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Capital | 6 Months Ended
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Jun. 30, 2022
Equity [Abstract] |
Capital | Capital As of June 30, 2022, there were 162,689,535 share of Class A common stock 994,252 shares of Class B common stock and 111,420,579 operating partnership units outstanding, of which 163,683,787, or 59.5%, were owned by ESRT and 111,420,579, or 40.5%, were owned by other partners, including ESRT directors, members of senior management and other employees. On May 16, 2019, the Empire State Realty Trust, Inc. Empire State Realty OP, L.P. 2019 Equity Incentive Plan (“2019 Plan”) was approved by our shareholders. The 2019 Plan provides for grants to directors, employees and consultants of ESRT and the Operating Partnership, including options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalents and other equity-based awards. An aggregate of approximately 11.0 million shares of ESRT common stock is authorized for issuance under awards granted pursuant to the 2019 Plan. We will not issue any new equity awards under the First Amended and Restated Empire State Realty Trust, Inc. and Empire State Realty OP, L.P. 2013 Equity Incentive Plan ("2013 Plan", and collectively with the 2019 Plan, "the Plans"). The shares of ESRT Class A common stock underlying any awards under the 2019 Plan and the 2013 Plan that are forfeited, canceled or otherwise terminated, other than by exercise, will be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. Shares tendered or held back upon exercise of a stock option or settlement of an award under the 2019 Plan or the 2013 Plan to cover the exercise price or tax withholding and shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. In addition, shares of ESRT Class A common stock repurchased on the open market will not be added back to the shares of ESRT Class A common stock available for issuance under the 2019 Plan. 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 Plans, 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. Under the terms of the LTIP units, we will revalue for tax purposes its assets upon the occurrence of certain specified capital events, and any increase in valuation from the time of one such event to the next 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 Series PR operating partnership units on a one-for-one basis. LTIP units subject to time-based vesting, whether vested or not, receive per unit distributions as operating partnership units, which equal per share dividends (both regular and special) on our common stock. Market and performance-based LTIPs receive 10% of such distributions currently, unless and until such LTIP units are earned based on performance, at which time they will receive the accrued and unpaid 90% and will commence receiving 100% of such distributions thereafter. Stock and Publicly Traded Operating Partnership Unit Repurchase Program ESRT's Board of Directors authorized the repurchase of up to $500 million of ESRT Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2022 through December 31, 2023. Under the program, ESRT may purchase ESRT Class A common stock and we may purchase our Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by ESRT and us and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate ESRT or us to acquire any particular amount of securities, and the program may be suspended or discontinued at ESRT and our discretion without prior notice. The following table summarizes ESRT's purchases of equity securities in each of the three months ended June 30, 2022:
Period | Total Number of Shares Purchased |  | Weighted Average Price Paid per Share |  | Maximum Approximate Dollar Value Available for Future Purchase (in thousands)
April 2022 | 2,308,026 |  |  | $ | 8.95 |  |  | $ | 467,350 |
May 2022 | 1,050,731 |  |  | $ | 8.09 |  |  | $ | 458,849 |
June 2022 | 3,252,202 |  |  | $ | 7.16 |  |  | $ | 435,560 |
Private Perpetual Preferred Units As of June 30, 2022, there were 4,664,038 Series 2019 Preferred Units ("Series 2019 Preferred Units") and 1,560,360 Series 2014 Private Perpetual Preferred Units ("Series 2014 Preferred Units") outstanding. The Series 2019 Preferred Units have a liquidation preference of $13.52 per unit and are entitled to receive cumulative preferential annual cash distributions of $0.70 per unit payable in arrears on a quarterly basis. The Series 2014 Preferred Units which have a liquidation preference of $16.62 per unit and are entitled to receive cumulative preferential annual cash distributions of $0.60 per unit payable in arrears on a quarterly basis. Both series are not redeemable at the option of the holders and are redeemable at our option only in the case of specific defined events. Distributions Total distributions paid to OP unitholders were $9.7 million and $19.5 million for the three and six months ended June 30, 2022, respectively, and $9.5 million for the three and six months ended June 30, 2021. Total distributions paid to preferred unitholders were $1.1 million and $2.1 million for the three and six months ended June 30, 2022, respectively, and $1.1 million and $2.1 million for the three and six months ended June 30, 2021, respectively. Incentive and Share-Based Compensation The Plans provide for grants to directors, employees and consultants consisting of stock options, restricted stock, dividend equivalents, stock payments, performance shares, LTIP units, stock appreciation rights and other incentive awards. An aggregate of 11.0 million shares of ESRT common stock is authorized for issuance under awards granted pursuant to the 2019 Plan, and as of June 30, 2022, 5.9 million shares of ESRT common stock remain available for future issuance. Annually, we make grants of LTIP units to our non-employee directors under the 2019 Plan. In 2022, each of our directors received 60% of their $200,000 annual base retainer in the form of equity vesting ratably over four years, and could elect to receive the remaining 40% of such base retainer in (i) cash at the face value of the award, (ii) immediately vesting equity at the face value of the award, or (iii) equity vesting ratably over three years at 120% of the face amount. Each director could elect to receive any equity portion of the base retainer in either (i) LTIP units or (ii) restricted shares of our Class A common stock. In accordance with each director's election, we granted a total of 142,358 LTIP units that are subject to time-based vesting