anthony E. Malkin owned of record as trustee or co-trustee, but not beneficially, $79,584 of Participations. Anthony E. Malkin disclaims any beneficial ownership of such Participations.

Trusts for the benefit of members of Anthony E. Malkin’s family owned of record and beneficially $50,000 of Participations. Anthony E. Malkin disclaims any beneficial ownership of such Participations.

Members of Thomas N. Keltner, Jr.’s family owned of record and beneficially $6,667 of Participations.

Item 4.

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. The Supervisor after evaluating the effectiveness of Registrant’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2013, the end of the period covered by this report, has concluded that as of that date that Registrant’s disclosure controls and procedures were effective and designed to ensure that material information relating to Registrant would be made known to it by others within those entities on a timely basis.

(b) Changes in internal controls over financial reporting. There were no changes in Registrant’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, Registrant’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

The Property of Registrant was the subject of the following material litigation:

(a) Malkin Holdings and Peter L. Malkin, a member in Registrant, were engaged in a proceeding with Sublessee’s former managing agent, Helmsley-Spear, Inc. commenced in 1997, concerning the management, leasing and supervision of the Property that is subject to the Sublease to Sublessee. In this connection, certain costs for legal and professional fees and other expenses were paid by Malkin Holdings and Mr. Malkin. Malkin Holdings and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. On behalf of himself and Malkin Holdings, Mr. Malkin has requested, or intends to request, such voluntary agreement from all investors, which may include renewing such request in the future for any investor who previously received such request and failed to confirm agreement at that time. Because any related payment has been, or will be, made only by consenting investors, Registrant has not provided for the expense and related liability with respect to such costs in these financial statements.

An August 29, 2006 settlement agreement terminated Helmsley-Spear, Inc. as managing and leasing agent at the Property, subject to the supervision of Malkin Holdings LLC, as its supervisor, while engaging third party leasing agents, CB Richard Ellis for retail space since August 30, 2006 and Newmark Knight Frank for non-retail space since October 21, 2009.

(b) In March 2012, five putative class actions, or the Class Actions, were filed in New York State Supreme Court, New York County by Participants in Empire State Building Associates L.L.C. (“ESBA”) and several other entities supervised by the Supervisor (on March 1, 2012, March 7, 2012, March 12, 2012, March 14, 2012 and March 19, 2012). The plaintiffs assert claims against Malkin Holdings LLC, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, the Estate of Leona M. Helmsley, Empire State Realty OP, L.P. and Empire State Realty Trust, Inc. for breach of fiduciary duty, unjust enrichment, and/or aiding and abetting breach of fiduciary duty. They allege, among other things, that the terms of the Consolidation and the process by which it was structured (including the valuation that was employed) are unfair to the participants in the existing entities, the Consolidation provides excessive benefits to Malkin Holdings and its affiliates and the then-draft prospectus/consent solicitation filed with the SEC failed to make adequate disclosure to permit a fully informed decision about the proposed Consolidation. The complaints seek money damages and injunctive relief preventing the proposed Consolidation. The actions were consolidated and co-lead plaintiffs’ counsel were appointed by the New York State Supreme Court by order dated June 26, 2012. Furthermore, an underlying premise of the Class Actions, as noted in discussions among plaintiffs’ counsel and defendants’ counsel, was that the Consolidation had been structured in such a manner that would cause participants in ESBA, 60 East 42nd St. Associates L.L.C. and 250 West 57th St. Associates L.L.C. (the “subject LLCs”) immediately to incur substantial tax liabilities.

