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Goodwill, Deferred Leasing Costs and Other Intangibles | 12 Months Ended
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Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill, Deferred Leasing Costs and Other Intangibles | Goodwill, Deferred Leasing Costs and Other Intangibles Goodwill The following tables present changes in the carrying value of goodwill and the goodwill balance by reportable segment.
|  | Year Ended December 31,
(In thousands) |  | 2018 |  | 2017 |  | 2016
Beginning balance |  | $ | 1,534,561 |  |  | $ | 680,127 |  |  | $ | 678,267 |
Business combinations (1) |  | — |  |  | 1,440,229 |  |  | 1,860 |
Transfer to held for sale (2) |  | — |  |  | (20,000 | ) |  | — |
Disposition (3) |  | — |  |  | (249,795 | ) |  | — |
Impairment |  | — |  |  | (316,000 | ) |  | — |
Ending balance (4) |  | $ | 1,534,561 |  |  | $ | 1,534,561 |  |  | $ | 680,127 |
__________
(1) | Includes the effects of measurement period adjustments within a one year period following the consummation of a business combination.
(2) | Represents goodwill assigned to the broker-dealer reporting unit that was acquired as part of the Merger and classified as held for sale in 2017 (Note 10). The broker-dealer business was contributed to the Colony S2K joint venture, an equity method investee, in April 2018.
(3) | Represents goodwill assigned to the Townsend investment management reporting unit that was acquired as part of the Merger, subsequently transferred to held for sale and sold on December 29, 2017.
(4) | Total goodwill amount is not deductible for income tax purposes.
(In thousands) |  | December 31, 2018 |  | December 31, 2017
Balance by reportable segment: |  |  |  |
Industrial |  | $ | 20,000 |  |  | $ | 20,000 |
Investment management |  | 1,514,561 |  |  | 1,514,561 |
|  | $ | 1,534,561 |  |  | $ | 1,534,561 |
Impairment Goodwill is assessed for impairment at the Company's operating segments or one level below. The Company performs its annual impairment test in the fourth quarter of each year. Industrial For all years presented, the Company performed qualitative assessments and determined that goodwill in the industrial segment was not impaired. Investment Management For its annual evaluation of goodwill for impairment, the Company performed a quantitative assessment in 2018 and 2017 and a qualitative assessment in 2016. 2018—In 2018, the Company determined that the carrying value of its investment management reporting unit, including goodwill, was not in excess of its estimated fair value and concluded that the investment management goodwill was not impaired. 2017—The Company's quantitative assessment in 2017 indicated that the carrying value of the investment management reporting unit, including its assigned goodwill, exceeded its estimated fair value. As a result of this assessment, the Company recognized an impairment to the investment management goodwill of $316.0 million in 2017. In determining the carrying value of the investment management reporting unit for goodwill impairment testing in 2017, the Company used the net book value of its investment management subsidiary at October 1, 2017, adjusted to (i) exclude the Townsend and broker-dealer businesses; (ii) account for measurement period adjustments in the fourth quarter of 2017; and (iii) account for impairments recorded on management contract intangible assets in the fourth quarter of 2017 as well as expected write-off of the management contract intangible assets for NorthStar I and NorthStar II as a result of the Combination in 2018. The fair value of the investment management reporting unit in 2017 was estimated using the income approach. Projections of discounted cash flows were based on various factors, including, but not limited to, assumptions around forecasted capital raising for existing and future investment vehicles, fee related earnings multiples, incentive fee multiples, operating profit margins and discount rates, adjusted for certain risk characteristics such as the predictability of fee streams and the estimated life of managed investment vehicles. The Company applied terminal year residual multiples on fee related earnings ranging from 6.5 x to 20 x, incentive fee multiples ranging from 3 x to 5 x and discount rates ranging from 9% to 25%. The Company considered a range of fee related earnings multiples, incentive fee multiples and discount rates for a peer group of alternative asset managers as indicators to assess for reasonableness, noting that direct comparison generally cannot be drawn due to differences that exist between the Company's business and those of other asset managers. The Company also considered the hypothetical value of its investment management business in a spin-off that would result in the Company becoming externally managed, and assigned a value to internally managing the Company's balance sheet assets based on market terms of management contracts of externally-managed REITs that otherwise engage in similar real estate operations. As a final step, the Company assessed the reasonableness of the valuation as a whole by comparing the aggregate fair value of its reporting units to its market capitalization, and considered in its assessment the impact of short-term market volatility and other market factors that may not directly affect the value of the Company's individual reporting units. Due to the inherently judgmental nature of the various projections and assumptions used as well as the unpredictability of economic or market conditions, actual results may differ from estimates, and negative changes to these variables may result in further decline in the fair value of the investment management reporting unit, which would result in further impairment charge to goodwill in the future. 2016—The Company's qualitative assessment in 2016 indicated that the investment management goodwill was not impaired. Deferred Leasing Costs, Other Intangible Assets and Intangible Liabilities The Company's deferred leasing costs, other intangible assets and intangible liabilities are as follows.
