Empire State Realty Trust, Inc. - FORM 8-K - EX-99.2

Attached files

file	filename
8-K - 8-K - Empire State Realty Trust, Inc.	d766852d8k.htm
EX-99.1 - EX-99.1 - Empire State Realty Trust, Inc.	d766852dex991.htm

Exhibit 99.2

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EMPIRE STATE REALTY TRUST

Supplemental Operating and Financial Data

For the Quarter Ended June 30, 2014

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Second Quarter 2014


Table of Contents	Page
*Summary*
Company Profile		3
Financial Highlights		4

*Selected Property Data*
Property Summary		5
Property Detail		7
Tenant Lease Expirations		8
Largest Tenants and Portfolio Tenant Diversification by Industry		11
Observatory Metrics		12

*Financial information*
Condensed Consolidated Balance Sheets		13
Condensed Consolidated Statements of Income		14
Core FFO, FFO, FAD and EBITDA		15
Net Operating Income		16
Consolidated Debt Analysis
Debt Summary		17
Debt Detail		18
Debt Maturities		19
Supplemental Definitions		20

Forward-looking Statements

This supplemental package includes “forward looking statements”. Forward-looking statements may be identified by the use of words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or phrases. 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: the factors included in (i) the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, including those set forth under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties” and (ii) in future periodic reports filed by the Company under the Securities and Exchange Act of 1934, as amended. While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this press release, except as required by applicable law. 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 the Annual Report on Form 10-K for the year ended December 31, 2013, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-looking statements).

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Second Quarter 2014

COMPANY PROFILE

Empire State Realty Trust, Inc. is a leading real estate investment trust (REIT) that owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building, the world’s most famous office building.


*BOARD OF DIRECTORS*

Anthony E. Malkin	William H. Berkman	Alice M. Connell
Chairman, Chief Executive Officer and President	Director, Chair of Compensation Committee	Director

Thomas J. DeRosa	Steven J. Gilbert	S. Michael Giliberto
Director, Chair of Audit Committee	Director, Lead Director	Director

Lawrence E. Golub
Director, Chair of Nominating/Corporate
Governance Committee

*EXECUTIVE MANAGEMENT*

Anthony E. Malkin	Thomas P. Durels	David A. Karp
Chairman, Chief Executive Officer and President	Executive Vice President and Chief of Property Operations and Leasing	Executive Vice President, Chief Financial Officer and Treasurer

Thomas N. Keltner, Jr.
Executive Vice President,
General Counsel and Secretary

*COMPANY INFORMATION*

Corporate Headquarters	Investor Relations	New York Stock Exchange
One Grand Central Place 60 East 42nd Street New York, NY 10165 www.empirestaterealtytrust.com (212) 687-8700	David A. Karp IR@empirestaterealtytrust.com	Trading Symbol: ESRT

Page 3

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Second Quarter 2014

Financial Highlights

(unaudited and dollars in thousands, except per share amounts)


	Three Months Ended						Period from October 7, 2013 through December 31, 2013
	June 30, 2014			March 31, 2014			Period from October 7, 2013 through December 31, 2013
Selected Items:
Revenue	$	155,168		$	140,306		$	127,583
EBITDA ⁽¹⁾	$	72,031		$	53,514		$	48,405
Cash net operating income ⁽¹⁾	$	66,994		$	49,029		$	54,000
Net income	$	25,281		$	11,231		$	193,431
Core funds from operations (“Core FFO”) ⁽¹⁾	$	54,982		$	41,283		$	41,395
Core funds available for distribution (“Core FAD”) ⁽¹⁾	$	39,236		$	25,839		$	21,819
Core FFO per share—diluted	$	0.22		$	0.17		$	0.17
Core FAD per share—diluted	$	0.16		$	0.11		$	0.09
Dividends declared and paid per share	$	0.085		$	0.085		$	0.0795
Portfolio statistics:
Number of properties		18			18			18
Total rentable square footage		8,371,044			8,362,786			8,350,871
Percent occupied ⁽²⁾		88.6	%		87.2	%		86.1	%
Observatory metrics:
Number of visitors		1,222,000			664,000			980,000
Change in visitors year over year		3.8	%		-6.3	%		8.5	%
Observatory revenues	$	30,389		$	17,301		$	25,389
Change in revenues year over year		11.4	%		3.6	%		10.4	%
Ratios:
Consolidated Debt to Total Market Capitalization ⁽³⁾		23	%		24	%		24	%
Consolidated Debt to EBITDA (annualized)		4.3x			5.6x			5.9x
Interest Coverage Ratio		4.9x			3.9x			3.9x
Core FFO Payout Ratio ⁽⁴⁾		38	%		51	%		47	%
Core FAD Payout Ratio ⁽⁵⁾		53	%		78	%		89	%
Class A Common Stock Price and Dividends:
Class A common stock price at quarter end	$	16.50		$	15.11		$	15.30
Average closing price	$	16.07		$	14.88		$	14.64
Dividends per share—annualized	$	0.34		$	0.34		$	0.34
Dividend yield ⁽⁶⁾		2.1	%		2.3	%		2.2	%
Common stock and operating partnership units outstanding		245,964,043			245,894,321			245,477,006

Notes:

(1)	Represents non-GAAP financial measures. For a discussion on what these metrics represent and why the Company presents them, see page 20 and for a reconciliation of these metrics to net income, see pages 15 and 16.

(2)	Based on leases signed and commenced as of end of period.

(3)	Market capitalization represents the sum of (i) Company’s common stock per share price as of June 30, 2014 multiplied by the total outstanding number of shares of common stock and operating partnership units as of June 30, 2014 and (ii) our outstanding indebtedness as of June 30, 2014.

(4)	Represents the amount of Core FFO paid out in distributions.

(5)	Represents the amount of Core FAD paid out in distributions.

(6)	Based on the closing price per share of Class A common stock on June 30, 2014.