The parties entered into a Stipulation of Settlement dated September 28, 2012, resolving the Class Actions. The Stipulation of Settlement recites that the Consolidation was approved by overwhelming consent of the participants in the private entities. The Stipulation of Settlement states that counsel for the plaintiff class satisfied themselves that they have received adequate access to relevant information, including the independent valuer’s valuation process and methodology, that the disclosures in the Registration Statement on Form S-4, as amended, are appropriate, that the transaction presents potential benefits, including the opportunity for liquidity and capital appreciation, that merit the participants’ serious consideration and that each of named class representatives intends to support the transaction as modified. The Stipulation of Settlement further states that counsel for the plaintiff class are satisfied that the claims regarding tax implications, enhanced disclosures, appraisals and exchange values of the properties that would be consolidated into Empire State Realty Trust, Inc., and the interests of the participants in the subject LLCs and the private entities, have been addressed adequately, and they have concluded that the settlement pursuant to the Stipulation of Settlement and opportunity to consider the proposed transaction on the basis of revised consent solicitations are fair, reasonable, adequate and in the best interests of the plaintiff class.

The defendants in the Stipulation of Settlement denied that they committed any violation of law or breached any of their duties and did not admit that they had any liability to the plaintiffs.

The terms of the settlement include, among other things (i) a payment of $55 million, with a minimum of 80% in cash and maximum of 20% in freely-tradable shares of common stock and/or freely-tradable operating partnership units (all of which will be paid by affiliates of Malkin Holdings (provided that none of Malkin Holdings and its affiliates that would become a direct or indirect subsidiary of Empire State Realty Trust, Inc. in the Consolidation will have any liability for such payment) and the Estate of Leona M. Helmsley and certain participants in the private entities who agree to contribute) to be distributed, after reimbursement of plaintiffs’ counsel’s court-approved expenses and payment of plaintiffs’ counsel’s court-approved attorneys’ fees and, in the case of shares of common stock and/or operating partnership units, after the termination of specified lock-up periods, to participants in the subject LLCs and the private entities pursuant to a plan of allocation to be prepared by counsel for plaintiffs; (ii) defendants’ agreement that (a) the IPO will be on the basis of a firm commitment underwriting; (b) if, during the solicitation period, any of the three subject LLC’s percentage of total exchange value is lower than what is stated in the final prospectus/consent solicitation by 10% or more, such decrease will be promptly disclosed by defendants to participants in the subject LLCs; and (c) unless total gross proceeds of $600,000,000 are raised in the IPO, defendants will not proceed with the transaction without further approval of the subject LLCs; and (iii) defendants’ agreement to make additional disclosures in the prospectus/consent solicitation regarding certain matters (which are included therein). Defendants have also acknowledged the work of plaintiffs and their counsel was a material factor in defendants’ implementation of the change in the Consolidation that, as originally proposed, would have required the exchange of participation interests for Class A common stock, which are taxable on receipt, and that now permits participants instead to elect to receive operating partnership units and Class B common stock, which permit tax deferral. Participants in the subject LLCs and private entities will not be required to bear any portion of the settlement payment. The payment in settlement of the Class Actions will be made by the Estate of Leona M. Helmsley and affiliates of Malkin Holdings (provided that none of Malkin Holdings and its affiliates that would become a direct or indirect subsidiary of Empire State Realty Trust, Inc. in the Consolidation will have any liability for such payment) and certain participants in the private entities who agree to contribute. The Registrant will not bear any of the settlement payment.

The settlement further provides for the certification of a class of participants in the three subject LLCs and all of the private entities, other than defendants and other related persons and entities, and a release of any claims of the members of the class against defendants and related persons and entities, as well as underwriters and other advisors. The release in the settlement excludes certain claims, including but not limited to, claims arising from or related to any supplement to the Registration Statement on Form S-4 that is declared effective to which the plaintiffs’ counsel objects in writing, which objection will not be unreasonably made or delayed, so long as plaintiffs’ counsel has had adequate opportunity to review such supplement. The settlement is subject to court approval. It is not effective until such court approval is final, including the resolution of any appeal. Defendants continue to deny any wrongdoing or liability in connection with the allegations in the Class Actions.

On January 18, 2013, the parties jointly moved for preliminary approval of such settlement, for permission to send notice of the settlement to the class, and for the scheduling of a final settlement hearing (collectively, “preliminary approval”).

