Segment Reporting

6 Months Ended

Jun. 30, 2019

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 traditional 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, 2019 and 2018 (amounts in thousands):



	Three Months Ended June 30, 2019
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	141,071		$	—		$	—		$	141,071
Intercompany rental revenue	21,491			—			(21,491		)	—
Observatory revenue	—			32,895			—			32,895
Lease termination fees	363			—			—			363
Third-party management and other fees	331			—			—			331
Other revenue and fees	1,584			—			—			1,584
Total revenues	164,840			32,895			(21,491		)	176,244
Operating expenses:
Property operating expenses	40,227			—			—			40,227
Intercompany rent expense	—			21,491			(21,491		)	—
Ground rent expense	2,332			—			—			2,332
General and administrative expenses	15,998			—			—			15,998
Observatory expenses	—			8,360			—			8,360
Real estate taxes	28,267			—			—			28,267
Depreciation and amortization	44,813			8			—			44,821
Total operating expenses	131,637			29,859			(21,491		)	140,005
Total operating income	33,203			3,036			—			36,239
Other income (expense):
Interest income	3,899			—			—			3,899
Interest expense	(20,597		)	—			—			(20,597		)
Income before income taxes	16,505			3,036			—			19,541
Income tax expense	(261		)	(350		)	—			(611		)
Net income	$	16,244		$	2,686		$	—		$	18,930
Segment assets	$	3,891,038		$	264,537		$	—		$	4,155,575
Expenditures for segment assets	$	47,433		$	14,539		$	—		$	61,972



	Three Months Ended June 30, 2018
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	124,038		$	—		$	—		$	124,038
Intercompany rental revenue	21,990			—			(21,990		)	—
Tenant expense reimbursement	16,205			—			—			16,205
Observatory revenue	—			35,201			—			35,201
Lease termination fees	357			—			—			357
Third-party management and other fees	376			—			—			376
Other revenue and fees	2,352			—			—			2,352
Total revenues	165,318			35,201			(21,990		)	178,529
Operating expenses:
Property operating expenses	39,418			—			—			39,418
Intercompany rent expense	—			21,990			(21,990		)	—
Ground rent expense	2,332			—			—			2,332
General and administrative expenses	13,225			—			—			13,225
Observatory expenses	—			7,678			—			7,678
Real estate taxes	26,743			—			—			26,743
Depreciation and amortization	39,452			16			—			39,468
Total operating expenses	121,170			29,684			(21,990		)	128,864
Total operating income	44,148			5,517			—			49,665
Other income (expense):
Interest income	2,499			—			—			2,499
Interest expense	(20,525		)	—			—			(20,525		)
Income before income taxes	26,122			5,517			—			31,639
Income tax expense	(268		)	(1,187		)	—			(1,455		)
Net income	$	25,854		$	4,330		$	—		$	30,184
Segment assets	$	3,902,676		$	260,229		$	—		$	4,162,905
Expenditures for segment assets	$	61,017		$	15,872		$	—		$	76,889



	Six Months Ended June 30, 2019
	Real Estate			Observatory		Intersegment Elimination			Total
Revenues:
Rental revenue	$	284,488		$	—	$	—		$	284,488
Intercompany rental revenue	35,512			—		(35,512		)	—
Observatory revenue	—			53,464		—			53,464
Lease termination fees	751			—		—			751
Third-party management and other fees	651			—		—			651
Other revenue and fees	4,183			—		—			4,183
Total revenues	325,585			53,464		(35,512		)	343,537
Operating expenses:
Property operating expenses	83,182			—		—			83,182
Intercompany rent expense	—			35,512		(35,512		)	—
Ground rent expense	4,663			—		—			4,663
General and administrative expenses	30,024			—		—			30,024
Observatory expenses	—			15,935		—			15,935
Real estate taxes	56,499			—		—			56,499
Depreciation and amortization	90,904			15		—			90,919
Total operating expenses	265,272			51,462		(35,512		)	281,222
Total operating income	60,313			2,002		—			62,315
Other income (expense):
Interest income	7,638			—		—			7,638
Interest expense	(41,286		)	—		—			(41,286		)
Income before income taxes	26,665			2,002		—			28,667
Income tax (expense) benefit	(495		)	614		—			119
Net income	$	26,170		$	2,616	$	—		$	28,786
Expenditures for segment assets	$	91,964		$	28,328	$	—		$	120,292



	Six Months Ended June 30, 2018
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	246,349		$	—		$	—		$	246,349
Intercompany rental revenue	35,551			—			(35,551		)	—
Tenant expense reimbursement	33,999			—			—			33,999
Observatory revenue	—			56,450			—			56,450
Lease termination fees	979			—			—			979
Third-party management and other fees	839			—			—			839
Other revenue and fees	7,184			—			—			7,184
Total revenues	324,901			56,450			(35,551		)	345,800
Operating expenses:
Property operating expenses	83,603			—			—			83,603
Intercompany rent expense	—			35,551			(35,551		)	—
Ground rent expense	4,663			—			—			4,663
General and administrative expenses	25,853			—			—			25,853
Observatory expenses	—			15,014			—			15,014
Real estate taxes	53,487			—			—			53,487
Depreciation and amortization	79,317			34			—			79,351
Total operating expenses	246,923			50,599			(35,551		)	261,971
Total operating income	77,978			5,851			—			83,829
Other income (expense):
Interest income	3,724			—			—			3,724
Interest expense	(38,116		)	—			—			(38,116		)
Income before income taxes	43,586			5,851			—			49,437
Income tax expense	(575		)	(620		)	—			(1,195		)
Net income	$	43,011		$	5,231		$	—		$	48,242
Expenditures for segment assets	$	95,816		$	27,423		$	—		$	123,239