Deferred Costs, Acquired Lease Intangibles and Goodwill

12 Months Ended

Dec. 31, 2023

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 at December 31, 2023 and 2022 (amounts in thousands):      

	2023		2022
Leasing costs	$	224,295	$	218,707
Acquired in-place lease value and deferred leasing costs	158,267		160,683
Acquired above-market leases	23,918		27,833
	406,480		407,223
Less: accumulated amortization	(236,900)		(223,246)
Total deferred costs, net, excluding net deferred financing costs	$	169,580	$	183,977

At December 31, 2023 and 2022, $2.9 million and $5.0 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 $23.6 million, $25.4 million, and $28.6 million, for the years ended December 31, 2023, 2022, and 2021, respectively. Amortization expense related to acquired lease intangibles was $7.4 million, $11.8 million and $10.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Amortizing acquired intangible assets and liabilities consisted of the following at December 31, 2023 and 2022 (amounts in thousands):

	2023		2022
Acquired below-market ground leases	$	396,916	$	396,916
Less: accumulated amortization	(75,675)		(67,843)
Acquired below-market ground leases, net	$	321,241	$	329,073

    

	2023		2022
Acquired below-market leases	$	(55,155)	$	(64,656)
Less: accumulated amortization	41,405		46,807
Acquired below-market leases, net	$	(13,750)	$	(17,849)

Rental revenue related to the amortization of below market leases, net of above market leases was $2.4 million, $4.8 million and $5.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. The remaining weighted-average amortization period as of December 31, 2023 is 22.2 years, 3.4 years, 3.5 years and 2.9 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 (Expense)
2024	$	7,831	$	7,430	$	1,977
2025	7,831		6,481		1,914
2026	7,831		5,593		1,116
2027	7,831		4,930		882
2028	7,831		4,297		854
Thereafter	282,086		4,110		(124)
	$	321,241	$	32,841	$	6,619

As of December 31, 2023, 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.

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. 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.