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 nine months ended September 30, 2017 and 2016 (amounts in thousands):



	Three Months Ended September 30, 2017
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	122,391		$	—		$	—		$	122,391
Intercompany rental revenue	23,301			—			(23,301		)	—
Tenant expense reimbursement	20,346			—			—			20,346
Observatory revenue	—			39,306			—			39,306
Third-party management and other fees	345			—			—			345
Other revenue and fees	4,932			—			—			4,932
Total revenues	171,315			39,306			(23,301		)	187,320
Operating expenses:
Property operating expenses	41,270			—			—			41,270
Intercompany rent expense	—			23,301			(23,301		)	—
Ground rent expense	2,331			—			—			2,331
General and administrative expenses	12,899			—			—			12,899
Observatory expenses	—			8,648			—			8,648
Real estate taxes	26,901			—			—			26,901
Depreciation and amortization	38,473			17			—			38,490
Total operating expenses	121,874			31,966			(23,301		)	130,539
Total operating income	49,441			7,340			—			56,781
Other expenses:
Interest expense	(16,890		)	—			—			(16,890		)
Loss on early extinguishment of debt	(2,157		)	—			—			(2,157		)
Loss from derivative financial instruments	—			—			—			—
Income before income taxes	30,394			7,340			—			37,734
Income tax expense	(264		)	(1,981		)	—			(2,245		)
Net income	$	30,130		$	5,359		$	—		$	35,489
Segment assets	$	3,582,935		$	265,999		$	—		$	3,848,934
Expenditures for segment assets	$	40,320		$	13,411		$	—		$	53,731



	Three Months Ended September 30, 2016
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	115,634		$	—		$	—		$	115,634
Intercompany rental revenue	22,983			—			(22,983		)	—
Tenant expense reimbursement	19,176			—			—			19,176
Observatory revenue	—			38,093			—			38,093
Third-party management and other fees	404			—			—			404
Other revenue and fees	2,536			5			—			2,541
Total revenues	160,733			38,098			(22,983		)	175,848
Operating expenses:
Property operating expenses	38,585			—			—			38,585
Intercompany rent expense	—			22,983			(22,983		)	—
Ground rent expense	2,331			—			—			2,331
General and administrative expenses	11,798			—			—			11,798
Observatory expenses	—			7,250			—			7,250
Real estate taxes	24,691			—			—			24,691
Acquisition expenses	—			—			—			—
Depreciation and amortization	37,421			186			—			37,607
Total operating expenses	114,826			30,419			(22,983		)	122,262
Total operating income	45,907			7,679			—			53,586
Other expenses:
Interest expense	(17,939		)	—			—			(17,939		)
Loss on early extinguishment of debt	—			—			—			—
Loss from derivative financial instruments	—			—			—			—
Income before income taxes	27,968			7,679			—			35,647
Income tax expense	(332		)	(2,418		)	—			(2,750		)
Net income	$	27,636		$	5,261		$	—		$	32,897
Segment assets	$	3,636,262		$	246,307		$	—		$	3,882,569
Expenditures for segment assets	$	52,828		$	—		$	—		$	52,828



	Nine Months Ended September 30, 2017
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	360,348		$	—		$	—		$	360,348
Intercompany rental revenue	57,354			—			(57,354		)	—
Tenant expense reimbursement	53,889			—			—			53,889
Observatory revenue	—			94,212			—			94,212
Third-party management and other fees	1,088			—			—			1,088
Other revenue and fees	19,861			—			—			19,861
Total revenues	492,540			94,212			(57,354		)	529,398
Operating expenses:
Property operating expenses	122,009			—			—			122,009
Intercompany rent expense	—			57,354			(57,354		)	—
Ground rent expense	6,994			—			—			6,994
General and administrative expenses	36,566			—			—			36,566
Observatory expenses	—			23,079			—			23,079
Real estate taxes	76,001			—			—			76,001
Acquisition expenses	—			—			—			—
Depreciation and amortization	119,764			104			—			119,868
Total operating expenses	361,334			80,537			(57,354		)	384,517
Total operating income	131,206			13,675			—			144,881
Other expenses:
Interest expense	(52,109		)	—			—			(52,109		)
Loss on early extinguishment of debt	(2,157		)	—			—			(2,157		)
Loss from derivative financial instruments	(289		)	—			—			(289		)
Income before income taxes	76,651			13,675			—			90,326
Income tax expense	(960		)	(3,373		)	—			(4,333		)
Net income	$	75,691		$	10,302		$	—		$	85,993
Expenditures for segment assets	$	142,854		$	20,261		$	—		$	163,115



	Nine Months Ended September 30, 2016
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	343,155		$	—		$	—		$	343,155
Intercompany rental revenue	55,189			—			(55,189		)	—
Tenant expense reimbursement	56,350			—			—			56,350
Observatory revenue	—			91,112			—			91,112
Third-party management and other fees	1,372			—			—			1,372
Other revenue and fees	6,738			10			—			6,748
Total revenues	462,804			91,122			(55,189		)	498,737
Operating expenses:
Property operating expenses	115,075			—			—			115,075
Intercompany rent expense	—			55,189			(55,189		)	—
Ground rent expense	6,994			—			—			6,994
General and administrative expenses	35,623			—			—			35,623
Observatory expenses	—			21,900			—			21,900
Real estate taxes	71,773			—			—			71,773
Acquisition expenses	98			—			—			98
Depreciation and amortization	115,002			380			—			115,382
Total operating expenses	344,565			77,469			(55,189		)	366,845
Total operating income	118,239			13,653			—			131,892
Other expenses:
Interest expense	(52,758		)	—			—			(52,758		)
Loss on early extinguishment of debt	(552		)	—			—			(552		)
Loss from derivative financial instruments	—			—			—			—
Income before income taxes	64,929			13,653			—			78,582
Income tax expense	(1,018		)	(3,322		)	—			(4,340		)
Net income	$	63,911		$	10,331		$	—		$	74,242
Expenditures for segment assets	$	140,052		$	47		$	—		$	140,099