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Second Quarter 2014

Property Summary

(unaudited and dollars in thousands, except per square foot amounts)


	June 30, 2014
	Total Portfolio			Manhattan Office Portfolio⁽¹⁾			Greater New York Office Portfolio			Standalone Retail Portfolio			Observatory
Number of properties		18			7			5			6
Square feet		8,371,044			6,323,271			1,843,598			204,175
Occupancy ⁽²⁾		88.6	%		87.8	%		90.2	%		100.0	%
Revenue	$	140,477		$	86,693		$	18,991		$	4,404		$	30,389
Operating expenses		(60,902	)		(44,527	)		(7,902	)		(1,353	)		(7,120	)

Net operating income		79,575			42,166			11,089			3,051			23,269
Straight-line rent		(10,979	)		(10,540	)		(192	)		(247	)		—
Above/below-market lease amortization		(2,028	)		(2,028	)		—			—			—
Acquired ground lease amortization		426			426			—			—			—

Cash net operating income	$	66,994		$	30,024		$	10,897		$	2,804		$	23,269

Leasing activity
Total leases executed		69			58			11			—
Total square footage executed		211,259			172,212			39,047			—
Average rent psf—leases executed	$	49.05		$	51.54		$	37.53		$	—
Previously escalated rents psf	$	41.15		$	41.03		$	41.30		$	—
Percentage of new rent over previously escalated rents		19.2	%		25.6	%		-9.1	%		—
Leasing commission costs per square foot	$	15.20		$	16.52		$	9.41		$	—
Tenant improvement costs per square foot		45.65			51.29			20.78			—

Total LC and TI per square foot ⁽³⁾	$	60.85		$	67.81		$	30.19		$	—


	March 31, 2014
	Total Portfolio			Manhattan Office Portfolio ⁽¹⁾			Greater New York Office Portfolio			Standalone Retail Portfolio			Observatory
Number of properties		18			7			5			6
Square feet		8,362,786			6,318,516			1,840,095			204,175
Occupancy ⁽²⁾		87.2	%		86.2	%		89.5	%		98.9	%
Revenue	$	124,732		$	84,946		$	17,985		$	4,500		$	17,301
Operating expenses		(61,665	)		(44,438	)		(8,854	)		(1,392	)		(6,981	)

Net operating income		63,067			40,508			9,131			3,108			10,320
Straight-line rent		(12,580	)		(12,748	)		250			(82	)		—
Above/below-market lease amortization		(1,884	)		(1,884	)		—			—			—
Acquired ground lease amortization		426			426			—			—			—

Cash net operating income	$	49,029		$	26,302		$	9,381		$	3,026		$	10,320

Leasing activity
Total leases executed		50			46			4			—
Total square footage executed		191,319			172,716			18,603			—
Average rent psf—leases executed	$	48.03		$	49.42		$	35.11		$	—
Previously escalated rents psf	$	41.47		$	40.43		$	51.14		$	—
Percentage of new rent over previously escalated rents		15.8	%		22.3	%		-31.3	%		—
Leasing commission costs per square foot	$	14.75		$	15.07		$	11.71		$	—
Tenant improvement costs per square foot		53.36			54.25			46.11			—

Total LC and TI per square foot ⁽³⁾	$	68.11		$	69.32		$	57.82		$	—

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Second Quarter 2014

Property Summary

(unaudited and dollars in thousands, except per square foot amounts)


	Period from October 7, 2013 through December 31, 2013
	Total Portfolio			Manhattan Office Portfolio ⁽¹⁾			Greater New York Office Portfolio			Standalone Retail Portfolio			Observatory
Number of properties		18			7			5			6
Square feet		8,350,871			6,306,601			1,840,095			204,175
Occupancy ⁽²⁾		86.1	%		84.7	%		89.7	%		97.7	%
Revenue	$	121,768		$	77,584		$	16,731		$	3,718		$	23,735
Operating expenses		(57,331	)		(42,628	)		(7,838	)		(1,178	)		(5,687	)

Net operating income		64,437			34,956			8,893			2,540			18,048
Straight-line rent		(8,932	)		(8,807	)		(94	)		(31	)		—
Above/below-market lease amortization		(1,903	)		(1,903	)		—			—			—
Acquired ground lease amortization		398			398			—			—			—

Cash net operating income	$	54,000		$	24,644		$	8,799		$	2,509		$	18,048

Leasing activity
Total leases executed		55			47			6			2
Total square footage executed		414,806			362,844			45,705			6,257
Average rent psf—leases executed	$	43.82		$	42.92		$	35.57		$	156.15
Previously escalated rents psf	$	41.29		$	39.70		$	41.06		$	135.18
Percentage of new rent over previously escalated rents		6.1	%		8.1	%		-13.4	%		15.5	%
Leasing commission costs per square foot	$	19.29		$	19.64		$	9.26		$	72.15
Tenant improvement costs per square foot		38.26			39.12			36.68			—

Total LC and TI per square foot ⁽³⁾	$	57.55		$	58.76		$	45.94		$	72.15


Capital Expenditures	June 30, 2014		March 31, 2014
Tenant improvements—first generation	$	16,827	$	5,095
Tenant improvements—second generation		3,250		1,038
Leasing commissions—first generation		1,207		1,045
Leasing commissions—second generation		1,229		880
Building improvements—first generation ⁽⁴⁾		11,721		11,241
Building improvements—second generation		344		195

Total	$	34,578	$	19,494

Notes:

(1)	Includes 415,339 rentable square feet of retail space in the Company’s seven Manhattan office properties.

(2)	Based on leases signed and commenced as of period end.

(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)	The Company estimates that between $80 million and $120 million of capital is needed beyond June 30, 2014 to complete substantially the renovation and repositioning program of its Manhattan office properties.

