Edgar Filing: Empire State Realty Trust, Inc.

ESRT 6-30-15 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the Quarterly Period Ended June 30, 2015



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

For the transition period from to

Commission File Number: 001-36105

EMPIRE STATE REALTY TRUST, INC.

(Exact name of Registrant as specified in its charter)



Maryland		37-1645259
(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) (Zip Code)

(212) 687-8700

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.



Class A Common Stock, par value $0.01 per share		114,125,996
Class B Common Stock, par value $0.01 per share		1,133,273
(Class)		(Outstanding on July 31, 2015)



	EMPIRE STATE REALTY TRUST, INC.
	FORM 10-Q
	TABLE OF CONTENTS	PAGE
PART 1.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	2
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (unaudited)	3
	Condensed Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2015 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	7

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

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	43

PART II.	OTHER INFORMATION	43

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	44

ITEM 4.	MINE SAFETY DISCLOSURES	44

ITEM 5.	OTHER INFORMATION	44

ITEM 6.	EXHIBITS	44

SIGNATURES		45

ITEM 1. FINANCIAL STATEMENTS

Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

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



	June 30, 2015			December 31, 2014
ASSETS	(unaudited)
Commercial real estate properties, at cost:
Land	$	201,196		$	201,196
Development costs	7,388			6,986
Building and improvements	1,996,318			1,931,681
	2,204,902			2,139,863
Less: accumulated depreciation	(423,279		)	(377,552		)
Commercial real estate properties, net	1,781,623			1,762,311
Cash and cash equivalents	34,221			45,732
Restricted cash	69,709			60,273
Tenant and other receivables, net of allowance of $2,401 and $1,427 in 2015 and 2014, respectively	16,431			23,745
Deferred rent receivables, net of allowance of $147 and $420 in 2015 and 2014, respectively	111,897			102,104
Prepaid expenses and other assets	47,857			48,504
Deferred costs, net	352,940			370,460
Acquired below-market ground leases, net	387,807			391,887
Goodwill	491,479			491,479
Total assets	$	3,293,964		$	3,296,495
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable	$	759,405		$	903,985
Senior unsecured notes	589,002			237,667
Unsecured revolving credit facility	285,000			—
Term loan and credit facility	—			470,000
Accounts payable and accrued expenses	101,674			96,563
Acquired below-market leases, net	121,286			138,859
Deferred revenue and other liabilities	18,713			27,876
Tenants’ security deposits	46,338			40,448
Total liabilities	1,921,418			1,915,398
Commitments and contingencies
Equity:
Empire State Realty Trust, Inc. stockholders' equity:
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, none issued or outstanding	—			—
Class A common stock, $0.01 par value per share, 400,000,000 shares authorized, and 113,135,350 shares issued and 113,119,634 shares outstanding in 2015 and 106,044,560 shares issued and 106,030,449 shares outstanding in 2014	1,131			1,060
Class B common stock, $0.01 par value per share, 50,000,000 shares authorized, 1,134,252 and 1,161,438 shares issued and outstanding in 2015 and 2014, respectively	11			12
Additional paid-in capital	435,632			406,853
Retained earnings	55,903			60,713
Total Empire State Realty Trust, Inc.'s stockholders' equity	492,677			468,638
Non-controlling interests in operating partnership	871,865			904,455
Private perpetual preferred units, $16.62 per unit liquidation preference, 1,560,360 issued and outstanding in 2015 and 2014	8,004			8,004
Total equity	1,372,546			1,381,097
Total liabilities and equity	$	3,293,964		$	3,296,495

The accompanying notes are an integral part of these financial statements

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

(unaudited)

(amounts in thousands, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Rental revenue	$	112,866		$	92,210		$	222,924		$	182,414
Tenant expense reimbursement	18,582			14,304			36,782			29,457
Observatory revenue	30,600			30,389			48,823			47,690
Construction revenue	374			12,963			1,981			27,926
Third-party management and other fees	594			753			1,040			1,364
Other revenue and fees	1,757			4,549			5,105			6,623
Total revenues	164,773			155,168			316,655			295,474
Operating expenses:
Property operating expenses	37,935			35,149			80,387			71,009
Ground rent expenses	2,332			447			4,663			898
Marketing, general, and administrative expenses	9,113			9,560			18,213			19,715
Observatory expenses	7,420			7,120			14,397			14,101
Construction expenses	353			12,795			3,222			27,078
Real estate taxes	22,952			18,186			45,930			36,559
Acquisition expenses	—			735			—			735
Depreciation and amortization	39,629			28,637			81,047			58,752
Total operating expenses	119,734			112,629			247,859			228,847
Total operating income	45,039			42,539			68,796			66,627
Other income (expense):
Interest expense	(17,571		)	(14,629		)	(33,618		)	(28,966		)
Income before income taxes	27,468			27,910			35,178			37,661
Income tax expense	(883		)	(2,629		)	(705		)	(1,149		)
Net income	26,585			25,281			34,473			36,512
Private perpetual preferred unit distributions	(234		)	—			(468		)	—
Net income attributable to non-controlling interests	(15,231		)	(15,447		)	(19,747		)	(22,309		)
Net income attributable to common stockholders	$	11,120		$	9,834		$	14,258		$	14,203

Total weighted average shares:
Basic	112,852			95,466			111,136			$	95,466
Diluted	265,867			244,436			265,866			$	244,431

Earnings per share attributable to common stockholders:
Basic	$	0.10		$	0.10		$	0.13		$	0.15
Diluted	$	0.10		$	0.10		$	0.13		$	0.15

Dividends per share	$	0.085		$	0.085		$	0.17		$	0.17

The accompanying notes are an integral part of these financial statements

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For The Six Months Ended June 30, 2015

(unaudited)

(amounts in thousands)



	Number of Class A Common Shares	Class A Common Stock		Number of Class B Common Shares		Class B Common Stock			Additional Paid-In Capital		Retained Earnings			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity

Balance at December 31, 2014	106,030	$	1,060	1,161		$	12		$	406,853	$	60,713		$	468,638		$	904,455		$	8,004		$	1,381,097
Conversion of operating partnership units and Class B shares to Class A shares	7,067	71		(27	)	(1		)	28,586		—			28,656			(28,656		)	—			—
Net income	—	—		—		—			—		14,258			14,258			19,747			468			34,473
Equity compensation:
LTIP units, net of forfeitures	—	—		—		—			—		—			—			2,731			—			2,731
Restricted stock, net of forfeitures	23	—		—		—			193		—			193			—			—			193
Dividends and distributions	—	—		—		—			—		(19,068		)	(19,068		)	(26,412		)	(468		)	(45,948		)
Balance at June 30, 2015	113,120	$	1,131	1,134		$	11		$	435,632	$	55,903		$	492,677		$	871,865		$	8,004		$	1,372,546

The accompanying notes are an integral part of these financial statements

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)



	Six Months Ended June 30,
	2015			2014
Cash Flows From Operating Activities
Net income	$	34,473		$	36,512
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	81,047			58,752
Amortization of deferred finance costs and debt premiums and discount	1,609			1,171
Amortization of acquired above- and below-market leases, net	(9,867		)	(3,912		)
Amortization of acquired below-market ground leases	3,916			852
Straight-lining of rental revenue	(9,724		)	(23,559		)
Equity based compensation	2,924			1,969
Increase (decrease) in cash flows due to changes in operating assets and liabilities:
Restricted cash	(2,840		)	(2,195		)
Tenant and other receivables	7,314			(1,067		)
Deferred leasing costs	(21,845		)	(4,221		)
Prepaid expenses and other assets	647			(4,251		)
Accounts payable and accrued expenses	(1,408		)	(11,073		)
Deferred revenue and other liabilities	(9,163		)	(2,846		)
Net cash provided by operating activities	77,083			46,132
Cash Flows From Investing Activities
Decrease (increase) in restricted cash for investing activities	(706		)	5,098
Development costs	(346		)	—
Additions to building and improvements	(62,066		)	(50,405		)
Net cash used in investing activities	(63,118		)	(45,307		)