| December 31, 2018 |  | December 31, 2017
(In thousands) | Carrying Amount (Net of Impairment)(1) |  | Accumulated Amortization |  | Net Carrying Amount |  | Carrying Amount (Net of Impairment)(1) |  | Accumulated Amortization |  | Net Carrying Amount
Deferred Leasing Costs and Intangible Assets |  |  |  |  |  |  |  |  |  |  |
In-place lease values | $ | 267,221 |  |  | $ | (112,673 | ) |  | $ | 154,548 |  |  | $ | 243,037 |  |  | $ | (98,021 | ) |  | $ | 145,016 |
Above-market lease values | 129,079 |  |  | (43,412 | ) |  | 85,667 |  |  | 166,571 |  |  | (34,968 | ) |  | 131,603 |
Below-market ground lease obligations | 16,258 |  |  | (984 | ) |  | 15,274 |  |  | 29,625 |  |  | (316 | ) |  | 29,309 |
Deferred leasing costs | 111,486 |  |  | (46,666 | ) |  | 64,820 |  |  | 121,765 |  |  | (38,389 | ) |  | 83,376 |
Lease incentives | 14,576 |  |  | (1,381 | ) |  | 13,195 |  |  | 14,565 |  |  | (298 | ) |  | 14,267 |
Trade name (2) | 15,500 |  |  | — |  |  | 15,500 |  |  | 79,700 |  |  | (3,131 | ) |  | 76,569 |
Investment management contracts | 194,698 |  |  | (92,618 | ) |  | 102,080 |  |  | 342,127 |  |  | (70,394 | ) |  | 271,733 |
Customer relationships | 49,291 |  |  | (15,027 | ) |  | 34,264 |  |  | 59,400 |  |  | (10,421 | ) |  | 48,979 |
Other (3) | 59,157 |  |  | (4,241 | ) |  | 54,916 |  |  | 54,061 |  |  | (2,041 | ) |  | 52,020 |
Total deferred leasing costs and intangible assets | $ | 857,266 |  |  | $ | (317,002 | ) |  | $ | 540,264 |  |  | $ | 1,110,851 |  |  | $ | (257,979 | ) |  | $ | 852,872 |
Intangible Liabilities |  |  |  |  |  |  |  |  |  |  |
Below-market lease values | $ | 204,066 |  |  | $ | (59,180 | ) |  | $ | 144,886 |  |  | $ | 214,833 |  |  | $ | (36,426 | ) |  | $ | 178,407 |
Above-market ground lease obligations | 16,080 |  |  | (1,580 | ) |  | 14,500 |  |  | 13,417 |  |  | (715 | ) |  | 12,702 |
Total intangible liabilities | $ | 220,146 |  |  | $ | (60,760 | ) |  | $ | 159,386 |  |  | $ | 228,250 |  |  | $ | (37,141 | ) |  | $ | 191,109 |
__________
(1) | For intangible assets and intangible liabilities recognized in connection with business combinations, purchase price allocations may be subject to adjustments during the measurement period, not to exceed twelve months from date of acquisition, based upon new information obtained about facts and circumstances that existed at time of acquisition. Amounts are presented net of impairments and write-offs, including contracts written off in connection with the Combination (Notes 4 and 14).
