The Company consolidates Broad Street Eagles JV LLC (the “Eagles Sub-OP”) under the guidance set forth in Accounting Standards Codification (“ASC”) 810, Consolidation. The Company evaluated whether the Eagles Sub-OP met the criteria for classification as a variable interest entity (“VIE”) or, alternatively, as a voting interest entity and concluded that that the Eagles Sub-OP met the criteria of a VIE. The Company is considered to have a controlling financial interest in the Eagles Sub-OP because the Company determined that it is the primary beneficiary because it is most closely associated with the Eagles Sub-OP.

In connection with the Preferred Equity Investment, the Operating Partnership and CF Flyer PE Investor LLC, the only holder of a preferred membership interest in the Eagles Sub-OP (the “Fortress Member”), entered into the Amended and Restated Limited Liability Company Agreement of the Eagles Sub-OP (the “Eagles Sub-OP Operating Agreement”), and the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that, directly or indirectly, own Brookhill Azalea Shopping Center, Vista Shops, Hollinswood Shopping Center, Avondale Shops, Greenwood Village Shopping Center and Lamar Station Plaza East in November 2022, as well as Cromwell Field in December 2022. Pursuant to the Eagles Sub-OP Operating Agreement, the Operating Partnership had the obligation to contribute to the Eagles Sub-OP its direct or indirect subsidiaries owning eight properties. As of March 31, 2024, the Operating Partnership had contributed to the Eagles Sub-OP its subsidiaries that own Highlandtown, Crestview, Coral Hills and West Broad and, with the approval of the Fortress Member, sold Spotswood and Dekalb Plaza. On April 30, 2024, the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that own Midtown Colonial and Midtown Lamonticello, the last remaining properties required to be contributed to the Eagles Sub-OP.

Pursuant to the Eagles Sub-OP Operating Agreement, the Fortress Member is entitled to monthly distributions, a portion of which is paid in cash (the “Current Preferred Return”) and a portion that accrues on and is added to the Preferred Equity Investment each month (the “Capitalized Preferred Return” and, together with the Current Preferred Return, the “Preferred Return”). The initial Preferred Return was 12% per annum, comprised of a 5% Current Preferred Return and a 7% Capitalized Preferred Return, provided that, until the Portfolio Excluded Properties were contributed to the Eagles Sub-OP, the Capitalized Preferred Return was increased by 4.75%. The Capitalized Preferred Return increases each year by 1%. As of March 31, 2024, the Capitalized Preferred Return was approximately $13.2 million and is reflected within Redeemable noncontrolling Fortress preferred interest on the condensed consolidated balance sheets. For the three months ended March 31, 2024 and 2023, the Company recognized $1.2 million and $1.0 million, respectively, of Current Preferred Return and $1.8 million and $2.4 million, respectively, of Capitalized Preferred Return, as a reduction to additional paid-in capital in the condensed consolidated statements of equity.

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, the Fortress Member has approval rights over certain Major Actions (as defined in the Eagles Sub-OP Operating Agreement). In addition, the Company is required to maintain separate bank accounts for tenant improvement costs and leasing costs as well as the net proceeds from the Spotswood and Dekalb dispositions. Prior written consent of the Fortress Member is required for the disbursement and use of cash held in such accounts, which had a combined balance of $8.2 million as of March 31, 2024 and is reflected in cash and cash equivalents.

The Fortress Member’s interest in the Eagles Sub-OP under the Eagles Sub-OP Operating Agreement is a financial instrument with both equity and debt characteristics and is classified as mezzanine equity in our accompanying condensed consolidated financial statements. The instrument was initially recognized at fair value net of issuance costs. The Preferred Equity Investment is redeemable at a determinable date (at year five (5), prior to year five if a Qualified Public Offering occurs or at any time so long as the Fortress Mezzanine Loan is repaid in full before or concurrently with such redemption) and therefore, at each subsequent reporting period we will accrete the carrying value to the amount due upon redemption of the Fortress Preferred Interest based on the effective interest method over the remaining term. All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g., more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the condensed consolidated financial statements. The Company has evaluated the Preferred Equity Investment and determined that its nature is that of a debt host and certain embedded derivatives exist that would require bifurcation on the Company’s condensed consolidated balance sheets. For the three months ended March 31, 2024 and 2023, the Company recognized a gain of $0.5 million and $0.4 million, respectively, in derivative fair value adjustment in the condensed consolidated statements of operations. The derivative liability was $0.2 million and $0.7 million at March 31, 2024 and December 31, 2023, respectively, and is reflected in accounts payable and accrued liabilities in the condensed consolidated balance sheets.

The following table summarizes the preferred equity investment activities for the three months ended March 31, 2024 and 2023.


(thousands)	Preferred Equity Investment
Balance at December 31, 2023	$	87,288
Preferred equity return		1,869
Preferred equity accretion		1,379
Balance at March 31, 2024	$	90,536


(thousands)	Preferred Equity Investment
Balance at December 31, 2022	$	73,697
Preferred equity return		3,426
Preferred equity payment		(1,013	)
Preferred equity accretion		415
Balance at March 31, 2023	$	76,525