The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy

based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps and interest rate swaps; and Level 3, for financial instruments or other assets/liabilities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring the Company to develop its own assumptions.

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, the Company has also provided the unobservable inputs.

Money Market Funds — The Company has money market funds, which at times have zero balances and are included in Cash and cash equivalents in the consolidated balance sheets, and are comprised of government securities and/or U.S. Treasury bills. These funds were classified as Level 1 as the Company used quoted prices from active markets to determine their fair values.

Equity Investments – Albertsons became publicly traded during 2020 (Note 4). Upon Albertsons’ IPO, the Company’s Investment in Albertsons has a readily determinable market value (traded on an exchange) and is being accounted for as a Level 1 investment.

Derivative Assets — The Company has derivative assets, which are included in Other assets, net on the consolidated balance sheets, and comprised of interest rate swaps and caps. The derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.

Derivative Liabilities — The Company has derivative liabilities, which are included in Accounts payable and other liabilities on the consolidated balance sheets and are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.

The Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the year ended December 31, 2022 or 2021.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):


	December 31, 2022							December 31, 2021
	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Assets
Money market funds	$	—	$	—		$	—	$	—	$	—		$	—
Derivative financial instruments		—		54,902			—		—		7			—
Investment in Albertsons (Note 4)		85,403		—			—		124,316		—			—
Liabilities
Derivative financial instruments		—		(46	)		—		—		(45,027	)		—

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

During 2022, the Company reduced its holding period and intended use, and projected operating income at certain properties. During 2021, the Company was impacted by the COVID-19 Pandemic, which caused the Company to reduce its forecasted operating income at certain properties. As a result, several impairments were recorded. Impairment charges for the periods presented are as follows (in thousands):

Impairment Charge

Property and Location

Owner

Triggering Event

Level 3 Inputs

Effective Date

Total

Acadia's Share

2022 Impairment Charges

146 Geary Street,
San Francisco, CA

Fund IV

Reduced projected operating income

Projections of: holding period, net operating income, cap rate, incremental costs

Sept 30, 2022

12,435

2,875

717 N. Michigan Avenue,
Chicago, IL

Fund IV

Reduced holding period and intended use

Offering price

Sept 30, 2022

20,876

4,827

Total 2022 Impairment Charges

33,311

7,702

2021 Impairment Charges

210 Bowery commercial unit,
New York, NY

Fund IV

Reduced projected operating income

Projections of: holding period, net operating income, cap rate, incremental costs

Sept 30, 2021

3,016

697

27 E. 61st Street
New York, NY

Fund IV

Reduced projected operating income

Projections of: holding period, net operating income, cap rate, incremental costs

Sept 30, 2021

6,909

1,597

Total 2021 Impairment Charges

9,925

2,294

The Company had the following interest rate swaps and caps for the periods presented (dollars in thousands):


					Strike Rate								Fair Value
Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	Low				High			Balance Sheet Location	December 31, 2022			December 31, 2021
Core
Interest Rate Swaps	$	50,000	Dec 2022	Dec 2029		3.61	%	—		3.61	%	Other Liabilities	$	(46	)	$	(40,650	)
Interest Rate Swap		806,000	Mar 2015 - Aug 2022	Mar 2023 - Jul 2030		2.10	%	—		3.36	%	Other Assets		40,884			—
	$	856,000											$	40,838		$	(40,650	)

Fund II
Interest Rate Swap (a)	$	—	Jan 2023	Dec 2029		3.23	%	—		3.23	%	Other Assets	$	1,108		$	—

Fund III
Interest Rate Cap	$	35,970	Jul 2022	Jul 2023		3.50	%	—		3.50	%	Other Assets	$	232		$	—

Fund IV
Interest Rate Swaps	$	—										Other Liabilities	$	—		$	(167	)
Interest Rate Caps		76,338	Jul 2021 - Dec 2022	Jul 2023 - Dec 2023		3.00	%	—		3.50	%	Other Assets		1,093			7
	$	76,338											$	1,093		$	(160	)

Fund V
Interest Rate Swaps (b)	$	308,014	Jun 2018 - Jan 2023	Jan 2023 - Dec 2027		0.91	%	—		3.36	%	Other Assets	$	11,585		$	—
Interest Rate Swaps		—										Other Liabilities		—			(4,210	)
	$	308,014											$	11,585		$	(4,210	)

Total asset derivatives													$	54,902		$	7
Total liability derivatives													$	(46	)	$	(45,027	)

Includes one swap with an aggregate fair value of $1.1 million at December 31, 2022, with a notional value of $50.0 million which was acquired during December 2022 and is not effective until January 2023.

Includes one swap with an aggregate fair value of $0.8 million at December 31, 2022, with a notional value of $50.0 million which was acquired during December 2022 and is not effective until January 2023.

All of the Company’s derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable-rate debt (Note 7). It is estimated that approximately $26.4 million included in Accumulated other comprehensive income related to derivatives will be reclassified to interest expense within the next twelve months. As of December 31, 2022 and 2021, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated hedges.

During the first quarter of 2021, the Company terminated two interest rate swaps with forward effective dates with an aggregate notional value of $100.0 million (Note 7) for cash proceeds of $3.4 million. As the hedged forecasted transaction is still expected, amounts deferred in Accumulated other comprehensive loss has been amortized into earnings as a reduction of interest expense over the original term of the swaps beginning in 2022.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and, from time to time, through the use of derivative financial instruments. The Company enters into derivative financial instruments to manage exposures that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

The Company is exposed to credit risk in the event of non-performance by the counterparties to the swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions.

The Company has agreements with each of its swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its swaps, resulting in an acceleration of payment under the swaps.

The Company’s other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands, inclusive of amounts attributable to noncontrolling interests where applicable):


			December 31, 2022				December 31, 2021
	Level		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Notes Receivable (a)		3	$	123,903	$	122,716	$	153,886	$	154,093
City Point Loan (a)		3		65,945		65,856		—		—
Mortgage and Other Notes Payable (a)		3		935,917		906,348		1,143,805		1,125,571
Investment in non-traded equity securities (b)		3		4,160		5,593		3,656		4,062
Unsecured notes payable and Unsecured line of credit (c)		2		869,497		868,399		675,933		680,171

The Company determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the borrower or tenant, where applicable, and interest rate risk. The Company also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the borrower, the time until maturity and the current market interest rate environment. Amounts exclude discounts and loan costs. The estimated market rates are between 5.27% to 13.92% for the Company's notes receivable and City Point Loan, and 6.27% to 10.82% for the Company's mortgage and other notes payable, depending on the attributes of the specific loans.

Represents the Operating Partnership’s cost-method investment in Fifth Wall (Note 4).

The Company determined the estimated fair value of the unsecured notes payable and unsecured line of credit using quoted market prices in an open market with limited trading volume where available. In cases where there was no trading volume, the Company determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.

The Company’s cash and cash equivalents, restricted cash, rents receivable, accounts payable and certain financial instruments included in other assets and other liabilities had fair values that approximated their carrying values due to their short maturity profiles at December 31, 2022.