On January 28, 2013, six participants in ESBA filed an objection to preliminary approval, and cross-moved to intervene in the action and for permission to file a separate complaint on behalf of ESBA participants. On February 21, 2013 the court denied the cross motion of such objecting participants, and the court denied permission for such objecting participants to file a separate complaint as part of the class action, other than permission to join the case by separate counsel solely for the purpose of supporting the allegation of the objecting participants that the buyout will deprive non-consenting participants in ESBA of “fair value” in violation of the New York Limited Liability Company Law. The court rejected the objecting participants’ assertion that preliminary approval be denied and granted preliminary approval of the settlement.

Pursuant to a decision issued on April 30, 2013, the court rejected such allegation and ruled in the Supervisor’s favor, holding that the buyout provisions of the participation agreements with respect to ESBA are legally binding and enforceable and that participants do not have the rights that they claimed under the New York Limited Liability Company Law.

On May 2, 2013, the court held a hearing regarding final approval of the class action settlement. At the conclusion of the hearing, the judge stated that it was his intention to approve such settlement and that he would issue a written decision approving the settlement. Of the approximately 4,500 participants in all the subject LLCs and private entities included in the consolidation, 12 opted out of the settlement. Those who opted out will not receive any share of the settlement proceeds, but can pursue separate claims for monetary damages. They are bound by the settlement agreement regarding injunctive, declaratory and other equitable relief, so they cannot seek an injunction to halt the consolidation or IPO. The settlement will not become final until resolution of any appeal.

The participants who challenged the buyout provision moved before the appellate court for a stay of all proceedings relating to the settlement, including such a stay as immediate interim relief. On May 1, 2013, their request for immediate interim relief was denied. On May 13, 2013, the Supervisor filed its brief in opposition to the motion for a stay.

The participants who challenged the buyout provision have appealed. Their motion for the stay is still pending and, if they pursue it, will be submitted to the appellate court for decision. Any decision on their appeal itself could take many months. The Supervisor cannot predict the timing or outcome of an appeal process or any related relief, if such appeal were successful. If the court’s decision were reversed by the appellate court, there is a risk that it could have a material adverse effect on Empire State Realty Trust, Inc.

Although there can be no assurance, the Supervisor believes that the trial court’s decision was correct, that it will be upheld on appeal, and that the appellate court will not grant the motion to stay the proceedings relating to the class action settlement.

Item 4.

Mine Safety Disclosures.

Not applicable.

EXHIBIT INDEX


Document Number

10.1		Sixth Modification of Sublease dated February 26, 2013, between Empire State Building Company L.L.C. and Registrant.

10.2		Third Amendment to Assignment of Leases and Rents dated February 26, 2013, between the Registrant, Empire Land Associates L.L.C. and HSBC Bank, USA, National Association, as Agent for itself in its individual capacity as a lender and other co-lenders that may exist from time to time.

24.1		Power of Attorney dated April 16, 2013 between the Members in Registrant and Mark Labell which is being filed as Exhibit 24.1 to Registrant’s 10-Q for the period ended March 31, 2013.

31.1		Certification of Andrew Prentice, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Andrew Prentice, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definitions Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to Powers of Attorney, dated April 16, 2013 (the “Power”) and as supervisor of the accounting functions.

EMPIRE STATE BUILDING ASSOCIATES L.L.C.

(Registrant)

By:

/s/ Mark Labell

Mark Labell as Senior Vice President, Finance of Malkin Holdings LLC,

Supervisor of Empire State Building Associates L.L.C.* and as Attorney-in-Fact on behalf of:

Peter L. Malkin, Member

Anthony E. Malkin, Member

Thomas N. Keltner, Jr., Member

Date: May 13, 2013

Registrant’s organizational documents do not provide for a Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. Accordingly, this Form 10-Q is being signed by a senior executive and a senior member of the financial/accounting staff of Registrant’s Supervisor in such capacities.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company