Deferred Costs, Acquired Lease Intangibles and Goodwill

6 Months Ended

Jun. 30, 2022

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

Deferred Costs, Acquired Lease Intangibles and Goodwill

Deferred Costs, Acquired Lease Intangibles and Goodwill

    Deferred costs, net, consisted of the following as of June 30, 2022 and December 31, 2021 (amounts in thousands):  

	June 30, 2022		December 31, 2021
Leasing costs	$	217,415	$	211,189
Acquired in-place lease value and deferred leasing costs	158,874		166,491
Acquired above-market leases	29,419		33,289
	405,708		410,969
Less: accumulated amortization	(218,336)		(215,764)
Total deferred costs, net, excluding net deferred financing costs	$	187,372	$	195,205

    At June 30, 2022 and December 31, 2021, $6.1 million and $7.2 million, respectively, of net deferred financing costs associated with the unsecured revolving credit facility was included in deferred costs, net on the condensed consolidated balance sheets.

    Amortization expense related to deferred leasing costs and acquired deferred leasing costs was $7.3 million and $6.1 million for the three months ended June 30, 2022 and 2021, respectively, and $14.3 million and $11.7 million for the six months ended June 30, 2022 and 2021, respectively. Amortization expense related to acquired lease intangibles was $4.1 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively, and $8.3 million and $3.3 million for the six months ended June 30, 2022 and 2021, respectively.

    Amortizing acquired intangible assets and liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (amounts in thousands):

	June 30, 2022		December 31, 2021
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(63,928)		(60,012)
Acquired below-market ground leases, net	$	332,988	$	336,904

	June 30, 2022		December 31, 2021
Acquired below-market leases	$	(64,635)	$	(65,403)
Less: accumulated amortization	44,457		40,462
Acquired below-market leases, net	$	(20,178)	$	(24,941)

    Rental revenue related to the amortization of below-market leases, net of above-market leases, was $1.7 million and $0.7 million for the three months ended June 30, 2022 and 2021, respectively, and $3.5 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had goodwill of $491.5 million. Goodwill was allocated $227.5 million to the observatory reportable segment and $264.0 million to the real estate reportable segment.

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 ended June 30, 2020, and each subsequent quarter, 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 second quarter 2022 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.