The accompanying notes are an integral part of these financial statements

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)



	Six Months Ended June 30,
	2015			2014
Cash Flows From Financing Activities
Repayment of mortgage notes payable	(140,974		)	(7,954		)
Proceeds from unsecured revolving credit facility	615,000			—
Repayments of unsecured revolving credit facility	(330,000		)	—
Proceeds from term loan and credit facility	—			40,000
Repayments of term loan and credit facility	(470,000		)	(10,000		)
Proceeds from senior unsecured notes	350,000			—
Deferred financing costs	(3,554		)	—
Private perpetual preferred unit distributions	(468		)	—
Dividends paid to common stockholders	(19,068		)	(16,251		)
Distributions paid to non-controlling interests in the operating partnership	(26,412		)	(25,572		)
Net cash used in financing activities	(25,476		)	(19,777		)
Net decrease in cash and cash equivalents	(11,511		)	(18,952		)
Cash and cash equivalents—beginning of period	45,732			60,743
Cash and cash equivalents—end of period	$	34,221		$	41,791

Supplemental disclosures of cash flow information:
Cash paid for interest	$	30,946		$	27,758
Cash paid for income taxes	$	2,709		$	1,594

Non-cash investing and financing activities:
Building and improvements included in accounts payable and accrued expenses	$	43,722		$	20,156
Conversion of operating partnership units and Class B shares to Class A shares	$	28,656		$	—

The accompanying notes are an integral part of these financial statements

Empire State Realty Trust, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Organization

As used in these condensed consolidated financial statements, unless the context otherwise requires, “we,” “us,” “our,” the “company,” and "ESRT" mean Empire State Realty Trust, Inc. and its consolidated subsidiaries.

We are a self-administered and self-managed real estate investment trust, or REIT, that owns, manages, operates, acquires, redevelops and repositions office and retail properties in Manhattan and the greater New York metropolitan area. We were organized as a Maryland corporation on July 29, 2011. Empire State Realty OP, L.P., our operating partnership, holds substantially all of our assets and conducts substantially all of our business.

As of June 30, 2015, our total portfolio contained 10.0 million rentable square feet of office and retail space. We owned 14 office properties (including three long-term ground leasehold interests) encompassing approximately 9.3 million rentable square feet of office space. Nine of these properties are located in the midtown Manhattan market and aggregate approximately 7.5 million rentable square feet of office space, including the Empire State Building. Our Manhattan office properties also contain an aggregate of 515,374 rentable square feet of retail space on their ground floor and/or contiguous levels. Our remaining five office properties are located in Fairfield County, Connecticut and Westchester County, New York, encompassing in the aggregate approximately 1.9 million rentable square feet. The majority of square footage for these five properties is located in densely populated metropolitan communities with immediate access to mass transportation. Additionally, we have entitled land at the Stamford Transportation Center in Stamford, Connecticut, adjacent to one of our office properties, that will support the development of an approximately 380,000 rentable square foot office building and garage, which we refer to herein as Metro Tower. As of June 30, 2015, our portfolio included four standalone retail properties located in Manhattan and two standalone retail properties located in the city center of Westport, Connecticut, encompassing 204,175 rentable square feet in the aggregate.

As of June 30, 2015, we owned approximately 42.7% of the aggregate operating partnership units in our operating partnership. We, as the sole general partner in our operating partnership, have responsibility and discretion in the management and control of our operating partnership, and the limited partners in our operating partnership, in such capacity, have no authority to transact business for, or participate in the management activities of, our operating partnership. Accordingly, our operating partnership has been consolidated by us. We elected to be taxed as a REIT and operate in a manner that we believe allows us to qualify as a REIT for federal income tax purposes.

2. Summary of Significant Accounting Policies

There have been no material changes to the summary of significant accounting policies included in the section entitled "Summary of Significant Accounting Policies" in our December 31, 2014 Annual Report on Form 10-K. Please review the Summary of Significant Accounting Policies set forth in our December 31, 2014 Annual Report on Form 10-K, which is incorporated herein by reference.

Basis of Quarterly Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments and eliminations (including intercompany balances and transactions), consisting of normal recurring adjustments, considered necessary for the fair presentation of the financial statements have been included. For purposes of comparison, certain items shown in the 2014 unaudited condensed consolidated financial statements have been reclassified to conform to the presentation used for 2015.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the corresponding full years. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the financial statements for the year ended December 31, 2014 contained in our Annual Report on Form 10-K. We do not consider our business to be subject to material seasonal fluctuations, except that our observatory

business is subject to tourism seasonality. During the past ten years of our annual observatory revenue, approximately 16.0% to 18.0% was realized in the first quarter, 26.0% to 28.0% was realized in the second quarter, 31.0% to 33.0% was realized in the third quarter and 23.0% to 25.0% was realized in the fourth quarter.

We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and we are the primary beneficiary. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE, and has the requirement to consolidate the VIE. We had no VIEs as of June 30, 2015 and December 31, 2014.

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

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

Accounting Estimates

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

Recently Issued or Adopted Accounting Standards

During June 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-10, Technical Corrections and Improvements, which contains amendments that represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in ASU 2015-10 that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments will be effective upon its issuance. The implementation of this update did not and is not expected to cause any material changes to our consolidated financial statements.

During April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which amends the requirements for the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years, beginning after December 15, 2015 and interim periods within those fiscal years. The implementation of this update is not expected to cause any material changes to our consolidated financial statements other than the reclassification of debt issuance costs from assets to a reduction of liabilities on our consolidated balance sheets.

During February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis, which amends the criteria for determining which entities are considered VIEs, amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. ASU 2015-02 is effective for fiscal years, beginning after December 15, 2015 and interim periods within those fiscal years. We are evaluating the impact of adopting this new accounting standard on our financial statements.

During January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items, which eliminates the concept of extraordinary items. However, the presentation and disclosure requirements for items that are either unusual or in nature or infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. ASU 2015-01 is effective for periods beginning after December 15, 2015. We are evaluating the impact of adopting this new accounting standard on our financial statements.

During May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which will replace all current GAAP guidance related to revenue recognition and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning in 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting this new accounting standard on our financial statements.

During April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This guidance is effective prospectively for fiscal years beginning after December 15, 2014. The adoption of ASU 2014-08 did not have a material impact on our financial statements.

3. Acquisitions

On July 15, 2014, we acquired the ground and operating lease at 112 West 34th Street (and the fee title to 122 West 34th Street) for $423.6 million, consisting of $87.7 million by assumption of existing mortgage debt, $106.9 million in cash and $229.0 million in shares of Class A and Class B common stock and Series PR Operating Partnership ("OP") units. In connection with this transaction, we issued 1,217,685 shares of Class A common stock and 77,945 shares of Class B common stock at a share price of $16.65 and 12,457,379 Series PR OP Units at a unit price of $16.65.

On July 15, 2014, we acquired the ground lease at 1400 Broadway for $310.0 million, consisting of $80.0 million by assumption of existing mortgage debt, $79.7 million in cash and $150.3 million in shares of Class A and Class B common stock and Series PR OP units. In connection with this transaction, we issued 1,338,488 shares of Class A common stock and 32,452 shares of Class B common stock at a share price of $16.65 and 7,658,516 Series PR OP Units at a unit price of $16.65.

4. Deferred Costs, Acquired Lease Intangibles and Goodwill

Deferred costs, net consisted of the following (amounts in thousands):



	June 30, 2015			December 31, 2014
Leasing costs	$	116,147		$	100,653
Acquired in-place lease value and deferred leasing costs	297,425			304,916
Acquired above-market leases	83,138			84,633
Financing costs	18,335			17,334
	515,045			507,536
Less: accumulated amortization	(162,105		)	(137,076		)
Total deferred costs, net	$	352,940		$	370,460

Amortization expense related to deferred leasing costs was $2.6 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively, and $5.5 million and $4.8 million for the six months ended June 30, 2015 and 2014, respectively. Amortization expense related to deferred financing costs was $1.5 million and $1.4 million for the three months ended June 30, 2015 and 2014, respectively, and $3.9 million and $2.5 million for the six months ended June 30, 2015 and 2014, respectively, and was included in interest expense.

