Deferred Costs, Acquired Lease Intangibles and Goodwill

12 Months Ended

Dec. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Deferred Costs, Acquired Lease Intangibles and Goodwill

Deferred costs, net, consisted of the following at December 31, 2021 and 2020 (amounts in thousands):


	2021		2020
Leasing costs	$	211,189	$	203,905
Acquired in-place lease value and deferred leasing costs	166,491		181,336
Acquired above-market leases	33,289		40,398
	410,969		425,639
Less: accumulated amortization	(215,764)		(223,918)
Total deferred costs, net, excluding net deferred financing costs	$	195,205	$	201,721

At December 31, 2021 and 2020, $7.2 million and $2.1 million, respectively, of net deferred financing costs associated with the unsecured revolving credit facility was included in deferred costs, net on the consolidated balance sheets.

Amortization expense related to deferred leasing and acquired deferred leasing costs was $28.6 million, $24.8 million, and $24.5 million, for the years ended December 31, 2021, 2020, and 2019, respectively. Amortization expense related to acquired lease intangibles was $10.5 million, $7.6 million and $10.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Amortizing acquired intangible assets and liabilities consisted of the following at December 31, 2021 and 2020 (amounts in thousands):


	2021		2020
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(60,012)		(52,181)
Acquired below-market ground leases, net	$	336,904	$	344,735


	2021		2020
Acquired below-market leases	$	(65,403)	$	(78,451)
Less: accumulated amortization	40,462		46,746
Acquired below-market leases, net	$	(24,941)	$	(31,705)

Rental revenue related to the amortization of below market leases, net of above market leases was $5.9 million, $3.6 million and $7.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. The remaining weighted-average amortization period as of December 31, 2021 is 23.1 years, 3.6 years, 3.8 years and 3.0 years for below-market ground leases, in-place leases and deferred leasing costs, above-market leases and below-market leases, respectively. We expect to recognize amortization expense and rental revenue from the acquired intangible assets and liabilities as follows (amounts in thousands):


For the year ending:	Future Ground Rent Amortization		Future Amortization Expense		Future Rental Revenue
2022	$	7,831	$	14,604	$	4,858
2023	7,831		8,807		2,737
2024	7,831		7,003		2,172
2025	7,831		6,096		2,121
2026	7,831		5,033		1,236
Thereafter	297,749		11,516		1,510
	$	336,904	$	53,059	$	14,634

As of December 31, 2021, we had goodwill of $491.5 million. In 2013, we acquired the interests in Empire State Building Company, L.L.C. and 501 Seventh Avenue Associates, L.L.C. for an amount in excess of their net tangible and identified intangible assets and liabilities and as a result we recorded goodwill related to the transaction. Goodwill was allocated $227.5 million to the observatory operations of the Empire State Building, $250.8 million to Empire State Building, and $13.2 million to 501 Seventh Avenue.

In compliance with the requirements of authorities, we closed the Empire State Building observatory on March 16, 2020 due to the COVID-19 pandemic and it remained closed until the 86th floor observation deck was reopened on July 20, 2020. The 102nd observation deck was reopened on August 24, 2020. The closure of our observatory and subsequent reopening under international, national, and local travel restrictions and quarantines caused us during the quarter, and each subsequent quarters, to choose to perform an impairment test related to goodwill. We engaged a third-party valuation consulting firm to perform the valuation process. The analysis used a combination of the discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach). Significant assumptions under the former included revenue and cost projections, weighted average cost of capital, long-term growth rate and income tax considerations while the latter included guideline company enterprise values, revenue multiples and control premium rates. Our methodology to review goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis to determine whether impairment had occurred. Based upon the results of the goodwill impairment test of the standalone observatory reporting unit, which is after the intercompany rent expense paid to the Real Estate reporting unit, we determined that the fair value of the observatory reporting unit exceeded its carrying value by less than 15.0%. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods. We will continue to assess the impairment of the observatory reporting unit goodwill going forward and that continued assessment may again utilize a third-party valuation consulting firm.