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 rent as if the sales or rent were to third parties, that is, at current market prices.

The following tables provide components of segment profit for each segment for the three and six months ended June 30, 2017 and 2016 (amounts in thousands):



	Three Months Ended June 30, 2017
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	120,844		$	—		$	—		$	120,844
Intercompany rental revenue	20,675			—			(20,675		)	—
Tenant expense reimbursement	17,569			—			—			17,569
Observatory revenue	—			33,966			—			33,966
Third-party management and other fees	392			—			—			392
Other revenue and fees	4,353			—			—			4,353
Total revenues	163,833			33,966			(20,675		)	177,124
Operating expenses:
Property operating expenses	38,529			—			—			38,529
Intercompany rent expense	—			20,675			(20,675		)	—
Ground rent expense	2,332			—			—			2,332
General and administrative expenses	12,579			—			—			12,579
Observatory expenses	—			7,176			—			7,176
Real estate taxes	24,542			—			—			24,542
Depreciation and amortization	40,458			74			—			40,532
Total operating expenses	118,440			27,925			(20,675		)	125,690
Total operating income	45,393			6,041			—			51,434
Other expense:
Interest expense	(17,477		)	—			—			(17,477		)
Loss from derivative financial instruments	(42		)	—			—			(42		)
Income before income taxes	27,874			6,041			—			33,915
Income tax expense	(413		)	(2,143		)	—			(2,556		)
Net income	$	27,461		$	3,898		$	—		$	31,359
Segment assets	$	3,579,873		$	251,328		$	—		$	3,831,201
Expenditures for segment assets	$	54,474		$	6,850		$	—		$	61,324



	Three Months Ended June 30, 2016
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	112,613		$	—		$	—		$	112,613
Intercompany rental revenue	18,488			—			(18,488		)	—
Tenant expense reimbursement	19,054			—			—			19,054
Observatory revenue	—			31,838			—			31,838
Third-party management and other fees	423			—			—			423
Other revenue and fees	1,882			5			—			1,887
Total revenues	152,460			31,843			(18,488		)	165,815
Operating expenses:
Property operating expenses	37,386			—			—			37,386
Intercompany rent expense	—			18,488			(18,488		)	—
Ground rent expense	2,330			—			—			2,330
General and administrative expenses	12,907			—			—			12,907
Observatory expenses	—			6,895			—			6,895
Real estate taxes	23,557			—			—			23,557
Acquisition expenses	—			—			—			—
Depreciation and amortization	38,451			97			—			38,548
Total operating expenses	114,631			25,480			(18,488		)	121,623
Total operating income	37,829			6,363			—			44,192
Interest expense	(17,420		)	—			—			(17,420		)
Income before income taxes	20,409			6,363			—			26,772
Income tax expense	(281		)	(1,851		)	—			(2,132		)
Net income	$	20,128		$	4,512		$	—		$	24,640
Segment assets	$	3,056,928		$	244,726		$	—		$	3,301,654
Expenditures for segment assets	$	63,766		$	47		$	—		$	63,813



	Six Months Ended June 30, 2017
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	237,957		$	—		$	—		$	237,957
Intercompany rental revenue	34,053			—			(34,053		)	—
Tenant expense reimbursement	33,543			—			—			33,543
Observatory revenue	—			54,906			—			54,906
Third-party management and other fees	743			—			—			743
Other revenue and fees	14,929			—			—			14,929
Total revenues	321,225			54,906			(34,053		)	342,078
Operating expenses:
Property operating expenses	80,739			—			—			80,739
Intercompany rent expense	—			34,053			(34,053		)	—
Ground rent expense	4,663			—			—			4,663
General and administrative expenses	23,667			—			—			23,667
Observatory expenses	—			14,431			—			14,431
Real estate taxes	49,100			—			—			49,100
Acquisition expenses	—			—			—			—
Depreciation and amortization	81,291			87			—			81,378
Total operating expenses	239,460			48,571			(34,053		)	253,978
Total operating income	81,765			6,335			—			88,100
Interest expense	(35,219		)	—			—			(35,219		)
Loss from derivative financial instruments	(289		)	—			—			(289		)
Income before income taxes	46,257			6,335			—			52,592
Income tax expense	(696		)	(1,392		)	—			(2,088		)
Net income	$	45,561		$	4,943		$	—		$	50,504
Expenditures for segment assets	$	102,534		$	6,850		$	—		$	109,384



	Six Months Ended June 30, 2016
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	227,521		$	—		$	—		$	227,521
Intercompany rental revenue	32,206			—			(32,206		)	—
Tenant expense reimbursement	37,174			—			—			37,174
Observatory revenue	—			53,019			—			53,019
Third-party management and other fees	968			—			—			968
Other revenue and fees	4,202			5			—			4,207
Total revenues	302,071			53,024			(32,206		)	322,889
Operating expenses:
Property operating expenses	76,490			—			—			76,490
Intercompany rent expense	—			32,206			(32,206		)	—
Ground rent expense	4,663			—			—			4,663
General and administrative expenses	23,825			—			—			23,825
Observatory expenses	—			14,650			—			14,650
Real estate taxes	47,082			—			—			47,082
Acquisition expenses	98			—			—			98
Depreciation and amortization	77,581			194			—			77,775
Total operating expenses	229,739			47,050			(32,206		)	244,583
Total operating income	72,332			5,974			—			78,306
Interest expense	(35,371		)	—			—			(35,371		)
Income before income taxes	36,961			5,974			—			42,935
Income tax expense	(686		)	(904		)	—			(1,590		)
Net income	$	36,275		$	5,070		$	—		$	41,345
Expenditures for segment assets	$	87,224		$	47		$	—		$	87,271