Amortizing acquired intangible assets and liabilities consisted of the following (amounts in thousands):



	June 30, 2015			December 31, 2014
Acquired below-market ground leases	$	396,916		$	396,916
Less: accumulated amortization	(9,109		)	$	(5,029	)
Acquired below-market ground leases, net	$	387,807		$	391,887



	June 30, 2015			December 31, 2014
Acquired below-market leases	$	(167,427	)	$	(169,805	)
Less: accumulated amortization	46,141			30,946
Acquired below-market leases, net	$	(121,286	)	$	(138,859	)

Amortization expense related to acquired lease intangibles was $9.3 million and $5.3 million for the three months ended June 30, 2015 and 2014, respectively, and $19.6 million and $10.5 million for the six months ended June 30, 2015 and 2014, respectively. Rental revenue related to the amortization of below-market leases, net of above-market leases, was $4.6 million and $2.0 million for the three months ended June 30, 2015 and 2014, respectively, and $9.9 million and $3.9 million for the six months ended June 30, 2015 and 2014, respectively.

As of June 30, 2015, we had goodwill of $491.5 million. Goodwill was allocated $227.5 million to the observatory reportable segment and $264.0 million to the real estate segment.

5. Debt

Debt consisted of the following as of June 30, 2015 and December 31, 2014 (amounts in thousands):



					As of June 30, 2015
	Principal Balance as of June 30, 2015		Principal Balance as of December 31, 2014		Stated Rate		Effective Rate⁽¹⁾		Maturity Date⁽²⁾
Mortgage debt collateralized by:
Fixed rate mortgage debt
10 Union Square	$	20,466	$	20,641	6.00	%	6.71	%	5/1/2017
10 Bank Street	32,535		32,847		5.72	%	6.21	%	6/1/2017
1542 Third Avenue	18,427		18,628		5.90	%	6.54	%	6/1/2017
First Stamford Place	240,536		242,294		5.65	%	6.14	%	7/5/2017
1010 Third Avenue and 77 West 55th Street	27,333		27,595		5.69	%	6.36	%	7/5/2017
383 Main Avenue	29,565		29,852		5.59	%	6.00	%	7/5/2017
1333 Broadway	69,118		69,575		6.32	%	3.79	%	1/5/2018
1400 Broadway
(first lien mortgage loan)	69,218		69,689		6.12	%	3.29	%	2/5/2018
(second lien mortgage loan)	9,702		9,803		3.35	%	3.35	%	2/5/2018
112 West 34th Street
(first lien mortgage loan)	76,953		77,484		6.01	%	3.22	%	4/5/2018
(second lien mortgage loan)	9,702		9,763		6.56	%	3.51	%	4/5/2018
1350 Broadway	38,628		38,900		5.87	%	3.77	%	4/5/2018
Metro Center	98,906		99,845		3.59	%	3.67	%	11/5/2024
Total fixed rate mortgage debt	741,089		746,916
Floating rate mortgage debt
One Grand Central Place⁽³⁾	—		91,000
1359 Broadway⁽³⁾	—		44,146
Total floating rate mortgage debt	—		135,146
Total mortgage debt	741,089		882,062
Senior unsecured notes - exchangeable	250,000		250,000		2.63	%	3.93	%	8/15/2019
Senior unsecured notes:
Series A	100,000		—		3.93	%	3.93	%	3/27/2025
Series B	125,000		—		4.09	%	4.09	%	3/27/2027
Series C	125,000		—		4.18	%	4.18	%	3/27/2030
Unsecured revolving credit facility	285,000		—		⁽⁴⁾		⁽⁴⁾		1/23/2019
Secured revolving credit facility	—		170,000		⁽⁴⁾		⁽⁴⁾
Secured term credit facility	—		300,000		⁽⁴⁾		⁽⁴⁾
Total principal	1,626,089		1,602,062
Unamortized premiums, net of unamortized discount	7,318		9,590
Total	$	1,633,407	$	1,611,652

______________


(1)	The effective rate is the yield as of June 30, 2015, including the effects of debt issuance costs and the amortization of the fair value of debt adjustment.


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


(3)	Repaid in 2015.


(4)	The secured revolving and term credit facility was terminated on January 23, 2015 concurrent with entering into the unsecured revolving credit facility. At June 30, 2015, the unsecured revolving credit facility bears a floating rate at 30 day LIBOR plus 1.15%. The rate at June 30, 2015 was 1.34%.

Principal Payments

Aggregate required principal payments at June 30, 2015 are as follows (amounts in thousands):



Year	Amortization		Maturities		Total
2015	$	5,943	$	—	$	5,943
2016	12,387		—		12,387
2017	10,070		355,761		365,831
2018	2,880		262,210		265,090
2019	2,188		535,000		537,188
2020 and thereafter	11,975		427,675		439,650
Total	$	45,443	$	1,580,646	$	1,626,089

Unsecured Revolving Credit Facility

On January 23, 2015, we entered into an unsecured revolving credit agreement, which is referred to herein as the “unsecured revolving credit facility,” with Bank of America, Merrill Lynch, Goldman Sachs and the other lenders party thereto. Merrill Lynch acted as joint lead arranger; Bank of America acted as administrative agent; and Goldman Sachs acted as syndication agent and joint lead arranger.

Concurrently with entering into the unsecured revolving credit facility, on January 23, 2015, we terminated our secured revolving and term credit facility and wrote off $1.3 million of deferred financing costs. In connection with the termination of the secured revolving and term credit facility, all of the guarantors thereunder were released from their guaranty obligations, all liens created thereby were terminated, and all collateral pledged thereunder was released.

The unsecured revolving credit facility is comprised of a revolving credit facility in the maximum original principal amount of $800.0 million. The unsecured revolving credit facility contains an accordion feature that would allow us to increase the maximum aggregate principal amount to $1.25 billion under specified circumstances. As of June 30, 2015, the unsecured revolving credit facility had an outstanding balance of $285.0 million.

Amounts outstanding under the unsecured revolving credit facility bear interest at a floating rate equal to, at our election, (x) a Eurodollar rate, plus a spread that range from 0.875% to 1.600% depending upon our leverage ratio and credit rating; or (y) a base rate, plus a spread that range from 0.000% to 0.600% depending upon our leverage ratio and credit rating. In addition, the unsecured revolving credit facility permits us to borrow at competitive bid rates determined in accordance with the procedures described in the unsecured revolving credit facility. We paid certain customary fees and expense reimbursements.

The initial maturity of the unsecured revolving credit facility is January 2019. We have the option to extend the initial term for up to two additional 6-month periods, subject to certain conditions, including the payment of an extension fee equal to 0.075% of the then outstanding commitments under the unsecured revolving credit facility.

The unsecured revolving credit facility includes the following financial covenants: (i) maximum leverage ratio of total indebtedness to total asset value of the loan parties and their consolidated subsidiaries will not exceed 60%, (ii) consolidated secured indebtedness will not exceed 40% of total asset value, (iii) tangible net worth will not be less than $745.4 million plus 75% of net equity proceeds received by us (other than proceeds received within ninety (90) days after the redemption, retirement or repurchase of ownership or equity interests in us up to the amount paid by us in connection with such redemption, retirement or repurchase, where, the net effect is that we shall not have increased our net worth as a result of any such proceeds), (iv) adjusted EBITDA (as defined in the unsecured revolving credit facility) to consolidated fixed charges will not be less than 1.50x, (v) the aggregate net operating income with respect to all unencumbered eligible properties to the portion of interest expense attributable to unsecured indebtedness will not be less than 1.75x, (vi) the ratio of total unsecured indebtedness to unencumbered asset value will not exceed 60%, and (vii) consolidated secured recourse indebtedness will not exceed 10% of total asset value (provided, however, this covenant shall not apply at any time after we achieve a debt ratings from at least two of Moody’s, S&P and Fitch, and such debt ratings are Baa3 or better (in the case of a rating by Moody’s) or BBB- or better (in the case of a rating by S&P or Fitch)).