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Second Quarter 2014

Property Detail

(unaudited)


Property Name	Location or Sub-Market	Rentable Square Feet ⁽¹⁾		Percent Occupied ⁽²⁾			Annualized Rent ⁽³⁾		Annualized Rent per Occupied Square Foot ⁽⁴⁾		Number of Leases ⁽⁵⁾
*Manhattan Office Properties—Office*
The Empire State Building ⁽⁶⁾	Penn Station -Times Sq. South		2,692,099		85.2	%	$	103,762,372	$	45.21		192
One Grand Central Place	Grand Central		1,182,806		85.1	%		49,356,752		49.01		281
250 West 57th Street	Columbus Circle -West Side		474,240		85.4	%		18,666,112		46.07		152
501 Seventh Avenue	Penn Station -Times Sq. South		454,909		95.1	%		17,272,977		39.92		34
1359 Broadway	Penn Station -Times Sq. South		443,689		96.1	%		18,611,237		43.64		33
1350 Broadway ⁽⁸⁾	Penn Station -Times Sq. South		368,035		88.9	%		15,154,156		46.32		70
1333 Broadway	Penn Station -Times Sq. South		292,154		98.7	%		12,466,090		43.24		9

*Manhattan Office Properties—Office*			5,907,932		87.7	%		235,289,696		45.41		771
*Manhattan Office Properties—Retail*
The Empire State Building ⁽⁷⁾	Penn Station -Times Sq. South		142,586		93.1	%		15,277,157		115.06		17
One Grand Central Place	Grand Central		68,332		85.4	%		6,434,624		110.22		16
250 West 57th Street	Columbus Circle -West Side		49,534		84.7	%		5,106,246		121.74		7
501 Seventh Avenue	Penn Station -Times Sq. South		35,502		100.0	%		1,877,812		52.89		10
1359 Broadway	Penn Station -Times Sq. South		25,264		35.8	%		1,196,101		132.31		5
1350 Broadway ⁽⁸⁾	Penn Station -Times Sq. South		31,455		100.0	%		6,066,660		192.87		6
1333 Broadway	Penn Station -Times Sq. South		62,666		95.6	%		7,078,993		118.12		4

*Manhattan Office Properties—Retail*			415,339		88.9	%		43,037,593		116.62		65

*Sub-Total/Weighted Average*
*Manhattan Office Properties—Office and Retail*			6,323,271		87.8	%		278,327,289		50.14		836

*Greater New York Metropolitan Area Office Properties*
First Stamford Place ⁽⁹⁾	Stamford, CT		784,896		90.7	%		29,937,193		42.05		52
Metro Center	Stamford, CT		279,384		94.0	%		14,568,649		55.46		28
383 Main Street	Norwalk, CT		260,249		81.8	%		6,839,711		32.13		19
500 Mamaroneck Avenue	Harrison, NY		289,772		94.8	%		7,980,449		29.05		34
10 Bank Street	White Plains, NY		229,297		87.8	%		7,100,849		35.28		28

*Sub-Total/Weighted Average Greater New York*
*Metropolitan Area Office Properties*			1,843,598		90.2	%		66,426,851		39.93		161

*Standalone Retail Properties*
10 Union Square	Union Square		58,005		100.0	%		5,901,160		101.74		14
1542 Third Avenue	Upper East Side		56,250		100.0	%		3,190,851		56.73		4
1010 Third Avenue	Upper East Side		44,662		100.0	%		3,227,743		72.27		2
77 West 55th Street	Midtown		24,102		100.0	%		2,789,728		115.75		3
69-97 Main Street	Westport, CT		16,826		100.0	%		2,076,024		123.38		5
103-107 Main Street	Westport, CT		4,330		100.0	%		581,040		134.19		1

*Sub-Total/Weighted Average Standalone*
*Retail Properties*			204,175		100.0	%		17,766,546		87.02		29

*Portfolio Total*			8,371,044		88.6	%	$	362,520,686	$	48.87		1,026

*Total/Weighted Average Office Properties*			7,751,530		88.3	%	$	301,716,547	$	44.08		932
*Total/Weighted Average Retail Properties*			619,514		92.5	%		60,804,139		106.08		94

*Portfolio Total*			8,371,044		88.6	%	$	362,520,686	$	48.87		1,026

*Option Properties—Office ⁽¹⁰⁾*
112 West 34th Street	Penn Station -Times Sq. South		650,769		74.7	%	$	21,422,322	$	44.07		37
1400 Broadway	Penn Station -Times Sq. South		880,131		93.1	%		32,795,023		40.02		67

*Option Properties—Office*			1,530,900		85.3	%	$	54,217,345	$	41.53		104

*Option Properties—Retail⁽¹⁰⁾*
112 West 34th Street	Penn Station -Times Sq. South		92,455		97.5	%	$	3,606,261	$	40.03		2
1400 Broadway	Penn Station -Times Sq. South		19,815		70.8	%		1,601,152		114.20		9

*Option Properties—Retail*			112,270		92.8	%	$	5,207,413	$	49.99		11

Notes:

(1)	Excludes (i) 164,630 square feet of space across the Company’s portfolio attributable to building management use and tenant amenities and (ii) 69,757 square feet of space attributable to the Company’s observatory.

(2)	Based on leases signed and commenced as of June 30, 2014.

(3)	Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.

(4)	Represents annualized rent under leases commenced as of June 30, 2014 divided by occupied square feet.

(5)	Represents the number of leases at each property or on a portfolio basis. If a tenant has more than one lease, whether or not at the same property, but with different expirations, the number of leases is calculated equal to the number of leases with different expirations.

(6)	Includes 86,902 rentable square feet of space leased by the Company’s broadcasting tenants.

(7)	Includes 5,300 rentable square feet of space leased by Host Services of New York, a licensee of the Company’s observatory.

(8)	Denotes a ground leasehold interest in the property with a remaining term, including unilateral extension rights available to the Company, of approximately 36 years (expiring July 31, 2050).

(9)	First Stamford Place consists of three buildings.

(10)	The option properties were acquired by the Company on July 15, 2014.

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Second Quarter 2014

Tenant Lease Expirations

(unaudited)


*Total Lease Expirations*	Number of Leases Expiring ⁽¹⁾		Rentable Square Feet Expiring ⁽²⁾		Percent of Portfolio Rentable Square Feet Expiring			Annualized Rent ⁽³⁾		Percent of Portfolio Annualized Rent ⁽⁴⁾			Annualized Rent Per Rentable Square Foot
Available		—		866,582		10.4	%	$	—		0.0	%	$	—
Signed leases not commenced		17		85,834		1.0	%		—		0.0	%		—
2014		118		285,927		3.4	%		13,626,247		3.8	%		47.66
2015		238		709,851		8.5	%		33,465,664		9.2	%		47.14
2016		125		430,163		5.1	%		18,854,573		5.2	%		43.83
2017		119		459,551		5.5	%		23,034,393		6.4	%		50.12
2018		122		668,836		8.0	%		32,704,952		9.0	%		48.90
2019		65		532,657		6.4	%		23,417,166		6.5	%		43.96
2020		75		662,100		7.9	%		35,584,570		9.8	%		53.75
2021		44		478,086		5.7	%		24,420,137		6.7	%		51.08
2022		33		382,308		4.6	%		20,883,465		5.8	%		54.62
2023		30		468,759		5.6	%		22,508,991		6.2	%		48.02
2024		23		377,160		4.5	%		20,967,448		5.8	%		55.59
Thereafter		34		1,963,230		23.5	%		93,053,079		25.7	%		47.40

Total		1,043		8,371,044		100.0	%	$	362,520,686		100.0	%	$	48.87

Notes:

(1)	If a lease has two different expiration dates, it is considered to be two leases (for the purpose of lease count and square footage).

