Deferred Costs, Acquired Lease Intangibles and Goodwill

6 Months Ended

Jun. 30, 2024

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 June 30, 2024 and December 31, 2023 (amounts in thousands):


	June 30, 2024		December 31, 2023
Leasing costs	$	220,917	$	224,295
Acquired in-place lease value and deferred leasing costs	145,627		158,267
Acquired above-market leases	21,565		23,918
Total deferred costs, excluding net deferred financing costs	388,109		406,480
Less: accumulated amortization	(225,683)		(236,900)
Total deferred costs, net, excluding net deferred financing costs	$	162,426	$	169,580

At June 30, 2024 and December 31, 2023, $9.9 million and $2.9 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 $5.2 million and $11.0 million for the three and six months ended June 30, 2024, respectively, and $6.1 million and $11.9 million for the three and six months ended June 30, 2023, respectively. Amortization expense related to acquired lease intangibles was $1.2 million and $2.5 million for the three and six months ended June 30, 2024, respectively, and $2.3 million and $4.6 million for the three and six months ended June 30, 2023, respectively.

Amortizing acquired intangible assets and liabilities consisted of the following as of June 30, 2024 and December 31, 2023 (amounts in thousands):


	June 30, 2024		December 31, 2023
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(79,590)		(75,675)
Acquired below-market ground leases, net	$	317,326	$	321,241


	June 30, 2024		December 31, 2023
Acquired below-market leases	$	(51,883)	$	(55,155)
Less: accumulated amortization	40,011		41,405
Acquired below-market leases, net	$	(11,872)	$	(13,750)

Rental revenue related to the amortization of below-market leases, net of above-market leases, was $0.5 million and $1.0 million for the three and six months ended June 30, 2024, respectively, and $0.7 million and $1.4 million for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024 and December 31, 2023, 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.

We performed our annual goodwill testing in October 2023, where we bypassed the optional qualitative goodwill impairment assessment and proceeded directly to a quantitative assessment of the Observatory reportable segment and engaged a third-party valuation consulting firm to perform the valuation process. The quantitative 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, EBITDA 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. The quantitative analysis performed concluded the fair value of the reporting unit exceeds its carrying value. We also perform quarterly qualitative assessments and have not identified any events which would indicate, on a more likely than not basis, that the goodwill allocated to the reporting unit was impaired. 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.