The unsecured revolving credit facility contains customary covenants, including limitations on liens, investment, debt, fundamental changes, and transactions with affiliates, and will require certain customary financial reports. The unsecured revolving credit facility contains customary events of default (subject in certain cases to specified cure periods), including but not limited to non-payment, breach of covenants, representations or warranties, cross defaults, bankruptcy or other insolvency

events, judgments, ERISA events, invalidity of loan documents, loss of real estate investment trust qualification, and occurrence of a change of control (defined in the definitive documentation for the unsecured credit facility).

As of June 30, 2015, we were in compliance with the covenants under the unsecured revolving credit facility.

Secured Revolving and Term Credit Facility

As of December 31, 2014, the secured revolving and term credit facility had an outstanding balance of $470.0 million. The secured revolving and term credit facility was terminated on January 23, 2015 concurrent with entering into the unsecured revolving credit facility described above.

Senior Unsecured Notes

Exchangeable Senior Notes

During August 2014, we issued $250.0 million principal amount of 2.625% Exchangeable Senior Notes (“2.625% Exchangeable Senior Notes”) due August 2019. For the three and six months ended June 30, 2015, total interest expense related to the 2.625% Exchangeable Senior Notes was $2.5 million and $4.9 million, respectively, consisting of (i) the contractual interest expense of $1.7 million and $3.3 million, respectively, (ii) the additional non-cash interest expense of $0.6 million and $1.3 million respectively, relating to the accretion of the debt discount, and (iii) the amortization of deferred financing costs of $0.2 million and $0.3 million, respectively.

Series A, Series B, and Series C Senior Notes

During March 2015, we issued and sold an aggregate principal amount of $350 million senior unsecured notes consisting of $100 million of 3.93% Series A Senior Notes due 2025, $125 million of 4.09% Series B Senior Notes due 2027, and $125 million of 4.18% Series C Senior Notes due 2030 (together, the “Series A, B and C Senior Notes”). Interest on the Series A, B and C Senior Notes is payable quarterly.

The terms of the Series A, B and C Senior Notes agreement include customary covenants, including limitations on liens, investment, debt, fundamental changes, and transactions with affiliates and will require certain customary financial reports. It also requires compliance with financial ratios consistent with our unsecured revolving credit facility including a maximum leverage ratio, a maximum secured leverage ratio, a minimum amount of tangible net worth, a minimum fixed charge coverage ratio, a minimum unencumbered interest coverage ratio, a maximum unsecured leverage ratio and a maximum amount of secured recourse indebtedness.

The proceeds from the issuance of the Series A, B and C Senior Notes were used to repay outstanding mortgage debt, reduce amounts outstanding under the unsecured revolving credit facility and for other general corporate purposes. As of June 30, 2015, we were in compliance with the covenants under the Series A, B and C Senior Notes.

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of June 30, 2015 and December 31, 2014 (amounts in thousands):



	June 30, 2015		December 31, 2014
Accounts payable and accrued expenses	$	69,373	$	68,488
Payable to the estate of Leona M. Helmsley ⁽¹⁾	18,367		18,367
Accrued interest payable	6,098		5,953
Due to affiliated companies	7,836		3,755
Accounts payable and accrued expenses	$	101,674	$	96,563

___________


(1)	Reflects a payable to the estate of Leona M. Helmsley in the amount of New York City transfer taxes which would have been payable in absence of the estate's exemption from such tax.

7. Fair Value of Financial Instruments

The following disclosures of estimated fair value at June 30, 2015 and December 31, 2014 were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The fair value of borrowings, which is classified as Level 3 is estimated by discounting the contractual cash flows of each debt to their present value using adjusted market interest rates, which is provided by a third-party specialist. The following table presents the aggregate carrying value of our debt and the corresponding estimates of fair value as of June 30, 2015 and December 31, 2014 (amounts in thousands):



	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage notes payable	$	759,405	$	764,552	$	903,985	$	912,365
Senior unsecured notes - exchangeable	239,002		253,423		237,667		253,469
Senior unsecured notes - Series A, B and C	350,000		338,962		—		—
Unsecured revolving credit facility	285,000		285,000		—		—
Term loan and credit facility	—		—		470,000		470,000

Disclosure about fair value of financial instruments is based on pertinent information available to us as of June 30, 2015 and December 31, 2014. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

8. Rental Income

We lease various office spaces to tenants over terms ranging from one to 16 years. Certain leases have renewal options for additional terms. The leases provide for base monthly rentals and reimbursements for real estate taxes, escalations linked to the consumer price index or common area maintenance known as operating expense escalation. Operating expense reimbursements are reflected in our condensed consolidated statements of income as tenant expense reimbursement.

9. Commitments and Contingencies

Legal Proceedings

Except as described below, as of June 30, 2015, we were not involved in any material litigation, nor, to our knowledge, was any material litigation threatened against us or our properties, other than routine litigation arising in the ordinary course of business such as disputes with tenants. We believe that the costs and related liabilities, if any, which may result from such actions will not materially affect our condensed consolidated financial position, operating results or liquidity.

In March 2012, five putative class actions, or the "Original Class Actions," were filed in New York State Supreme Court, New York County by investors in certain of the existing entities (constituting the predecessor and the non-controlled entities) (the "existing entities") on March 1, 2012, March 7, 2012, March 12, 2012, March 14, 2012 and March 19, 2012. The plaintiffs asserted claims against our predecessor’s management companies, Anthony E. Malkin, Peter L. Malkin, the estate of Leona M. Helmsley, our operating partnership and us for breach of fiduciary duty, unjust enrichment and/or aiding and abetting breach of fiduciary duty. They alleged, 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 investors in the existing entities, the consolidation provides excessive benefits to Malkin Holdings LLC (now our subsidiary) and its affiliates and the then-draft prospectus/consent solicitation with respect to the consolidation filed with the SEC failed to make adequate disclosure to permit a fully-informed decision about the consolidation. The complaints sought money damages and injunctive relief preventing the consolidation. The Original Class Actions were consolidated and co-lead plaintiffs’ counsel were appointed by the New York State Supreme Court by order dated June 26, 2012. Further, an underlying premise of the Original 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 investors in Empire State Building Associates L.L.C., 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 Original Class Actions. The Stipulation of Settlement recites that the consolidation was approved by overwhelming consent of the investors in the existing 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 consolidation presents potential benefits, including the opportunity for liquidity and capital appreciation, that merit the investors' serious consideration and that each of the named class representatives intends to support the consolidation 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 our company, and the interests of the investors in the existing entities, have been addressed adequately, and they have concluded that the settlement pursuant to the Stipulation of Settlement and opportunity to consider the proposed consolidation 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 $55.0 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 to be distributed, after reimbursement of plaintiffs' counsel's court-approved expenses and payment of plaintiffs' counsel's court-approved attorneys' fees (which are included within the $55.0 million settlement payment) and, in the case of shares of common stock and/or operating partnership units, after the termination of specified lock-up periods, to investors in the existing entities pursuant to a plan of allocation to be prepared by counsel for plaintiffs; (ii) defendants' agreement that (a) the Offering would be on the basis of a firm commitment underwriting; (b) if, during the solicitation period, any of the three subject LLCs' percentage of total exchange value is lower than what was stated in the final prospectus/consent solicitation with respect to the consolidation by 10% or more, such decrease would be promptly disclosed by defendants to investors in the subject LLCs; and (c) unless total gross proceeds of $600.0 million are raised in the Offering, defendants will not proceed with the consolidation without further approval of the subject LLCs; and (iii) defendants' agreement to make additional disclosures in the prospectus/consent solicitation with respect to the consolidation regarding certain matters (which are included therein). Investors in the existing entities will not be required to bear any portion of the settlement payment. The payment in settlement of the Original Class Actions will be made by the estate of Leona M. Helmsley and affiliates of Malkin Holdings LLC (provided that none of Malkin Holdings LLC's affiliates that would become our direct or indirect subsidiary in the consolidation will have any liability for such payment) and certain investors in the existing entities who agree to contribute. We will not bear any of the settlement payment.

