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 months ended March 31, 2018 and 2017 (amounts in thousands):



	Three Months Ended March 31, 2018
	Real Estate			Observatory		Intersegment Elimination			Total
Revenues:
Rental revenue	$	122,311		$	—	$	—		$	122,311
Intercompany rental revenue	13,561			—		(13,561		)	—
Tenant expense reimbursement	17,794			—		—			17,794
Observatory revenue	—			21,249		—			21,249
Lease termination fees	622			—		—			622
Third-party management and other fees	463			—		—			463
Other revenue and fees	6,057			—		—			6,057
Total revenues	160,808			21,249		(13,561		)	168,496
Operating expenses:
Property operating expenses	44,185			—		—			44,185
Intercompany rent expense	—			13,561		(13,561		)	—
Ground rent expense	2,331			—		—			2,331
General and administrative expenses	12,628			—		—			12,628
Observatory expenses	—			7,336		—			7,336
Real estate taxes	26,744			—		—			26,744
Depreciation and amortization	39,865			18		—			39,883
Total operating expenses	125,753			20,915		(13,561		)	133,107
Total operating income	35,055			334		—			35,389
Other expenses:
Interest expense	(17,591		)	—		—			(17,591		)
Income before income taxes	17,464			334		—			17,798
Income tax (expense) benefit	(307		)	567		—			260
Net income	$	17,157		$	901	$	—		$	18,058
Segment assets	$	3,887,337		$	254,476	$	—		$	4,141,813
Expenditures for segment assets	$	34,797		$	11,553	$	—		$	46,350



	Three Months Ended March 31, 2017
	Real Estate			Observatory		Intersegment Elimination			Total
Revenues:
Rental revenue	$	117,113		$	—	$	—		$	117,113
Intercompany rental revenue	13,378			—		(13,378		)	—
Tenant expense reimbursement	15,974			—		—			15,974
Observatory revenue	—			20,940		—			20,940
Lease termination fees	7,938			—		—			7,938
Third-party management and other fees	351			—		—			351
Other revenue and fees	2,638			—		—			2,638
Total revenues	157,392			20,940		(13,378		)	164,954
Operating expenses:
Property operating expenses	42,210			—		—			42,210
Intercompany rent expense	—			13,378		(13,378		)	—
Ground rent expense	2,331			—		—			2,331
General and administrative expenses	11,088			—		—			11,088
Observatory expenses	—			7,255		—			7,255
Real estate taxes	24,558			—		—			24,558
Depreciation and amortization	40,833			13		—			40,846
Total operating expenses	121,020			20,646		(13,378		)	128,288
Total operating income	36,372			294		—			36,666
Other expenses:
Interest expense	(17,742		)	—		—			(17,742		)
Loss from derivative financial instruments	(247		)	—		—			(247		)
Income before income taxes	18,383			294		—			18,677
Income tax (expense) benefit	(283		)	751		—			468
Net income	$	18,100		$	1,045	$	—		$	19,145
Segment assets	$	3,617,276		$	248,900	$	—		$	3,866,176
Expenditures for segment assets	$	48,054		$	6	$	—		$	48,060