(2)	Excludes (i) 164,630 rentable square feet of space across the Company portfolio attributable to building management use and tenant amenities and (ii) 69,757 square feet of space attributable to the Company’s observatory.

(3)	Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.

(4)	Represents the percentage of annualized rent of the Company’s office and retail portfolio in the aggregate.

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Second Quarter 2014

Tenant Lease Expirations

(unaudited)


*Manhattan Office Properties ⁽¹⁾*	Number of Leases Expiring ⁽²⁾		Rentable Square Feet Expiring ⁽³⁾		Percent of Portfolio Rentable Square Feet Expiring			Annualized Rent ⁽⁴⁾		Percent of Portfolio Annualized Rent ⁽⁵⁾			Annualized Rent Per Rentable Square Foot
Available		—		673,120		11.4	%	$	—		0.0	%	$	—
Signed leases not commenced		12		52,935		0.9	%		—		0.0	%		—
2014		103		248,741		4.2	%		11,916,451		5.1	%		47.91
2015		205		594,347		10.1	%		26,717,578		11.4	%		44.95
2016		97		259,439		4.4	%		11,362,001		4.8	%		43.79
2017		89		269,873		4.6	%		13,271,776		5.6	%		49.18
2018		86		342,806		5.8	%		17,319,813		7.4	%		50.52
2019		44		266,480		4.5	%		11,772,352		5.0	%		44.18
2020		45		432,318		7.3	%		19,323,362		8.2	%		44.70
2021		31		329,709		5.6	%		14,753,292		6.3	%		44.75
2022		20		155,845		2.6	%		7,874,831		3.3	%		50.53
2023		21		309,515		5.2	%		13,971,756		5.9	%		45.14
2024		9		173,125		2.9	%		8,467,702		3.6	%		48.91
Thereafter		21		1,799,679		30.5	%		78,538,782		33.4	%		43.64

Total Manhattan office properties		783		5,907,932		100.0	%		235,289,696		100.0	%		45.41


*Greater New York Metropolitan Area Office Properties*
Available		—		147,153		8.0	%		—		0.0	%		—
Signed leases not commenced		5		32,899		1.8	%		—		0.0	%		—
2014		14		36,175		2.0	%		1,620,028		2.4	%		44.78
2015		19		82,525		4.5	%		3,310,609		5.0	%		40.12
2016		17		85,258		4.6	%		3,314,943		5.0	%		38.88
2017		23		142,858		7.7	%		5,728,941		8.6	%		40.10
2018		29		298,627		16.2	%		12,660,395		19.1	%		42.40
2019		15		239,230		13.0	%		8,761,111		13.2	%		36.62
2020		18		166,005		9.0	%		6,126,810		9.2	%		36.91
2021		7		118,495		6.4	%		5,094,343		7.7	%		42.99
2022		6		168,044		9.1	%		6,568,248		9.9	%		39.09
2023		5		114,106		6.2	%		4,875,104		7.3	%		42.72
2024		2		174,448		9.5	%		7,064,413		10.6	%		40.50
Thereafter		6		37,775		2.0	%		1,301,906		2.0	%		34.46

Total greater New York metropolitan area office properties		166		1,843,598		100.0	%		66,426,851		100.0	%		39.93


*Retail Properties*
Available		—		46,309		7.5	%		—		0.0	%		—
Signed leases not commenced		—		—		0.0	%		—		0.0	%		—
2014		1		1,011		0.2	%		89,768		0.1	%		88.79
2015		14		32,979		5.3	%		3,437,477		5.7	%		104.23
2016		11		85,466		13.8	%		4,177,629		6.9	%		48.88
2017		7		46,820		7.6	%		4,033,676		6.6	%		86.15
2018		7		27,403		4.4	%		2,724,744		4.5	%		99.43
2019		6		26,947		4.3	%		2,883,703		4.7	%		107.01
2020		12		63,777		10.3	%		10,134,398		16.7	%		158.90
2021		6		29,882		4.8	%		4,572,502		7.5	%		153.02
2022		7		58,419		9.4	%		6,440,386		10.6	%		110.24
2023		4		45,138		7.3	%		3,662,131		6.0	%		81.13
2024		12		29,587		4.8	%		5,435,333		8.9	%		183.71
Thereafter		7		125,776		20.3	%		13,212,392		21.7	%		105.05

Total retail properties		94		619,514		100.0	%		60,804,139		100.0	%		106.08

Total portfolio lease expirations		1,043		8,371,044		100.0	%	$	362,520,686		100.0	%	$	48.87

Notes:

(1)	Excludes (i) retail space in the Company’s Manhattan office properties and (ii) the Empire State Building broadcasting licenses and observatory operations.

(2)	If a lease has two different expiration dates, it is considered to be two leases (for the purpose of lease count and square footage).

(3)	Excludes (i) 164,630 rentable square feet of space across the Company portfolio attributable to building management use and tenant amenities and (ii) 69,757 square feet of space attributable to the Company’s observatory.

(4)	Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.

(5)	Represents the percentage of annualized rent of the Company’s office and retail portfolio in the aggregate.