The settlement further provides for the certification of a class of investors in the existing entities, other than defendants and other related persons and entities, and a release of any claims of the members of the class against the 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. There was no such supplement that plaintiff's counsel objected to in writing. The settlement was subject to court approval. It was 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 Original Class Actions.

On January 18, 2013, the parties jointly moved for preliminary approval of the settlement, for permission to send notice of the settlement to the class, and for the scheduling of a final settlement hearing. On January 28, 2013, six of the investors in Empire State Building Associates L.L.C. filed an objection to preliminary approval, and cross-moved to intervene in the Original Class Actions and for permission to file a separate complaint on behalf of the investors in Empire State Building Associates L.L.C. On February 21, 2013, the court denied the cross motion of such objecting investors, and the court denied permission for such objecting investors to file a separate complaint as part of the Original Class Actions, but permitted them to file a brief solely to support their allegation that the buyout would deprive non-consenting investors in Empire State Building Associates L.L.C. of “fair value” in violation of the New York Limited Liability Company Law. The court rejected the objecting investors’ 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 the allegation regarding the New York Limited Liability Company Law and ruled in Malkin Holdings LLC’s favor, holding that such buyout provisions are legally binding and enforceable and that investors do not have the rights they claimed under the New York Limited Liability Company Law.

On May 2, 2013, the court held a hearing regarding final approval of the Original Class Actions settlement, at the conclusion of which the court stated that it intended to approve the settlement. On May 17, 2013, the court issued its Opinion and Order. The court rejected the objections by all objectors and upheld the settlement in its entirety. Of the approximately 4,500 class members who are investors in all of the existing 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.

Also on May 17, 2013, the court issued its Opinion and Order on attorneys’ fees. Class counsel applied for an award of $15.0 million in fees and $295,895 in expenses, which the court reduced to $11.59 million in fees and $265,282 in expenses (which are included within the $55.0 million settlement payment).

The investors who challenged the buyout provision filed a notice of appeal of the court’s April 30, 2013 decision and 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, Malkin Holdings LLC filed its brief in opposition to the motion for the stay. On June 18, 2013, the appellate court denied the motion for the stay. On July 16, 2013, these investors filed their brief and other supporting papers on their appeal of the April 30, 2013 decision, which are required to perfect the appeal. On September 4, 2013, Malkin Holdings LLC filed its brief on the appeal, and also moved to dismiss the appeal on the grounds that these investors lack standing to pursue it. Malkin Holdings LLC contended that these investors were not entitled to appraisal under the New York Limited Liability Company Law because, among other reasons (i) they are not members of Empire State Building Associates L.L.C., and only members have such rights; (ii) the transaction in question is not a merger or consolidation as defined by statute, and appraisal only applies in those transactions; and (iii) when Empire State Building Associates L.L.C. was converted into a limited liability company, the parties agreed that no appraisal would apply. Moreover, Malkin Holdings LLC contended that only the 12 investors who opted out of the class action settlement could pursue appraisal, because that settlement contains a broad release of (and there is an associated bar order from the court preventing) any such claims. Malkin Holdings LLC further noted that of the six investors attempting to pursue the appeal, only two had in fact opted out of the class action settlement. On September 13, 2013, these investors filed their reply brief on the appeal, and opposed the motion to dismiss. On September 19, 2013, Malkin Holdings LLC filed its reply brief on the motion to dismiss. On October 3, 2013, the appeals court denied the motion to dismiss without prejudice to address the matter directly on the appeal, effectively referring the issues raised in the motion to the panel that was to hear the appeal itself. The appeals court heard argument on November 21, 2013, and in a Decision and Order dated February 25, 2014, it affirmed the trial court’s ruling.

In addition, on June 20, 2013, these same investors, and one additional investor who also opposed the settlement of the Original Class Action, filed additional notices of appeal from the trial court’s rulings in the Original Class Actions. These notices of appeal related to (i) the order entered February 22, 2013 granting preliminary approval of the Original Class Action settlement and setting a hearing for final approval; (ii) the order entered February 26, 2013, refusing to sign a proposed order to show cause for a preliminary injunction regarding the consolidation; (iii) an order entered April 2, 2013, denying the motion to intervene and to file a separate class action on behalf of Empire State Building Associates L.L.C. investors; (iv) the order entered April 10, 2013, refusing to sign the order to show cause seeking to extend the deadline for class members to opt out of the Original Class Action settlement; (v) the Final Judgment and Order entered May 17, 2013; (vi) the order entered May 17, 2013 approving the Original Class Action settlement; and (vii) the order entered May 17, 2013 awarding class counsel attorneys’ fees and costs. On January 6, 2014, Class counsel moved to dismiss these additional appeals on the grounds that they were not timely perfected by filing an appellate brief and record. On February 6, 2014, the appeals court granted the motion unless the appeals were perfected by March 17, 2014.

On March 27, 2014, the investors who challenged the buyout provision moved in the appellate court for reargument or in the alternative for leave to appeal the appeals court’s ruling to the New York Court of Appeals. Opposition to the motion was filed on April 7, 2014. The appellate court denied the motion on May 22, 2014. The investors moved in the New York Court of Appeals for leave to appeal on June 26, 2014. Opposition to this motion was filed on July 11, 2014 and the court dismissed the motion by order dated September 18, 2014. On October 20, 2014, the investors moved to re-argue that dismissal. That motion was denied on December 17, 2014, and counsel for these investors has represented that the investors do not intend to pursue further appellate review of the court’s April 30, 2013 ruling rejecting the challenge to the buyout provision. On March 3, 2015, plaintiffs' counsel filed a motion with the court for its approval of distribution of the net settlement fund. In that motion plaintiffs' counsel also asked for additional fees and expenses to be paid out of the fund. On March 20, 2015, Malkin Holdings LLC filed a response to that motion in which it supported distribution of the fund and took no position on additional fees and expenses. No opposition to the motion was filed and the court granted the motion. The parties are preparing to distribute the net settlement fund to the class.

On March 14, 2014, one of the investors who had filed a notice of appeal from the trial court’s rulings in the Original Class Actions noted above perfected an appeal from the court’s May 17, 2013 Final Judgment and Order and orders approving the Original Class Action Settlement and awarding class counsel attorneys’ fees and costs. By stipulation of all counsel to the appeal dated September 12, 2014, the appeal was dismissed with prejudice. No other appeals were filed by the March 17, 2014 deadline set by the appeals court in its February 6, 2014 order. The Original Class Actions Settlement is final and non-appealable.

In addition, commencing December 24, 2013, four putative class actions, or the "Second Class Actions," were filed in New York State Supreme Court, New York County, against Malkin Holdings LLC, Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner, Jr. on behalf of former investors in Empire State Building Associates L.L.C. Generally, the Second Class Actions alleged that the defendants breached their fiduciary duties and were unjustly enriched. One of the Second Class Actions named us and our operating partnership as defendants, alleging that they aided and abetted the breaches of fiduciary duty. The Second Class Actions were consolidated on consent, and co-lead class counsel was appointed by order dated February 11, 2014. A Consolidated Amended Complaint was filed February 7, 2014, which did not name us or our operating partnership as defendants. It seeks monetary damages. On March 7, 2014, defendants filed a motion to dismiss the Second Class Actions, which the plaintiffs opposed and was fully submitted to the court on April 28, 2014. The court heard oral arguments on the motion on July 7, 2014, and the motion to dismiss was granted in a ruling entered July 21, 2014. The plaintiffs filed a notice of appeal on August 8, 2014. On January 12, 2015, the plaintiffs filed a motion to supplement the record on appeal to include additional materials from the Original Class Action, which the defendants opposed. The motion was denied on March 5, 2015. The plaintiffs perfected this appeal by filing their brief and the appellate record with the court on March 23, 2015. The appeal is fully submitted and the court has not yet scheduled oral argument.