(2) | The Colony trade name is determined to have an indefinite useful life and not currently subject to amortization. The NorthStar trade name, prior to its write-off in June 2018, was amortized over an estimated useful life of 20 years.
(3) | Represents primarily the value of certificates of need associated with certain healthcare portfolios which are not amortized and franchise agreements associated with certain hotel properties which are subject to amortization over the term of the respective agreements.
Impairment Investment Management Contracts—In 2018, $147.4 million of impairment was recorded on investment management contract intangibles related to non-traded REITs. This consisted of $139.0 million write-off of the NorthStar I and NorthStar II management contract intangibles as the contracts were terminated upon closing of the Combination, $1.4 million write off of the NorthStar/RXR NY Metro management contract intangible in consideration of the termination of its offering period (see Note 7), and $7.0 million impairment on the NorthStar Healthcare management contract intangible resulting from a decrease in expected fees, with fair value estimated based upon future net cash flows, discounted at 10%. In the fourth quarter of 2017, impairment of $59.1 million was recorded on investment management contract intangibles of non-traded REITs, including $55.3 million on NorthStar Healthcare following an amendment to its advisory agreement and $3.7 million on NorthStar/RXR NY Metro based on revised capital raising projections. Fair value of these management contract intangibles were estimated based upon an analysis of future net cash flows, discounted at 9%. Customer Relationships—In 2018, the remaining value of the retail customer relationship intangible of $10.1 million was written off based on a reassessment of future capital raising for retail vehicles. Trade Name—In June 2018, the Company changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and the remaining value of the NorthStar trade name of $59.5 million was written off. Amortization of Intangible Assets and Liabilities The following table summarizes the amortization of deferred leasing costs and finite-lived intangible assets and intangible liabilities:
|  | Year Ended December 31,
(In thousands) |  | 2018 |  | 2017 |  | 2016
Above-market lease values |  | $ | (29,444 | ) |  | $ | (25,235 | ) |  | $ | (8,658 | )
Below-market lease values |  | 35,919 |  |  | 40,079 |  |  | 7,089 |
Lease incentives |  | (1,085 | ) |  | (218 | ) |  | — |
Net increase (decrease) to rental income |  | $ | 5,390 |  |  | $ | 14,626 |  |  | $ | (1,569 | )
Above-market ground lease obligations |  | $ | (925 | ) |  | $ | (752 | ) |  | $ | 482 |
Below-market ground lease obligations |  | 669 |  |  | 854 |  |  | (6 | )
Net increase (decrease) to ground rent expense |  | $ | (256 | ) |  | $ | 102 |  |  | $ | 476 |
In-place lease values |  | $ | 45,718 |  |  | $ | 74,560 |  |  | $ | 30,193 |
Deferred leasing costs |  | 17,749 |  |  | 19,046 |  |  | 13,777 |
Trade name |  | 1,606 |  |  | 3,682 |  |  | — |
Investment management contracts |  | 22,386 |  |  | 38,640 |  |  | 11,446 |
Customer relationships |  | 4,606 |  |  | 12,514 |  |  | 3,343 |
Other |  | 2,291 |  |  | 10,215 |  |  | — |
Amortization expense |  | $ | 94,356 |  |  | $ | 158,657 |  |  | $ | 58,759 |
The following table presents the effect of future amortization of deferred leasing costs and finite-lived intangible assets and intangible liabilities, excluding those related to assets and liabilities held for sale:
| Year Ending December 31, |  |
(In thousands) | 2019 |  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 and Thereafter |  | Total
Net increase (decrease) to rental income | $ | 10,761 |  |  | $ | 9,553 |  |  | $ | 9,769 |  |  | $ | 8,811 |  |  | $ | 9,003 |  |  | $ | (1,873 | ) |  | $ | 46,024 |
Net increase (decrease) to rent expense | (226 | ) |  | (224 | ) |  | (219 | ) |  | (216 | ) |  | (224 | ) |  | 1,883 |  |  | 774 |
Amortization expense | 133,063 |  |  | 56,409 |  |  | 44,376 |  |  | 36,186 |  |  | 31,563 |  |  | 79,913 |  |  | 381,510 |

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