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Second Quarter 2014

Tenant Lease Expirations

(unaudited)


*Empire State Building Office ⁽¹⁾*	Number of Leases Expiring ⁽²⁾		Rentable Square Feet Expiring		Percent of Portfolio Rentable Square Feet Expiring			Annualized Rent ⁽³⁾		Percent of Portfolio Annualized Rent ⁽⁴⁾			Annualized Rent Per Rentable Square Foot
Available		—		387,938		14.4	%	$	—		0.0	%	$	—
Signed leases not commenced		3		9,251		0.3	%		—		0.0	%		—
2014		26		99,742		3.7	%		4,556,975		4.4	%		45.69
2015		34		179,184		6.7	%		7,661,081		7.4	%		42.76
2016		15		74,723		2.8	%		3,366,085		3.2	%		45.05
2017		23		74,183		2.8	%		3,914,401		3.8	%		52.77
2018		23		70,229		2.6	%		3,478,316		3.4	%		49.53
2019		12		45,275		1.7	%		2,021,211		1.9	%		44.64
2020		17		229,951		8.5	%		10,372,783		10.0	%		45.11
2021		11		83,520		3.1	%		3,693,202		3.6	%		44.22
2022		9		39,584		1.5	%		2,031,068		2.0	%		51.31
2023		7		35,699		1.3	%		1,890,266		1.8	%		52.95
2024		6		136,612		5.1	%		6,523,999		6.3	%		47.76
Thereafter		9		1,226,208		45.5	%		54,252,985		52.3	%		44.24

Total Empire State Building office		195		2,692,099		100.0	%	$	103,762,372		100.0	%	$	45.21


*Option Properties—Office*
Available		—		182,330		11.9	%	$	—		0.0	%	$	—
Signed leases not commenced		2		43,046		2.8	%		—		0.0	%		—
2014		30		115,108		7.5	%		4,473,017		8.3	%		38.86
2015		21		133,744		8.7	%		4,703,132		8.7	%		35.17
2016		10		187,142		12.2	%		8,209,714		15.1	%		43.87
2017		15		199,331		13.0	%		8,783,024		16.2	%		44.06
2018		9		119,269		7.8	%		5,111,800		9.4	%		42.86
2019		6		64,990		4.2	%		2,851,317		5.3	%		43.87
2020		2		44,251		2.9	%		1,570,573		2.9	%		35.49
2021		1		18,747		1.2	%		669,517		1.2	%		35.71
2022		2		18,434		1.2	%		871,766		1.6	%		47.29
2023		2		50,792		3.3	%		2,412,376		4.4	%		47.50
2024		2		154,426		10.1	%		6,405,298		11.8	%		41.48
Thereafter		4		199,290		13.0	%		8,155,811		15.0	%		40.92

Total Option Properties office		106		1,530,900		100.0	%	$	54,217,345		100.0	%	$	41.53


*Option Properties—Retail*
Available		—		8,149		7.3	%	$	—		0.0	%	$	—
Signed leases not commenced		—		—		0.0	%		—		0.0	%		—
2014		1		1,420		1.3	%		266,706		5.1	%		187.82
2016		4		91,986		81.9	%		2,639,197		50.7	%		28.69
2021		1		1,060		0.9	%		82,620		1.6	%		77.94
2022		1		2,246		2.0	%		310,998		6.0	%		138.47
2023		3		6,278		5.6	%		1,776,041		34.1	%		282.90
2024		1		1,131		1.0	%		131,851		2.5	%		116.58

Total Option Properties Retail		11		112,270		100.0	%	$	5,207,413		100.0	%	$	49.99

Notes:

(1)	Excludes retail space, broadcasting licenses and observatory operations.

(2)	If a lease has two different expiration dates, it is considered to be two leases (for the purpose of lease count and square footage).

(3)	Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.

(4)	Represents the percentage of annualized rent of the Company’s office and retail portfolio in the aggregate.

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Second Quarter 2014

20 Largest Tenants and Portfolio Tenant Diversification by Industry

(unaudited)


20 Largest Tenants	Number of Leases		Number of Properties		Lease Expiration ⁽¹⁾	Weighted Average Remaining Lease Term⁽²⁾		Total Occupied Square Feet ⁽³⁾		Percent of Portfolio Rentable Square Feet ⁽⁴⁾			Annualized Rent ⁽⁵⁾		Percent of Portfolio Annualized Rent ⁽⁶⁾
1. Li & Fung		6		3	Oct. 2021-Oct. 2028		13.1 years		886,995		10.6	%	$	35,975,790		9.9	%
2. Coty, Inc.		1		1	Jan. 2030		15.6 years		311,242		3.6	%		14,573,848		4.0	%
3. PVH Corp.		1		1	Oct. 2028		14.3 years		223,616		2.7	%		8,945,831		2.6	%
4. Thomson Reuters		4		2	Apr. 2018-Apr. 2020		4.4 years		147,208		1.8	%		7,568,448		2.1	%
5. LinkedIn		1		1	Feb. 2026		11.7 years		158,261		1.9	%		7,425,142		2.0	%
6. Urban Outfitters		1		1	Sept. 2029		15.3 years		56,730		0.7	%		6,200,000		1.7	%
7. Legg Mason		1		1	Sept. 2024		10.3 years		138,868		1.7	%		6,129,370		1.7	%
8. Federal Deposit Insurance Corporation		1		1	Feb. 2020		5.6 years		121,879		1.4	%		5,886,967		1.6	%
9. Host Services of New York		1		1	May 2020		5.9 years		5,300		0.1	%		5,064,790		1.4	%
10. Duane Reade		2		2	Feb. 2021-May 2025		9.1 years		23,134		0.3	%		3,966,378		1.1	%
11. Odyssey Reinsurance		1		1	Sept. 2022		8.3 years		101,619		1.2	%		3,826,242		1.1	%
12. Shutterstock		1		1	Sept. 2024		10.3 years		82,331		1.0	%		3,658,715		1.0	%
13. Bank Of America		3		3	Apr. 2015-Feb. 2018		2.2 years		29,671		0.4	%		3,325,052		0.9	%
14. Reed Elsevier, Inc.		1		1	Nov. 2019		5.4 years		96,727		1.2	%		3,166,338		0.9	%
15. Human Rights Watch		1		1	Oct. 2026		12.3 years		65,660		0.7	%		3,040,840		0.8	%
16. Aetna Life Insurance Company		1		1	June 2018		3.9 years		51,621		0.6	%		2,962,988		0.8	%
17. Gerson Lehrman Group, Inc.		1		1	Oct. 2026		12.3 years		64,361		0.8	%		2,960,606		0.8	%
18. JPMorgan Chase Bank		2		2	Dec. 2021-Dec. 2027		13.0 years		28,391		0.3	%		2,682,329		0.7	%
19. Jefferies Group, Inc.		2		1	May 2021-Nov. 2022		7.6 years		44,930		0.5	%		2,675,429		0.7	%
20. Ethan Allen Retail, Inc.		1		1	July 2022		8.1 years		34,670		0.4	%		2,591,773		0.7	%

Total		33							2,673,214		31.9	%	$	132,626,875		36.5	%

Notes:

(1)

Expiration dates are per lease and do not assume exercise of renewal or extension options. Except for the Federal Deposit Insurance Corporation lease (February 1, 2015), none of these leases contain early termination options. For tenants with more than two leases, the lease expiration is shown as a range.