We will incur costs in connection with this litigation. If an appeal were successful and the court were ultimately to rule against the defendants there is a risk that it could have a material adverse effect on us, which could take the form of monetary damages or other equitable relief.

On or about October 14, 2014, the 12 investors (out of approximately 4,500 investors covered by the Original Class Actions) who opted out of the Original Class Actions filed an arbitration with the American Arbitration Association against Peter L. Malkin, Anthony E. Malkin, Thomas N. Keltner, Jr., and Malkin Holdings LLC, as respondents, alleging breach of fiduciary duty and related claims in connection with the consolidation. The statement of claim in that arbitration seeks monetary damages and declaratory relief. The respondents filed an answering statement and counterclaims. On December 18, 2014, these claimants also filed a complaint in the United States District Court for the Southern District of New York alleging the same claims that they asserted in the arbitration. As alleged in the complaint, the claimants filed this lawsuit to toll the statute of limitations on their claims in the event it is determined that the claims are not subject to arbitration, and they plan to move to stay the lawsuit in favor of the pending arbitration. On February 2, 2015, the claimants filed an amended complaint adding an additional claim and making other non-substantive modifications to the original complaint. On March 12, 2015, the court stayed the action on consent of all parties pending the arbitration.

The arbitration is in its very early stages, and, as with the prior claims challenging the consolidation and related matters, the defendants believe these allegations are entirely without merit, and they intend to defend vigorously.

In connection with the Offering and formation transactions, we entered into indemnification agreements with our directors, executive officers and chairman emeritus, providing for the indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them. As a result, Anthony E. Malkin, Peter L. Malkin and Thomas N. Keltner, Jr. have defense and indemnity rights from us with respect to the Second Class Actions and the above-referenced arbitration.

Additionally, there is a risk that other third parties will assert claims against us, Malkin Holdings LLC, or any other party entitled to defense and indemnity from us, including, without limitation, claims that Malkin Holdings LLC breached its fiduciary duties to investors in the existing entities or that the consolidation violates the relevant operating agreements, and third parties may commence litigation related to such claims. As a result, we may incur costs associated with defending or settling such litigation or paying any judgment if we lose.

Unfunded Capital Expenditures

At June 30, 2015, we estimate that we will incur approximately $64.5 million of capital expenditures (including tenant improvements and leasing commissions) on our consolidated properties pursuant to existing lease agreements. We expect to fund these capital expenditures with operating cash flow, additional property level mortgage financings, our unsecured revolving credit facility, other issuances of debt, and cash on hand. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements will be met

in a similar fashion.

Ground Leases

Aggregate required payments on ground leases at June 30, 2015 are as follows (amounts in thousands):



2015	$	758
2016	1,518
2017	1,518
2018	1,518
2019	1,518
Thereafter	58,248
	$	65,078

Concentration of Credit Risk

Financial instruments that subject us to credit risk consist primarily of cash, restricted cash, tenant and other receivables and deferred rent receivables. At June 30, 2015, we held on deposit at various major financial institutions cash and cash equivalents and restricted cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation.

Asset Retirement Obligations

We are required to accrue costs that we are legally obligated to incur on retirement of our properties which result from acquisition, construction, development and/or normal operation of such properties. Retirement includes sale, abandonment or disposal of a property. Under that standard, a conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be within a company’s control and a liability for a conditional asset retirement obligation must be recorded if the fair value of the obligation can be reasonably estimated. Environmental site assessments and investigations have identified asbestos or asbestos-containing building materials in certain of our properties. As of June 30, 2015, management has no plans to remove or alter these properties in a manner that would trigger federal and other applicable regulations for asbestos removal, and accordingly, the obligations to remove the asbestos or asbestos-containing building materials from these properties have indeterminable settlement dates. As such, we are unable to reasonably estimate the fair value of the associated conditional asset retirement obligation. However ongoing asbestos abatement, maintenance programs and other required documentation are carried out as required and related costs are expensed as incurred.

Other Environmental Matters

Certain of our properties have been inspected for soil contamination due to pollutants, which may have occurred prior to our ownership of these properties or subsequently in connection with its development and/or its use. Required remediation to such properties has been completed, and as of June 30, 2015, our management believes that there are no obligations related to environmental remediation other than maintaining the affected sites in conformity with the relevant authority’s mandates and filing the required documents. All such maintenance costs are expensed as incurred. We expect that resolution of the environmental matters relating to the above will not have a material impact on our business, assets, consolidated financial condition, results of operations or liquidity. However, we cannot be certain that we have identified all environmental liabilities at our properties, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such environmental liabilities arise.

Insurance Coverage

We carry insurance coverage on our properties of types and in amounts with deductibles that we believe are in line with coverage customarily obtained by owners of similar properties.

10. Equity

Shares and Units

An operating partnership unit ("OP Unit") and a share of our common stock have essentially the same economic characteristics as they receive the same per unit profit distributions of our operating partnership. On the one-year anniversary of issuance, an OP Unit may be tendered for redemption for cash; however, we have sole and absolute discretion and the authorized common stock to exchange OP Units for shares of common stock on a one-for-one basis.

Long-term incentive plan ("LTIP") units are a special class of partnership interests in our operating partnership. Each LTIP unit awarded will be deemed equivalent to an award of one share of stock under the Empire State Realty Trust, Inc. and Empire State OP, L.P. 2013 Equity Incentive Plan ("2013 Plan"), reducing the availability for other equity awards on a one-for-one basis. The vesting period for LTIP units, if any, will be determined at the time of issuance. Cash distributions on each LTIP unit, whether vested or not, will be the same as those made on the OP Units. Under the terms of the LTIP units, our operating partnership will revalue for tax purposes its assets upon the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated first to the holders of LTIP units to equalize the capital accounts of such holders with the capital accounts of OP unitholders. Subject to any agreed upon exceptions, once vested and having achieved parity with OP unitholders, LTIP units are convertible into OP Units in our operating partnership on a one-for-one basis.

The following is net income attributable to common stockholders and the issuance of our Class A shares in exchange for the conversion of OP units into common stock (amounts in thousands):



	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
Net income attributable to common stockholders	$	11,120	$	14,258
Increase in additional paid-in capital for the conversion of OP units into common stock	9,093		28,586
Change from net income attributable to common stockholders and transfers from noncontrolling interests	$	20,213	$	42,844

As of June 30, 2015, there were 267,586,424 OP Units outstanding, of which 114,253,886, or 42.7%, were owned by us and 153,332,538, or 57.3%, were owned by other limited partners, including certain directors, officers and other members of executive management.

Dividends and Distributions

Total dividends paid to common stockholders were $9.7 million and $19.1 million for the three and six months ended June 30, 2015, respectively, and $8.1 million and $16.3 million for the three and six months ended June 30, 2014, respectively. Total distributions paid to OP unitholders, excluding inter-company distributions, were $13.1 million and $26.4 million for the three and six months ended June 30, 2015, respectively, and $12.8 million and $25.6 million for the three and six months ended June 30, 2014, respectively. Total distributions paid to preferred unitholders were $0.2 million and $0.5 million for the three months and six months ended June 30, 2015, respectively.

