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, repositioning and disposition of our real estate assets. Our observatory segment operates 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 different marketing strategies. We account for intersegment sales and rents as if the sales or rents 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 years ended December 31, 2017, 2016 and 2015, as reviewed by management (amounts in thousands):



	2017
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	483,944		$	—		$	—		$	483,944
Intercompany rental revenue	77,646			—			(77,646		)	—
Tenant expense reimbursement	73,679			—			—			73,679
Observatory revenue	—			127,118			—			127,118
Third-party management and other fees	1,400			—			—			1,400
Other revenue and fees	26,327			—			—			26,327
Total revenues	662,996			127,118			(77,646		)	712,468
Operating expenses:
Property operating expenses	163,531			—			—			163,531
Intercompany rent expense	—			77,646			(77,646		)	—
Ground rent expense	9,326			—			—			9,326
General and administrative expenses	50,315			—			—			50,315
Observatory expenses	—			30,275			—			30,275
Real estate taxes	102,466			—			—			102,466
Depreciation and amortization	160,630			80			—			160,710
Total operating expenses	486,268			108,001			(77,646		)	516,623
Total operating income	176,728			19,117			—			195,845
Interest expense	(68,473		)	—			—			(68,473		)
Loss on early extinguishment of debt	(2,157		)	—			—			(2,157		)
Loss from derivative financial instruments	(289		)	—			—			(289		)
Income before income taxes	105,809			19,117			—			124,926
Income tax expense	(1,306		)	(5,367		)	—			(6,673		)
Net income	$	104,503		$	13,750		$	—		$	118,253
Segment assets	$	3,670,907		$	260,440		$	—		$	3,931,347
Expenditures for segment assets	$	191,541		$	36,621		$	—		$	228,162



	2016
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	460,653		$	—		$	—		$	460,653
Intercompany rental revenue	75,658			—			(75,658		)	—
Tenant expense reimbursement	73,459			—			—			73,459
Observatory revenue	—			124,814			—			124,814
Third-party management and other fees	1,766			—			—			1,766
Other revenue and fees	17,293			15			—			17,308
Total revenues	628,829			124,829			(75,658		)	678,000
Operating expenses:
Property operating expenses	153,850			—			—			153,850
Intercompany rent expense	—			75,658			(75,658		)	—
Ground rent expense	9,326			—			—			9,326
General and administrative expenses	49,078			—			—			49,078
Observatory expenses	—			29,833			—			29,833
Real estate taxes	96,061			—			—			96,061
Acquisition expenses	98			—			—			98
Depreciation and amortization	154,817			394			—			155,211
Total operating expenses	463,230			105,885			(75,658		)	493,457
Total operating income (loss)	165,599			18,944			—			184,543
Interest expense	(70,595		)	—			—			(70,595		)
Loss on early extinguishment of debt	(552		)	—			—			(552		)
Income before income taxes	94,452			18,944			—			113,396
Income tax expense	(1,361		)	(4,785		)	—			(6,146		)
Net income	$	93,091		$	14,159		$	—		$	107,250
Segment assets	$	3,641,844		$	249,109		$	—		$	3,890,953
Expenditures for segment assets	$	197,680		$	—		$	—		$	197,680



	2015
	Real Estate			Observatory			Other			Intersegment Elimination			Total
Revenues:
Rental revenue	$	447,784		$	—		$	—		$	—		$	447,784
Intercompany rental revenue	68,255			—			—			(68,255		)	—
Tenant expense reimbursement	79,516			—			—			—			79,516
Observatory revenue	—			112,172			—			—			112,172
Construction revenue	—			—			5,696			(3,715		)	1,981
Third-party management and other fees	2,133			—			—			—			2,133
Other revenue and fees	14,048			—			—			—			14,048
Total revenues	611,736			112,172			5,696			(71,970		)	657,634
Operating expenses:
Property operating expenses	158,638			—			—			—			158,638
Intercompany rent expense	—			68,255			—			(68,255		)	—
Ground rent expense	9,326			—			—			—			9,326
General and administrative expenses	38,073			—			—			—			38,073
Observatory expenses	—			32,174			—			—			32,174
Construction expenses	—			—			6,539			(3,317		)	3,222
Real estate taxes	93,165			—			—			—			93,165
Acquisition expenses	193			—			—			—			193
Depreciation and amortization	171,035			338			101			—			171,474
Total operating expenses	470,430			100,767			6,640			(71,572		)	506,265
Total operating income (loss)	141,306			11,405			(944		)	(398		)	151,369
Interest expense	(65,743		)	—			—			—			(65,743		)
Loss on early extinguishment of debt	(1,749		)	—			—			—			(1,749		)
Income (loss) before income taxes	73,814			11,405			(944		)	(398		)	83,877
Income tax (expense) benefit	(1,498		)	(2,791		)	340			—			(3,949		)
Net income	$	72,316		$	8,614		$	(604	)	$	(398	)	$	79,928
Segment assets	$	3,058,250		$	241,511		$	889		$	—		$	3,300,650
Expenditures for segment assets	$	156,543		$	211		$	—		$	—		$	156,754