(2)	Represents the weighted average lease term, based on annualized rent.

(3)	Based on leases signed and commenced as of June 30, 2014.

(4)	Represents the percentage of rentable square feet of the Company’s office and retail portfolios in the aggregate.

(5)	Represents annualized base rent and current reimbursement for operating expenses and real estate taxes.

(6)	Represents the percentage of annualized rent of the Company’s office and retail portfolios in the aggregate.

Portfolio Tenant Diversification by Industry (based on annualized rent)

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Page 11

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Second Quarter 2014

Observatory Metrics

(unaudited and in thousands)


	Three Months Ended
Observatory NOI	June 30, 2014		March 31, 2014			December 31, 2013			September 30, 2013		June 30, 2013
Observatory revenue	$	30,389	$	17,301		$	25,389		$	32,356	$	27,304
Observatory expenses		7,120		6,981			6,193			6,482		6,109

NOI		23,269		10,320			19,196			25,874		21,195
Intercompany rent expense ⁽¹⁾		16,283		15,200			20,276			24,260		13,550

NOI after intercompany rent	$	6,986	$	(4,880	)	$	(1,080	)	$	1,614	$	7,645

Note:

(1)

The observatory pays a market-based rent payment comprised of fixed and percentage rent to the Empire State Building. We recognize intercompany percentage rent expense in the interim periods as it is probable that percentage rent will be incurred based upon management’s estimates. Prior to the consolidation and formation transactions, Empire State Building Company, LLC recorded percentage rent when incurred, which resulted in rent expense being recognized primarily in the third and fourth quarters. Intercompany rent is eliminated upon consolidation.

Annual Observatory Revenues 2009 to 2013

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Page 12

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Second Quarter 2014

Condensed Consolidated Balance Sheets

(unaudited and dollars in thousands)


	June 30, 2014			March 31, 2014			December 31, 2013
Assets
Commercial real estate properties, at cost:
Land	$	187,566		$	187,566		$	187,566
Development costs		6,861			6,459			6,459
Building and improvements		1,508,309			1,473,665			1,455,398

		1,702,736			1,667,690			1,649,423
Less: accumulated depreciation		(332,766	)		(315,256	)		(295,351	)

Commercial real estate properties, net		1,369,970			1,352,434			1,354,072
Cash and cash equivalents		41,791			44,703			60,743
Restricted cash		55,482			54,832			55,621
Tenant and other receivables, net		26,185			29,644			24,817
Deferred rent receivables, net		85,948			74,971			62,689
Prepaid expenses and other assets		39,658			23,535			35,407
Deferred costs, net		77,035			79,032			78,938
Acquired below-market ground lease, net		61,460			61,886			62,312
Acquired lease intangibles, net		227,617			237,900			249,983
Goodwill		491,479			491,479			491,479

Total assets	$	2,476,625		$	2,450,416		$	2,476,061

Liabilities and Equity
Mortgage notes payable	$	873,863		$	878,545		$	883,112
Term loan and credit facility		355,000			325,000			325,000
Accounts payable and accrued expenses		74,807			71,712			81,908
Acquired below-market leases, net		120,219			125,106			129,882
Deferred revenue and other liabilities		18,722			22,574			21,568
Tenants’ security deposits		34,170			32,939			31,406

Total liabilities		1,476,781			1,455,876			1,472,876
Total equity		999,844			994,540			1,003,185

Total liabilities and equity	$	2,476,625		$	2,450,416		$	2,476,061

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Second Quarter 2014

Condensed Consolidated Statements of Income

(unaudited and in thousands, except per share amounts)


	Three Months Ended						Period from October 7, 2013 through December 31, 2013
	June 30, 2014			March 31, 2014
Revenues
Rental revenue	$	92,210		$	90,204		$	79,987
Tenant expense reimbursement		14,304			15,153			15,836
Observatory revenue		30,389			17,301			23,735
Construction revenue		12,963			14,963			5,265
Third party management and other fees		753			611			550
Other revenue and fees		4,549			2,074			2,210

Total revenues		155,168			140,306			127,583
Operating expenses
Property operating expenses		35,596			36,311			34,453
Marketing, general, and administrative expenses		12,189			8,675			15,254
Observatory expenses		7,120			6,981			5,687
Construction expenses		12,795			14,283			5,468
Real estate taxes		18,186			18,373			17,191
Depreciation and amortization		28,637			30,115			27,375

Total operating expenses		114,523			114,738			105,428

Total operating income		40,645			25,568			22,155
Other income (expense)
Interest expense		(14,629	)		(14,337	)		(13,147	)
Acquisition expenses		(735	)		—			(138,140	)
Gain on consolidation of non-controlled entities		—			—			322,563

Net income		25,281			11,231			193,431
Net income attributable to non-controlling interests		(15,447	)		(6,862	)		(118,186	)

Net income attributable to Empire State Realty Trust, Inc.	$	9,834		$	4,369		$	75,245

Weighted average common shares outstanding
Basic		95,573			95,575			95,574

Diluted		95,615			95,617			95,611

Net income per share attributable to Empire State Realty Trust, Inc.
Basic	$	0.10		$	0.05		$	0.79

Diluted	$	0.10		$	0.05		$	0.79

Dividends per share	$	0.085		$	0.085		$	0.0795

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Second Quarter 2014

Core Funds from Operations (“Core FFO”), Funds from Operations (“FFO”), Funds Available for

Distribution (“FAD”) and EBITDA

(unaudited and in thousands, except per share amounts)