Incentive and Share-Based Compensation

The 2013 Plan provides for grants to directors, employees and consultants consisting of stock options, restricted stock, dividend equivalents, stock payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. An aggregate of 12.2 million shares of our common stock is authorized for issuance under awards granted pursuant to the 2013 Plan, and as of June 30, 2015, 10.2 million shares of common stock remain available for future issuance.

In January 2015, we made a grant of LTIP units to an employee under the 2013 Plan. We granted a total of 9,531 LTIP units with a fair market value of $0.2 million. The award is subject to time-based vesting and all LTIP units vest on April 1, 2020, subject generally to the grantee's continued employment.

In February 2015, we made grants of LTIP units to executive officers under the 2013 Plan. At such time, we granted a total of 168,033 LTIP units that are subject to time-based vesting and 154,266 LTIP units that are subject to performance-based vesting, with fair market values of $2.9 million for the time-based vesting awards and $1.3 million for the performance-based vesting awards. The awards subject to time-based vesting vest ratably over four years from January 1, 2015, subject generally to the grantee's continued employment. The first installment vests on the first-year anniversary date of January 1, 2015 and the remainder will vest thereafter in three equal annual installments. The vesting of the LTIP units subject to performance-based vesting is based on the achievement of absolute and relative total stockholder return hurdles over a three-year performance period, commencing on January 1, 2015. Following the completion of the three-year performance period, our compensation committee will determine the number of LTIP units to which the grantee is entitled based on our performance relative to the performance hurdles set forth in the LTIP unit award agreements the grantee entered into in connection with the award grant. These units then vest in two installments, with the first installment vesting on January 1, 2018 and the second installment vesting on January 1, 2019, subject generally to the grantee's continued employment on those dates.

In February 2015, we made grants of LTIP units and restricted stock to certain other employees under the 2013 Plan. At such time, we granted a total of 33,398 LTIP units and 14,315 shares of restricted stock that are subject to time-based vesting and 33,398 LTIP units and 14,315 shares of restricted stock that are subject to performance-based vesting, with fair market values of $0.8 million for the time-based vesting awards and $0.4 million for the performance-based vesting awards. The awards subject to time-based vesting vest ratably over four years from January 1, 2015, subject generally to the grantee's continued employment. The first installment vests on the first-year anniversary date of January 1, 2015 and the remainder will vest thereafter in three equal annual installments. The vesting of the awards subject to performance-based vesting is based on the achievement of absolute and relative total stockholder return hurdles over a three-year performance period, commencing on January 1, 2015. Following the completion of the three-year performance period, our compensation committee will determine the number of LTIP units or shares to which the grantee is entitled based on our performance relative to the performance hurdles set forth in the award agreements the grantee entered into in connection with the award grant. These units and shares then vest in two installments, with the first installment vesting on January 1, 2018 and the second installment vesting on January 1, 2019, subject generally to the grantee's continued employment on those dates.

In February 2015, we made a grant of LTIP units to an executive officer under the 2013 Plan. At such time, we granted a total of 13,736 LTIP units that are subject to time-based vesting and 13,736 LTIP units that are subject to performance-based vesting, with fair market values of $0.2 million for the time-based vesting awards and $0.1 million for the performance-based vesting awards. The awards subject to time-based vesting vest ratably over four years from the date of the grant, subject generally to the grantee's continued employment. The first installment vests on the first-year anniversary date of the grant and the remainder will vest thereafter in three equal annual installments. The vesting of the LTIP units subject to performance-based vesting is based on the achievement of absolute and relative total stockholder return hurdles over a three-year performance period, commencing on February 1, 2015. Following the completion of the three-year performance period, our compensation committee will determine the number of LTIP units to which the grantee is entitled based on our performance relative to the performance hurdles set forth in the LTIP unit award agreements the grantee entered into in connection with the award grant. These units then vest in two installments, with the first installment vesting on February 1, 2018 and the second installment vesting on February 1, 2019, subject generally to the grantee's continued employment on those dates.

In June 2015, we made grants of LTIP units to our non-employee directors under the 2013 Plan. At such time, we granted a total of 35,082 LTIP units that are subject to time-based vesting, with fair market values of $0.6 million. The awards vest ratably over three years from the date of the grant, subject generally to the director's continued service on our Board of Directors.

We have made other grants during 2015 with fair market values of less than $0.1 million in the aggregate.

Share-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. For the performance-based LTIP units and restricted stock awards, the fair value of the awards was estimated using a Monte Carlo Simulation model. Our stock price, along with the prices of the comparative indexes, is assumed to follow the Geometric Brownian Motion Process. Geometric Brownian Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case the stock price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on our stock price and the comparative indexes were estimated based on implied volatilities and historical volatilities using a six-year look-back period. The expected growth rate of the stock prices over the performance period is determined with consideration of the risk free rate as of the grant date. For LTIP units and restricted stock grants that are time-vesting, we estimate the stock compensation expense based on the fair value of the stock at the grant date.

Share-based compensation expense has been adjusted by an amount of estimated forfeitures. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on an analysis of historical data, we have calculated a 0% annual forfeiture rate for members of the Board of Directors, a 0% annual forfeiture rate for executive officers, and for all other employees a 5% annual forfeiture rate. We reevaluate this analysis periodically and adjust these estimated forfeiture rates as necessary. To the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.

LTIP units and restricted stock issued during the six months ended June 30, 2015 were valued at $6.6 million. The weighted-average per unit or share fair value was $13.36 for grants issued in 2015. The per unit or share granted in 2015 was estimated on the respective dates of grant using the following assumptions: an expected life of 3.0 and 2.9 years, a dividend rate of 1.90%, a risk-free interest rate of 0.8% and 1.0%, and an expected price volatility between 24.0% and 29.0%.

No other stock options, dividend equivalents, or stock appreciation rights were issued or outstanding in 2015.

The following is a summary of restricted stock and LTIP unit activity for the six months ended June 30, 2015:



	Restricted Stock		LTIP Units		Weighted Average Grant Price
Unvested balance at December 31, 2014	102,296		1,194,660		$	13.78
Vested	(6,261	)	(59,875	)	15.03
Granted	30,020		461,180		18.11
Forfeited	(6,397	)	(1,108	)	15.29
Unvested balance at June 30, 2015	119,658		1,594,857		$	14.96

The LTIP unit and restricted stock award agreements will immediately vest upon the later of (i) the date the grantee attains the age of 60 and (ii) the date on which grantee has first completed ten years of continuous service with our company or its affiliates. For award agreements that qualify, we recognize noncash compensation expense on the grant date for the time-based awards and ratably over the vesting period for the performance-based awards, and accordingly, we recognized $0.5 million for the six months ended June 30, 2015 and $0.2 million for the six months ended June 30, 2014. Unrecognized compensation expense was $0.2 million at June 30, 2015, which will be recognized over a period of 1.7 years.

For the remainder of the LTIP unit and restricted stock awards, we recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized noncash compensation expense of $1.2 million and $2.4 million for the three and six months ended June 30, 2015, respectively, and $1.0 million and $1.9 million for the three and six months ended June 30, 2014, respectively. Unrecognized compensation expense was $13.0 million at June 30, 2015, which will be recognized over a weighted average period of 2.7 years.

