Financial Instruments and Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Financial Instruments and Fair Value Measurements

8. Financial Instruments and Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument.

Marketable Equity Securities — The Company has an investment in marketable equity securities of Albertsons, which has a readily determinable market value (traded on an exchange) and is being accounted for as a Level 1 investment. This investment was included in Marketable securities and Investments in and advances to unconsolidated affiliates on the Consolidated Balance Sheets at December 31, 2023 and 2022, respectively.

Derivative Financial Instruments — The Company has derivative assets, which are included in Other assets, net on the Consolidated Balance Sheets, and are comprised of interest rate swaps and caps. 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. 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.

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, 2023							December 31, 2022
	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Assets
Marketable equity securities	$	33,284	$	—		$	—	$	85,403	$	—		$	—
Derivative financial instruments		—		28,989			—		—		54,902			—
Liabilities
Derivative financial instruments		—		(8,892	)		—		—		(46	)		—

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.

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, 2023 or 2022.

Marketable Equity Securities

During the year ended December 31, 2023, the Company sold 200,000 shares of Albertsons, generating net proceeds of $4.6 million. As of December 31, 2023, the Company still held 1.4 million shares of Albertsons which had a fair value of $33.3 million. In January 2024, the Company sold an additional 175,000 shares of Albertsons, generating net proceeds of $4.0 million (Note 17). At December 31, 2022, the shares of Albertsons were held by Mervyns II (Note 4).

During the year ended December 31, 2023 and 2022, the Company recognized dividend income from marketable securities of $29.1 million and $1.8 million, of which the Company's share was $12.0 million and $0.6 million, respectively, and is included in Realized and unrealized holding gains on investments and other on the Company's Consolidated Statements of Operations.

The following table represents the realized and unrealized gain (loss) on marketable securities included in Realized and unrealized holding gains on investments and other on the Company's Consolidated Statements of Operations (in thousands):


	Year Ended December 31,
	2023			2022			2021
Realized gain on marketable securities	$	4,636		$	—		$	—
Less: previously recognized unrealized gains on marketable securities sold during the period		(4,636	)		—			—
Unrealized gains (losses) on marketable securities still held at the end of the period and through the disposition date on marketable securities sold during the period		1,634			(38,913	)		51,925
Gain on marketable securities, net	$	1,634		$	(38,913	)	$	51,925

Items Measured at Fair Value on a Nonrecurring Basis

Impairment Charges

Impairment charges for the periods presented are as follows (in thousands):

         
        Impairment Charge (a)

        Property and Location

        Owner

        Triggering Event

        Effective Date

        Total

        Acadia's Share

        2023 Impairment Charges

146 Geary Street,
San Francisco, CA

Fund IV

Reduced holding period (Note 7)

Sept 30, 2023

3,686

852

        2022 Impairment Charges

146 Geary Street,
San Francisco, CA

Fund IV

Reduced projected operating income

Sept 30, 2022

12,435

2,875

717 N. Michigan Avenue,
Chicago, IL

Fund IV

Reduced holding period and intended use

Sept 30, 2022

20,876

4,827

Total 2022 Impairment Charges

33,311

7,702

(a)

The fair value of 717 N. Michigan Avenue was based on an observable contract to sell the asset, less estimated costs to sell. The Company estimated the fair value of 146 Geary Street based on a discounted cash flow analysis using a range of discount rates from 5.00% to 7.75% and a range of capitalization rates from 4.25% to 5.75%. As significant inputs to the models are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the fair value reporting hierarchy.

Redeemable Noncontrolling Interests

The Company has redeemable noncontrolling interests related to certain properties. The Company is required to periodically review these redeemable noncontrolling interests to in order to compare the redemption value to the carrying value. See Note 10 for further discussion regarding these interests.

Derivative Financial Instruments

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, 2023			December 31, 2022
Core
Interest Rate Swaps	$	225,000	Dec 2022 - Oct 2023	Jul 2027 - Dec 2029	3.61%		4.69%	Accounts payable and other liabilities	$	(8,807	)	$	(46	)
Interest Rate Swaps		631,000	May 2022 - May 2023	Mar 2025 - Jul 2030	1.98%	—	3.36%	Other assets, net		22,675			40,884
	$	856,000							$	13,868		$	40,838

Fund II
Interest Rate Swap	$	50,000	Jan 2023	Dec 2029	3.23%	—	3.23%	Other assets, net	$	634		$	1,108

Fund III
Interest Rate Cap	$	33,000	Sep 2023	Oct 2025	5.50%	—	5.50%	Other assets, net	$	26		$	232

Fund IV
Interest Rate Cap	$	54,500	Dec 2023	Dec 2025	6.00%	—	6.00%	Other assets, net	$	29		$	1,093

Fund V
Interest Rate Swaps	$	315,409	Apr 2022 - Jul 2023	Mar 2024- May 2026	1.14%	—	4.34%	Other assets, net	$	5,523		$	11,585
Interest Rate Caps		72,447	Jan 2023 - Aug 2023	Jan 2024 - Sep 2025	3.64%	—	5.00%	Other assets, net		102			—
Interest Rate Swaps		28,480	Jun 2023	Jun 2025	4.54%	—	4.54%	Accounts payable and other liabilities		(85	)		—
	$	416,336							$	5,540		$	11,585

Total asset derivatives									$	28,989		$	54,902
Total liability derivatives									$	(8,892	)	$	(46	)

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 $23.2 million included in Accumulated other comprehensive income related to derivatives will be reclassified as a reduction to interest expense within the next twelve months.

During the year ended December 31, 2023, the Company terminated six interest rate swaps with forward effective dates with an aggregate notional value of $175.0 million for cash proceeds of $16.0 million. The net derivative gain associated with the discontinued cash flow hedge continues to be reporting in Accumulated other comprehensive income as the forecasted transaction is expected to occur within the originally specified time period. Such amounts will be reclassified from Accumulated other comprehensive income into earnings as an increase in interest income over the period during which the hedged forecasted transaction affects earnings.

Risk Management Objective of Using Derivatives

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.

Credit Risk-Related Contingent Features

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.

Other Financial Instruments

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, 2023				December 31, 2022
	Level		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Notes Receivable (a)		3	$	124,949	$	124,789	$	123,903	$	122,716
City Point Loan (a)		3		66,741		66,017		65,945		65,856
Mortgages Payable (a)		3		937,200		921,563		935,917		906,348
Investment in non-traded equity securities (b)		3		4,398		4,702		4,160		5,593
Unsecured notes payable and Unsecured line of credit (c)		2		943,887		937,153		869,497		868,399

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 changes in interest rates. 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 4.90% to 14.25% for the Company's notes receivable and City Point Loan, and 5.83% to 9.27% 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 (classified as Level 1) included in other assets and other liabilities had fair values that approximated their carrying values due to their short maturity profiles at December 31, 2023 and 2022.