	Three Months Ended						Period from October 7, 2013 through December 31, 2013
	June 30, 2014			March 31, 2014			Period from October 7, 2013 through December 31, 2013
Reconciliation of Net Income to FFO and Core FFO
Net Income	$	25,281		$	11,231		$	193,431
Real estate depreciation and amortization		28,556			30,052			27,352

FFO		53,837			41,283			220,783
Gain on settlement of lawsuit related to the Observatory, net of income taxes		(540	)		—			—
Private perpetual preferred exchange offering expenses		950			—			—
Acquisition expenses		735			—			138,140
Gain on consolidation of non-controlled entities		—			—			(322,563	)
Severance expenses		—			—			2,738
Retirement equity compensation expenses		—			—			2,297

Core FFO	$	54,982		$	41,283		$	41,395

Total weighted average shares and Operating Partnership Units
Basic		245,899			245,779			245,445

Diluted		245,941			245,821			245,482

FFO per share
Basic	$	0.22		$	0.17		$	0.90

Diluted	$	0.22		$	0.17		$	0.90

Core FFO per share
Basic	$	0.22		$	0.17		$	0.17

Diluted	$	0.22		$	0.17		$	0.17

Reconciliation of Core FFO to Core FAD
Core FFO	$	54,982		$	41,283		$	41,395
Add:
Amortization of deferred financing costs		1,375			1,090			1,074
Amortization of below-market ground lease		426			426			398
Non-real estate depreciation and amortization		80			65			23
Amortization of non-cash compensation expense		944			1,025			697
Deduct:
Straight-line rental revenues		(10,979	)		(12,580	)		(8,932	)
Amortization of debt premiums		(738	)		(556	)		(922	)
Above/below-market rent revenue		(2,028	)		(1,884	)		(1,903	)
FF&E purchases		(3	)		(6	)		(853	)
Tenant improvements—second generation		(3,250	)		(1,038	)		(1,219	)
Building improvements—second generation		(344	)		(1,106	)		(1,030	)
Leasing commissions—second generation		(1,229	)		(880	)		(6,909	)

Core FAD	$	39,236		$	25,839		$	21,819

Core FAD per share
Basic	$	0.16		$	0.11		$	0.09

Diluted	$	0.16		$	0.11		$	0.09

Reconciliation of Net Income to EBITDA
Net income	$	25,281		$	11,231		$	193,431
Interest expense		14,629			14,337			13,147
Income tax expense (benefit)		2,749			(2,169	)		(1,125	)
Depreciation and amortization		28,637			30,115			27,375
Acquisition expenses		735			—			138,140
Gain on consolidation of non-controlled entities		—			—			(322,563	)

EBITDA	$	72,031		$	53,514		$	48,405

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Second Quarter 2014

Net Operating Income (“NOI”)

(unaudited and dollars in thousands)


	Three Months Ended						Period from October 7, 2013 through December 31, 2013
	June 30, 2014			March 31, 2014			Period from October 7, 2013 through December 31, 2013
Reconciliation of Net Income to NOI and Cash NOI
Net income	$	25,281		$	11,231		$	193,431
Add:
Marketing, general and administrative expenses		12,189			8,675			15,254
Depreciation and amortization		28,637			30,115			27,375
Interest expense		14,629			14,337			13,147
Construction expenses		12,795			14,283			5,468
Acquisition expenses		735			—			138,140
Less:
Construction revenue		(12,963	)		(14,963	)		(5,265	)
Third-party management and other fees		(753	)		(611	)		(550	)
Gain on settlement of lawsuit related to the Observatory		(975	)		—			—
Gain on consolidation of non-controlled entities		—			—			(322,563	)

Net operating income		79,575			63,067			64,437
Straight-line rent		(10,979	)		(12,580	)		(8,932	)
Above/below-market lease amortization		(2,028	)		(1,884	)		(1,903	)
Acquired ground lease amortization		426			426			398

Cash net operating income	$	66,994		$	49,029		$	54,000

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Second Quarter 2014

Debt Summary

(unaudited and dollars in thousands)


			Weighted Average
Debt Summary	Principal Balance		Interest Rate			Maturity (Years)
Fixed rate mortgage debt	$	826,230		5.78	%		2.1
Variable rate mortgage debt		47,633		3.90	%		0.4
Term loan and credit facility		355,000		1.49	%		4.1

Total	$	1,228,863		4.47	%		2.6


Available Borrowing	Facility		Outstanding at June 30, 2014		Letters of Credit		Empire Reserve ⁽²⁾		Remaining Capacity at June 30, 2014
Mortgages	$	—	$	873,863	$	—	$	—	$	10,615
Term loan and credit facility ⁽¹⁾		800,000		355,000		—		27,338		417,662

Total	$	800,000	$	1,228,863	$	—	$	27,338	$	428,277


Covenant Summary	Required			Current Quarter			In Compliance
Secured Credit Facility
Maximum Total Leverage		< 60	%		29.7	%		Yes
Maximum Secured Debt		< 40	%		21.1	%		Yes
Minimum Fixed Charge Coverage		> 1.5	x		3.0	x		Yes
Maximum Variable Rate Indebtedness		< 25	%		9.7	%		Yes
Maximum Secured Recourse Indebtedness		< 10	%		0	%		Yes
Minimum Tangible Net Worth	$	689,800		$	822,855			Yes

Notes:

(1)	The term loan and credit facility has an accordion feature allowing for an increase in maximum aggregate principal balance to $1,250,000 under certain circumstances.

(2)	Reflects a reserve for Empire State Building capital expenditures.