Earnings Per Share

Earnings per share for the three and six months ended June 30, 2015 and 2014 is computed as follows (amounts in thousands, except per share amounts):



	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Numerator - Basic:
Net income	$	26,585		$	25,281		$	34,473		$	36,512
Private perpetual preferred unit distributions	(234		)	—			(468		)	—
Net income attributable to non-controlling interests	(15,231		)	(15,447		)	(19,747		)	(22,309		)
Earnings allocated to unvested shares	(7		)	(9		)	(13		)	(19		)
Net income attributable to common stockholders - basic	$	11,113		$	9,825		$	14,245		$	14,184

Numerator - Diluted:
Net income	$	26,585		$	25,281		$	34,473		$	36,512
Private perpetual preferred unit distributions	(234		)	—			(468		)	—
Earnings allocated to unvested shares and LTIP units	(161		)	(108		)	(284		)	(247		)
Net income attributable to common stockholders - diluted	$	26,190		$	25,173		$	33,721		$	36,265

Denominator:
Weighted average shares outstanding - basic	112,852			95,466			111,136			95,466
Operating partnership units	153,015			148,970			154,730			148,965
Weighted average shares outstanding - diluted	265,867			244,436			265,866			244,431

Earnings per share:
Basic	$	0.10		$	0.10		$	0.13		$	0.15
Diluted	$	0.10		$	0.10		$	0.13		$	0.15

There were 744,007 and 628,935 antidilutive shares and LTIP units for the three and six months ended June 30, 2015, respectively, and 677,605 and 576,975 antidilutive shares and LTIP units for the three and six months ended June 30, 2014, respectively.

11. Related Party Transactions

Supervisory Fee Revenue

We earned supervisory fees from affiliated entities not included in our condensed consolidated financial statements of $0.5 million and $0.6 million for the three months ended June 30, 2015 and 2014, respectively, and $0.9 million and $1.1 million for the six months ended June 30, 2015 and 2014, respectively. These fees are included within third-party management and other fees.

Property Management Fee Revenue

We earned property management fees from affiliated entities not included in our condensed consolidated financial statements of $0.1 million and $0.1 million for the three months ended June 30, 2015 and 2014, respectively, and $0.2 million and $0.2 million for the six months ended June 30, 2015 and 2014, respectively. These fees are included within third-party management and other fees.

Other

We are reimbursed at allocable cost for 647 square feet of shared office space, equipment, and administrative support as was done prior to our formation, and we receive rent generally at market rental rate for 3,074 square feet of leased space, from entities affiliated with Anthony E. Malkin at one of our properties aggregating $0.05 million and $0.05 million for the three months ended June 30, 2015 and 2014, respectively and $0.1 million and $0.1 million for the six months ended June 30, 2015 and 2014, respectively. In each case the space is expected to be temporary, and such affiliate has the right to cancel such lease without special payment on 90 days’ notice.

12. Segment Reporting

We have identified two reportable segments: (1) real estate and (2) observatory. Our real estate segment includes all activities related to the ownership, management, operation, acquisition, redevelopment, repositioning and disposition of our real estate assets. Our observatory segment includes the operation of the 86th and 102nd floor observatories at the Empire State Building. These two lines of businesses are managed separately because each business requires different support infrastructures, provides different services and has dissimilar economic characteristics such as investments needed, stream of revenues and marketing strategies. We account for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. We include our historical construction operation in "Other," and it includes all activities related to providing construction services to tenants and to other entities within and outside our company. As of March 27, 2015, we no longer solicited new business for our construction management business. We completed all projects that were in progress.

The following tables provide components of segment profit for each segment for the three and six months ended June 30, 2015 and 2014 (amounts in thousands):



	Three Months Ended June 30, 2015
	Real Estate			Observatory			Other		Intersegment Elimination			Total
Revenues:
Rental revenue	$	112,866		$	—		$	—	$	—		$	112,866
Intercompany rental revenue	18,910			—			—		(18,910		)	—
Tenant expense reimbursement	18,582			—			—		—			18,582
Observatory revenue	—			30,600			—		—			30,600
Construction revenue	—			—			1,774		(1,400		)	374
Third-party management and other fees	594			—			—		—			594
Other revenue and fees	1,757			—			—		—			1,757
Total revenues	152,709			30,600			1,774		(20,310		)	164,773
Operating expenses:
Property operating expenses	37,935			—			—		—			37,935
Intercompany rent expense	—			18,910			—		(18,910		)	—
Ground rent expense	2,332			—			—		—			2,332
Marketing, general, and administrative expenses	9,113			—			—		—			9,113
Observatory expenses	—			7,420			—		—			7,420
Construction expenses	—			—			1,566		(1,213		)	353
Real estate taxes	22,952			—			—		—			22,952
Depreciation and amortization	39,542			87			—		—			39,629
Total operating expenses	111,874			26,417			1,566		(20,123		)	119,734
Total operating income (loss)	40,835			4,183			208		(187		)	45,039
Interest expense	(17,571		)	—			—		—			(17,571		)
Income (loss) before income taxes	23,264			4,183			208		(187		)	27,468
Income tax (expense) benefit	(422		)	(528		)	67		—			(883		)
Net income (loss)	$	22,842		$	3,655		$	275	$	(187	)	$	26,585
Segment assets	$	3,051,768		$	240,374		$	1,822	$	—		$	3,293,964
Expenditures for segment assets	$	31,796		$	24		$	—	$	—		$	31,820



	Three Months Ended June 30, 2014
	Real Estate			Observatory			Other		Intersegment Elimination			Total
Revenues:
Rental revenue	$	92,210		$	—		$	—	$	—		$	92,210
Intercompany rental revenue	16,298			—			—		(16,298		)	—
Tenant expense reimbursement	14,304			—			—		—			14,304
Observatory revenue	—			30,389			—		—			30,389
Construction revenue	—			—			13,864		(901		)	12,963
Third-party management and other fees	753			—			—		—			753
Other revenue and fees	4,549			—			—		—			4,549
Total revenues	128,114			30,389			13,864		(17,199		)	155,168
Operating expenses:
Property operating expenses	35,149			—			—		—			35,149
Intercompany rent expense	—			16,298			—		(16,298		)	—
Ground rent expense	447			—			—		—			447
Marketing, general, and administrative expenses	9,560			—			—		—			9,560
Observatory expenses	—			7,120			—		—			7,120
Construction expenses	—			—			13,582		(787		)	12,795
Real estate taxes	18,186			—			—		—			18,186
Acquisition expenses	735			—			—		—			735
Depreciation and amortization	28,556			77			4		—			28,637
Total operating expenses	92,633			23,495			13,586		(17,085		)	112,629
Total operating income (loss)	35,481			6,894			278		(114		)	42,539
Interest expense	(14,629		)	—			—		—			(14,629		)
Income (loss) before income taxes	20,852			6,894			278		(114		)	27,910
Income tax (expense) benefit	(630		)	(2,381		)	382		—			(2,629		)
Net income (loss)	$	20,222		$	4,513		$	660	$	(114	)	$	25,281
Segment assets	$	2,221,530		$	243,189		$	11,906	$	—		$	2,476,625
Expenditures for segment assets	$	37,735		$	—		$	—	$	—		$	37,735



	Six Months Ended June 30, 2015
	Real Estate			Observatory		Other			Intersegment Elimination			Total
Revenues:
Rental revenue	$	222,924		$	—	$	—		$	—		$	222,924
Intercompany rental revenue	30,574			—		—			(30,574		)	—
Tenant expense reimbursement	36,782			—		—			—			36,782
Observatory revenue	—			48,823		—			—			48,823
Construction revenue	—			—		5,696			(3,715		)	1,981
Third-party management and other fees	1,040			—		—			—			1,040
Other revenue and fees	5,105			—		—			—			5,105
Total revenues	296,425			48,823		5,696			(34,289		)	316,655
Operating expenses:
Property operating expenses	80,387			—		—			—			80,387
Intercompany rent expense	—			30,574		—			(30,574		)	—
Ground rent expense	4,663			—		—			—			4,663
Marketing, general, and administrative expenses	18,213			—		—			—			18,213
Observatory expenses	—			14,397		—			—			14,397
Construction expenses	—			—		6,539			(3,317		)	3,222
Real estate taxes	45,930			—		—			—			45,930
Depreciation and amortization	80,775			171		101			—			81,047
Total operating expenses	229,968			45,142		6,640			(33,891		)	247,859
Total operating income (loss)	66,457			3,681		(944		)	(398		)	68,796
Interest expense	(33,618		)	—		—			—			(33,618		)
Income (loss) before income taxes	32,839			3,681		(944		)	(398		)	35,178