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, 2018 and 2017 (amounts in thousands):



	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) benefit	(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



	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
Lease termination fees	1,251			—			—			1,251
Third-party management and other fees	392			—			—			392
Other revenue and fees	2,327			—			—			2,327
Total revenues	163,058			33,966			(20,675		)	176,349
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	44,618			6,041			—			50,659
Other income (expense):
Interest income	775			—			—			775
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) benefit	(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



	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



	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
Lease termination fees	9,189			—			—			9,189
Third-party management and other fees	743			—			—			743
Other revenue and fees	4,344			—			—			4,344
Total revenues	319,829			54,906			(34,053		)	340,682
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
Depreciation and amortization	81,291			87			—			81,378
Total operating expenses	239,460			48,571			(34,053		)	253,978
Total operating income	80,369			6,335			—			86,704
Other income (expense):
Interest income	1,396			—			—			1,396
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