Deferred Costs, Acquired Lease Intangibles and Goodwill

3 Months Ended

Mar. 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 as of March 31, 2021 and December 31, 2020 (amounts in thousands):


	March 31, 2021		December 31, 2020
Leasing costs	$	203,730	$	203,905
Acquired in-place lease value and deferred leasing costs	180,131		181,336
Acquired above-market leases	40,254		40,398
	424,115		425,639
Less: accumulated amortization	(225,967)		(223,918)
Total deferred costs, net, excluding net deferred financing costs	$	198,148	$	201,721

At March 31, 2021 and December 31, 2020, $8.9 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 condensed consolidated balance sheet.

Amortization expense related to deferred leasing costs and acquired deferred leasing costs was $5.6 million and $5.9 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense related to acquired lease intangibles was $1.7 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

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


	March 31, 2021		December 31, 2020
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(54,139)		(52,181)
Acquired below-market ground leases, net	$	342,777	$	344,735


	March 31, 2021		December 31, 2020
Acquired below-market leases	$	(77,686)	$	(78,451)
Less: accumulated amortization	47,574		46,746
Acquired below-market leases, net	$	(30,112)	$	(31,705)

Rental revenue related to the amortization of below-market leases, net of above-market leases, was $0.7 million and $0.9 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, 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 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 10.0%. 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.