with fair market values of $1.1 million. The LTIP units vest ratably over three or four years from the date of the grant, based on grantee election, subject generally to the director's continued service on our Board of Directors. We also granted 51,284 LTIP units that are subject to immediate vesting with fair market values of $0.3 million. Share-based compensation for time-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the shorter of (i) the stated vesting period, which is generally three, four or five years, or (ii) the period from the date of grant to the date the employee becomes retirement eligible, which may occur upon grant. An employee is retirement eligible when the employee attains the (i) age of 65 for awards granted in 2020 and after and age of 60 for awards granted before 2020 and (ii) the date on which the employee has first completed ten years of continuous service with us or our affiliates. Share-based compensation for market-based equity awards and performance-based equity awards is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over three or four years. Additionally, for the performance-based equity awards, we assess, at each reporting period, whether it is probable that the performance conditions will be satisfied. We recognize expense respective to the number of awards we expect to vest at the conclusion of the measurement period. Changes in estimate are accounted for in the period of change through a cumulative catch-up adjustment. For the market-based LTIP units, the fair value of the awards was estimated using a Monte Carlo Simulation model and discounted for the restriction period during which the LTIP units cannot be redeemed or transferred and the uncertainty regarding if, and when, the book capital account of the LTIP units will equal that of the common units. 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 an appropriate 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 unit awards that are time or performance based, the fair value of the awards was estimated based on the fair value of our stock at the grant date discounted for the restriction period during which the LTIP units cannot be redeemed or transferred and the uncertainty regarding if, and when, the book capital account of the LTIP units will equal that of the common units. For restricted stock awards, the fair value of the awards are based on the market price of ESRT stock at the grant date. LTIP units and ESRT restricted stock issued during the six months ended June 30, 2022 were valued at $22.4 million. The weighted average per unit or share fair value was $7.21 for grants issued in 2022. The fair value per unit or share granted in 2022 was estimated on the respective dates of grant using the following assumptions: an expected life from 2.0 to 5.3 years, a dividend rate of 2.0%, a risk-free interest rate from 1.4% to 2.0%, and an expected price volatility from 37.0% to 53.0%. No other stock options, dividend equivalents, or stock appreciation rights were issued or outstanding in 2022. The following is a summary of ESRT restricted stock and LTIP unit activity for the six months ended June 30, 2022:
| Restricted Stock |  | Time-based LTIPs |  | Market-based LTIPs |  | Performance-based LTIPs |  | Weighted Average Grant Fair Value
Unvested balance at December 31, 2021 | 214,408 |  |  | 2,499,592 |  |  | 5,039,134 |  |  | — |  |  | $ | 7.02 |
Vested | (67,654) |  |  | (1,052,119) |  |  | — |  |  | — |  |  | 9.95 |
Granted | 232,448 |  |  | 1,514,434 |  |  | 780,155 |  |  | 578,943 |  |  | 7.21 |
Forfeited or unearned | (9,874) |  |  | — |  |  | (1,311,839) |  |  | — |  |  | 7.20 |
Unvested balance at June 30, 2022 | 369,328 |  |  | 2,961,907 |  |  | 4,507,450 |  |  | 578,943 |  |  | $ | 6.67 |
The time-based LTIPs and ESRT restricted stock awards are treated for accounting purposes as immediately vested upon the later of (i) the date the grantee attains the age of 60 or 65, as applicable, 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 market-based and performance-based awards, and accordingly, we recognized $0.6 million and $1.6 million for the three and six months ended June 30, 2022, respectively, and $0.4 million and $1.4 million for the three and six months ended June 30, 2021, respectively. Unrecognized compensation expense was $1.5 million at June 30, 2022, which will be recognized over a weighted average period of 3.6 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 noncash compensation expense of $5.4 million and $8.9 million for the three and six months ended June 30, 2022, respectively, and $4.8 million and $8.6 million for the three and six months ended June 30, 2021, respectively. Unrecognized compensation expense was $35.1 million at June 30, 2022, which will be recognized over a weighted average period of 2.8 years. Earnings Per Unit Earnings per unit for the three and six months ended June 30, 2022 and 2021 is computed as follows (amounts in thousands, except per share amounts):
| Three Months Ended |  | Six Months Ended
| June 30, 2022 |  | June 30, 2021 |  | June 30, 2022 |  | June 30, 2021
Numerator: |  |  |  |  |  |  |
Net income | $ | 48,695 |  |  | $ | 4,411 |  |  | $ | 31,474 |  |  | $ | 1,220 |
Private perpetual preferred unit distributions | (1,051) |  |  | (1,051) |  |  | (2,101) |  |  | (2,101) |
Net loss attributable to non-controlling interests in other partnerships | 159 |  |  | — |  |  | 222 |  |  | — |
Earnings allocated to unvested units | (670) |  |  | (113) |  |  | (759) |  |  | (113) |
Net income (loss) attributable to common unitholders – basic and diluted | $ | 47,133 |  |  | $ | 3,247 |  |  | $ | 28,836 |  |  | $ | (994) |
Denominator: |  |  |  |  |  |  |
Weighted average units outstanding – basic | 270,078 |  |  | 277,893 |  |  | 271,834 |  |  | 277,887 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock-based compensation plans | 7 |  |  | 543 |  |  | 3 |  |  | — |
Weighted average units outstanding –- diluted | 270,085 |  |  | 278,436 |  |  | 271,837 |  |  | 277,887 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.17 |  |  | $ | 0.01 |  |  | $ | 0.11 |  |  | $ | 0.00 |
Diluted | $ | 0.17 |  |  | $ | 0.01 |  |  | $ | 0.11 |  |  | $ | 0.00 |
There were 603 and 398 antidilutive shares and LTIP units for the three and six months ended June 30, 2022, respectively, and 1,051 and 955 antidilutive shares and LTIP units for the three and six months ended June 30, 2021, respectively.

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