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Second Quarter 2014

Debt Detail

(unaudited and dollars in thousands)


	Stated Interest Rate (%)			Current Interest Rate (%)			Principal Balance			Maturity Date		Amortization
Fixed rate debt:
501 Seventh Avenue (first lien mortgage loan)		5.80	%		5.80	%	$	39,026			8/1/2014		25 years
1359 Broadway		6.04	%		6.04	%		44,275			8/1/2014		25 years
One Grand Central Place (first lien mortgage loan)		5.34	%		5.34	%		70,578			11/5/2014		25 years
One Grand Central Place (second lien mortgage loan)		7.00	%		7.00	%		14,724			11/5/2014		25 years
500 Mamaroneck Avenue, Harrison, NY		5.41	%		5.41	%		32,260			1/1/2015		30 years
250 West 57th Street (first lien mortgage loan)		5.33	%		5.33	%		25,194			1/5/2015		25 years
250 West 57th Street (second lien mortgage loan)		6.13	%		6.13	%		11,109			1/5/2015		25 years
Metro Center		5.89	%		5.89	%		95,062			1/1/2016		30 years
10 Union Square		6.00	%		6.00	%		20,807			5/1/2017		30 years
10 Bank Street		5.72	%		5.72	%		33,150			6/1/2017		30 years
1542 Third Avenue		5.90	%		5.90	%		18,820			6/1/2017		30 years
First Stamford Place		5.65	%		5.65	%		243,966			7/5/2017		30 years
383 Main Avenue, Norwalk, CT		5.59	%		5.59	%		30,131			7/5/2017		30 years
1010 Third Avenue and 77 West 55th Street		5.69	%		5.69	%		27,849			7/5/2017		30 years
1333 Broadway		6.32	%		6.32	%		76,734	⁽¹⁾		1/5/2018		30 years
1350 Broadway (first lien mortgage loan)		5.87	%		5.87	%		42,545	⁽²⁾		4/5/2018		Interest only

Total fixed rate debt								826,230
Variable rate debt:
501 Seventh Avenue (second lien mortgage loan)		LIBOR plus 2.0	%		2.16	%		6,540			8/1/2014		Interest only
1350 Broadway (second lien mortgage loan)		⁽⁴	⁾		4.25	%		13,711	⁽³⁾		10/10/2014		Interest only
One Grand Central Place (third lien mortgage loan)		⁽⁵	⁾		3.75	%		6,382			11/5/2014		Interest only
250 West 57th Street (third lien mortgage loan)		⁽⁴	⁾		4.25	%		21,000			1/5/2015		Interest only
Secured Revolving Credit Facility		LIBOR plus 1.20	%		1.36	%		55,000			10/5/2017		Interest only
Secured Term Credit Facility		LIBOR plus 1.35	%		1.51	%		300,000			10/5/2018		Interest only

Total variable rate debt								402,633

Total / weighted average debt					4.47	%	$	1,228,863

Notes:

(1)	Includes unamortized premium of $6,715.

(2)	Includes unamortized premium of $3,381.

(3)	Includes unamortized premium of $34.

(4)	Greater of 4.25% and Prime plus 1.00%.

(5)	Greater of 3.75% and Prime plus 0.50%.

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Second Quarter 2014

Debt Maturities

(unaudited and dollars in thousands)


Year	Amortization		Maturities ⁽¹⁾		Total		Percentage of Total Debt			Weighted Average Interest Rate of Maturing Debt
2014	$	7,269	$	193,626	$	200,895		16.3	%		5.48	%
2015		10,036		88,445		98,481		8.0	%		5.20	%
2016		7,918		91,572		99,490		8.1	%		5.89	%
2017		5,393		410,761		416,154		33.9	%		5.13	%
2018		306		413,537		413,843		33.7	%		2.83	%

Total debt	$	30,922	$	1,197,941	$	1,228,863		100.0	%		4.47	%

Debt Maturity Profile

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Note:

(1)	Assumes no extension options are exercised.

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Second Quarter 2014

Supplemental Definitions

Funds From Operations (“FFO”)

The Company computes FFO in accordance with the “White Paper” on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment writedowns of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures. FFO is a widely recognized non-GAAP financial measure for REITs that the Company believes, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITS. In addition, FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT’s operating performance. The Company presents FFO because it considers it an important supplemental measure of its operating performance and believes 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 the Company’s properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact the Company’s results of operations, the utility of FFO as a measure of its performance is limited. There can be no assurance that FFO presented by the Company 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.

Core Funds From Operations (“Core FFO”)

Core FFO adds back to traditionally defined FFO the following items associated with the Company’s initial public offering, or IPO, and formation transactions: gain on consolidation of non-controlling entities, acquisition expenses, severance expenses and retirement equity compensation expenses. It also adds back private perpetual preferred exchange offering expenses, acquisition expenses, and gain on settlement of lawsuit related to the Observatory, net of income taxes. The Company presents Core FFO because it considers it an important supplemental measure of its operating performance in that it excludes items associated with its IPO and formation transactions. 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.

Core Funds Available for Distribution (“FAD”)

In addition to Core FFO, the Company presents Core FAD by (i) adding to Core FFO non-real estate depreciation and amortization, the amortization of deferred financing costs, amortization of debt discounts and amortization of below market ground lease and (ii) deducting straight line rent, recurring second generation leasing commissions, tenant improvements, prebuilts, capital expenditures, furniture, fixtures & equipment purchases and above/below market rent revenue. Core FAD is presented solely as a supplemental disclosure that management believes provides useful information regarding the Company’s ability to fund its dividends. Core FAD 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 FAD is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. There can be no assurance that Core FAD presented by the Company is comparable to similarly titled measures of other REITs.

Net Operating Income

Net Operating Income, or NOI is a non-GAAP financial measure of performance. NOI is used by investors and the Company’s management to evaluate and compare the performance of the Company’s properties and to determine trends in earnings and to compute the fair value of its 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 and formation transaction expenses; 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 net operating income because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by the Company 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 the Company’s 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 the Company’s operating results to the operating results of other real estate companies that have not made similarly timed, purchases or sales. The Company also excludes private perpetual exchange offering expenses and gain on settlement of lawsuit related to the Observatory, net of income taxes. The Company believes that eliminating these costs from net income is useful because the resulting measure captures the actual revenue, generated and actual expenses incurred in operating its 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, interest income and other 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 the Company’s 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 the Company’s properties but does not measure its 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 Supplemental Package regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI than the Company does.

EBITDA

The Company computes EBITDA as net income plus interest expense, income taxes, depreciation and amortization, acquisition expenses, and gain on consolidation of non-controlled entities. The Company presents EBITDA because it believes that EBITDA, along with cash flow from operating activities, investing activities and financing activities, provides investors with an additional indicator of its ability to incur and service debt. EBITDA should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of its liquidity.

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Empire State Realty Trust, Inc. - FORM 8-K - EX-99.2 - July 30, 2014

Attached files

Empire State Realty Trust, Inc. Reports