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Financial Instruments and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Financial Instruments and Fair Value Measurements | 8. Financial Instruments and Fair Value Measurements 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. 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. For significant Level 3 items, the Company has also provided the unobservable inputs along with their weighted-average ranges. 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 we 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 are 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. Other than the Investment in Albertsons described above, the Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the six months ended June 30, 2021 or 2020. 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):
|  | June 30, 2021 |  |  | December 31, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivative financial instruments |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |
Investment in Albertsons (Note 4) |  |  | 80,956 |  |  |  | — |  |  |  | — |  |  |  | 72,391 |  |  |  | — |  |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  |  | — |  |  |  | 60,979 |  |  |  | — |  |  |  | — |  |  |  | 90,139 |  |  |  | — |
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. Items Measured at Fair Value on a Nonrecurring Basis (Including Impairment Charges) During 2020, the Company was impacted by the COVID-19 Pandemic (Note 11), which caused the Company to reduce its holding periods and 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 |
2021 Impairment Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |
None |  |  |  |  |  |  |  |  |  |  |  |  |  |
2020 Impairment Charges |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cortlandt Crossing, Mohegan Lake, NY |  | Fund III |  | Reduced holding period, reduced projected operating income |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Mar 31, 2020 |  | $ | 27,402 |  |  | $ | 6,726 |
654 Broadway, New York, NY |  | Fund III |  | Reduced holding period |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Mar 31, 2020 |  |  | 6,398 |  |  |  | 1,570 |
146 Geary Street, San Francisco, CA |  | Fund IV |  | Reduced holding period, reduced projected operating income |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Mar 31, 2020 |  |  | 6,718 |  |  |  | 1,553 |
801 Madison Avenue, New York, NY |  | Fund IV |  | Reduced holding period, reduced projected operating income |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Mar 31, 2020 |  |  | 11,031 |  |  |  | 2,551 |
717 N. Michigan Avenue, Chicago, IL |  | Fund IV |  | Reduced holding period, reduced projected operating income |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Dec 31, 2020 |  |  | 17,392 |  |  |  | 4,021 |
110 University, New York, NY |  | Fund IV |  | Reduced holding period, reduced projected operating income |  | Projections of: holding period, net operating income, cap rate, incremental costs |  | Dec 31, 2020 |  |  | 16,238 |  |  |  | 3,754 |
Fifth Wall Investment |  | Core |  | Decline in fair value |  | Projections of: reported fair value of net assets |  | Dec 31, 2020 |  |  | 419 |  |  |  | 419 |
Total 2020 Impairment Charges |  |  |  |  |  |  |  |  |  | $ | 85,598 |  |  | $ | 20,594 |
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 |  | June 30, 2021 |  |  | December 31, 2020 |
Core |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | $ | 539,898 |  |  | Dec 2012-Jul 2020 |  | Mar 2022-Jul 2030 |  |  | 1.71 | % |  | — |  |  | 3.77 | % |  | Other Liabilities |  | $ | (51,255 | ) |  | $ | (74,990 | )
|  | $ | 539,898 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (51,255 | ) |  | $ | (74,990 | )
Fund II |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap |  | $ | 18,661 |  |  | Oct 2014 |  | Nov 2021 |  |  | 2.88 | % |  | — |  |  | 2.88 | % |  | Other Liabilities |  | $ | (89 | ) |  | $ | (219 | )
Interest Rate Cap |  |  | 45,000 |  |  | Mar 2019 |  | Mar 2022 |  |  | 3.50 | % |  | — |  |  | 3.50 | % |  | Other Assets |  |  | — |  |  |  | — |
|  | $ | 63,661 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (89 | ) |  | $ | (219 | )
Fund III |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Caps |  | $ | 35,970 |  |  | Jan 2021 |  | Jul 2022 |  |  | 3.00 | % |  | — |  |  | 3.00 | % |  | Other Assets |  | $ | — |  |  | $ | — |
Fund IV |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | $ | 42,549 |  |  | Mar 2017 - Dec 2019 |  | Apr 2022 - Dec 2022 |  |  | 1.48 | % |  | — |  |  | 4.00 | % |  | Other Liabilities |  | $ | (721 | ) |  | $ | (1,713 | )
Interest Rate Caps |  |  | 77,400 |  |  | July 2019 - Dec 2020 |  | Jul 2021 - Dec 2022 |  |  | 3.00 | % |  | — |  |  | 3.50 | % |  | Other Assets |  |  | 1 |  |  |  | 1 |
|  | $ | 119,949 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (720 | ) |  | $ | (1,712 | )
Fund V |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | $ | 304,843 |  |  | Jun 2018-Feb 2021 |  | Feb 2022-Oct 2024 |  |  | 0.23 | % |  | — |  |  | 2.88 | % |  | Other Liabilities |  | $ | (8,914 | ) |  | $ | (13,217 | )
|  | $ | 304,843 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (8,914 | ) |  | $ | (13,217 | )
Total asset derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1 |  |  | $ | 1 |
Total liability derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (60,979 | ) |  | $ | (90,139 | )
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 $19.2 million included in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense within the next twelve months. As of June 30, 2021 and December 31, 2020, 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 forward swaps 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 will be amortized into earnings as a reduction of interest expense over the original term of the swaps beginning in 2022. 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):
|  |  |  |  | June 30, 2021 |  |  | December 31, 2020 |
|  | Level |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Notes Receivable (a) |  |  | 3 |  |  | $ | 117,280 |  |  | $ | 117,969 |  |  | $ | 101,450 |  |  | $ | 102,135 |
Mortgage and Other Notes Payable (a) |  |  | 3 |  |  |  | 1,166,948 |  |  |  | 1,145,654 |  |  |  | 1,210,540 |  |  |  | 1,190,214 |
Investment in non-traded equity securities (b) |  |  | 3 |  |  |  | 2,863 |  |  |  | 3,404 |  |  |  | 1,726 |  |  |  | 1,456 |
Unsecured notes payable and Unsecured line of credit (c) |  |  | 2 |  |  |  | 506,009 |  |  |  | 507,596 |  |  |  | 559,514 |  |  |  | 544,532 |
(a) 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. (b) Represents the Operating Partnership’s cost-method investment in Fifth Wall (Note 4). (c) 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 June 30, 2021.

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