Capital

As of December 31, 2013, there were approximately 245.5 million operating partnership units outstanding, of which approximately 95.6 million, or 38.9%, were owned by ESRT and approximately 149.9 million, or 61.1%, were owned by other partners, including ESRT directors, members of ESRT senior management and other ESRT employees.

Long-term incentive plan ("LTIP") units are a special class of partnership interests. Each LTIP unit awarded will be deemed equivalent to an award of one share of ESRT stock under the 2013 Equity Incentive Plan ("2013 Plan"), reducing the availability for other equity awards on a one-for-one basis. The vesting period for LTIP units, if any, will be determined at the time of issuance. Cash distributions on each LTIP unit, whether vested or not, will be the same as those made on the operating partnership units. Under the terms of the LTIP units, we will revalue for tax purposes its assets upon the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated first to the holders of LTIP units to equalize the capital accounts of such holders with the capital accounts of unitholders. Subject to any agreed upon exceptions, once vested and having achieved parity with unitholders, LTIP units are convertible into operating partnership units on a one for one basis.

Distributions

During 2013, we declared a partial distribution of $0.0795 per operating partnership unit, which was paid on December 30, 2013, to securityholders of record on December 16, 2013 for the period from October 7, 2013 to December 31, 2013, representing a pro-ration of a full quarter distribution of $0.085 per share. Total distributions paid to unitholders during 2013 totaled $19.5 million.

Incentive and Share-Based Compensation

In connection with Offering, we adopted our 2013 Plan. The 2013 Plan provides for grants to directors, employees and consultants of our company and ESRT, stock options, restricted stock, dividend equivalents, stock payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. An aggregate of approximately 12.2 million shares of ESRT common stock are authorized for issuance under awards granted pursuant to the 2013 Plan, and as of December 31, 2013, approximately 11.1 million shares of ESRT common stock remain available for future issuance.

Concurrently with the closing of the Offering, we and ESRT made grants of LTIP units to executive officers under the 2013 Plan. At such time, we granted a total of 440,192 LTIP units that are subject to time-based vesting and 146,730 LTIP units that are subject to performance-based vesting, with fair market values of $5.4 million for the time-based vesting awards and $0.9 million for the performance-based vesting awards. The awards subject to time-based vesting vest in four substantially equal installments, subject to the grantee's continued employment. The first installment vests on the first anniversary of the grant date and the remainder will vest thereafter in three equal annual installments. The vesting of the LTIP units subject to performance-based vesting is based on the achievement of absolute and relative total stockholder return hurdles over a three-year performance period, commencing on October 2, 2013. Following the completion of the three-year performance period, our compensation committee will determine the number of shares to which the grantee is entitled based on our performance relative to the performance hurdles set forth in the LTIP units award agreements the grantee entered into in connection with the initial award grant. These units then vest in two substantially equal installments, with the first installment vesting on the third anniversary of the grant date and the second installment vesting on the fourth anniversary of the grant date, subject to the grantee's continued employment on those dates.

Concurrently with the closing of the Offering, we and ESRT made grants of LTIP units and ESRT restricted stock to certain other employees under the 2013 Plan. At such time, we and ESRT granted a total of 193,059 LTIP units and 119,146 shares of ESRT restricted stock that are subject to time-based vesting and 64,352 LTIP units and 39,706 shares of ESRT restricted stock that are subject to performance-based vesting, with fair market values of $3.9 million for the time-based vesting awards and $0.6 million for the performance-based vesting awards. These shares are subject to time-based and performance-based vesting, with the terms described above. We issued operating partnership units to ESRT for each share of restricted stock issued by ESRT.

Concurrently with the closing of the Offering, we made grants of LTIP units to our non-employee directors under the 2013 Plan. At such time, we granted a total of 69,228 LTIP units that are subject to time-based vesting, with fair market values of $0.9 million. The awards vest in three substantially equal installments, subject to the director's continued service on our Board of Directors. The first installment vests on the first anniversary of the grant date and the remainder will vest thereafter in two equal annual installments.

For the performance-based LTIP units and restricted stock awards, the fair value of the awards was estimated using a Monte Carlo Simulation model. Our stock price, along with the prices of the comparative indexes, is assumed to follow the Geometric Brownian Motion Process. Geometric Brownian Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case, the stock price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on our stock price and the comparative indexes were estimated based on implied volatilities and historical volatilities using a six-year look-back period. The expected growth rate of the stock prices over the performance period is determined with consideration of the risk free rate as of the grant date. For LTIP units and restricted stock grants that are time-vesting, we estimate the stock compensation expense based on the fair value of the stock at the grant date.

LTIP units and ESRT restricted stock issued during the year ended December 31, 2013 were valued at $11.7 million. The weighted-average per unit or share fair value was $10.89 for grants in 2013. The per unit or share granted in 2013 was estimated on the date of grant using the following assumptions: an expected life of 3.0 years, a risk-free interest rate of 0.66%, and an expected price volatility of 28.0%.

No other stock options, dividend equivalents, or stock appreciation rights were issued or outstanding in 2013.

The following is a summary of ESRT restricted stock and LTIP unit activity the year ended December 31, 2013:



	ESRT Restricted Stock		LTIP Units	Weighted Average Grant Price
Granted	158,852		913,561	$	13.00
Vested	(12,607	)	—	13.00
Forfeited	(1,874	)	—	13.00
Unvested balance at December 31, 2013	144,371		913,561	$	13.00

The LTIP unit and ESRT restricted stock award agreements will immediately vest the later of the grantee attains the (i) age of 60 and (ii) the date on which grantee has first completed ten years of continuous service with our company or its affiliates. For award agreements that qualify, we recognize noncash compensation expense on the grant date for the time-based awards and ratably over the vesting period for the performance-based awards, and accordingly we recognized $2.3 million for the period October 7, 2013 through December 31, 2013. Unrecognized compensation expense was $0.3 million at December 31, 2013, which will be recognized over a period of 2.7 years.

For the remainder of the LTIP unit and ESRT restricted stock awards, we recognize noncash compensation expense ratably over the vesting period, and accordingly, we recognized $0.7 million in noncash compensation expense for the period October 7, 2013 through December 31, 2013. Unrecognized compensation expense was $8.3 million at December 31, 2013, which will be recognized over a weighted average period of 3.6 years.

Earnings Per Unit

Earnings per unit for the period October 7, 2013 through December 31, 2013 is computed as follows (amounts in thousands):



	2013
Numerator:
Net income - basic and diluted	$	193,431

Denominator:
Weighted average units outstanding - basic	245,445
Effective of dilutive securities - share-based compensation	37
Weighted average units outstanding - dilutive	245,482

There were no antidilutive units as of December 31, 2013.