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Financial Instruments and Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
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. 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 condensed 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. 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 (Note 4). The Company classifies its marketable equity securities as available-for-sale in accordance with the FASB’s Investments-Debt and Equity Securities guidance. In accordance with ASC Topic 825 Financial Instruments: the Company recognizes changes in the fair value of equity investments with readily determinable fair values in net income. Derivative Assets — The Company has derivative assets, which are included in Other assets, net on the condensed 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 condensed 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 nine months ended September 30, 2023 or for the year ended December 31, 2022. 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):
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivative financial instruments |  |  | — |  |  |  | 74,479 |  |  |  | — |  |  |  | — |  |  |  | 54,902 |  |  |  | — |
Marketable equity securities |  |  | 35,197 |  |  |  | — |  |  |  | — |  |  |  | 85,403 |  |  |  | — |  |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (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. Marketable Equity Securities During the three months ended September 30, 2023, the Company sold 100,000 shares of Albertsons, generating net proceeds of $2.4 million. As of September 30, 2023, the Company still held 1.5 million shares of Albertsons which had a fair value of $35.2 million. During the three months ended September 30, 2023 and 2022, the Company recognized dividend income from marketable securities of $0.2 million and $0.4 million, of which the Company's share was $0.2 million and $0.2 million, respectively. During the nine months ended September 30, 2023 and 2022, the Company recognized dividend income from marketable securities of $28.9 million and $1.4 million, of which the Company's share was $11.8 million and $0.4 million, respectively. These amounts are included in Realized and unrealized holding gains on investments and other on the Company's condensed 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 condensed consolidated statements of operations (in thousands):
| Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Realized gain on marketable securities, net | $ | 2,371 |  |  | $ | — |  |  | $ | 2,371 |  |  | $ | — |
Less: previously recognized unrealized gains on marketable securities sold during the period |  | (2,371 | ) |  |  | — |  |  |  | (2,371 | ) |  |  | — |
Unrealized gains on marketable securities still held at the end of the period and through the disposition date on marketable securities sold during the period |  | 1,627 |  |  |  | (7,671 | ) |  |  | 1,282 |  |  |  | (21,947 | )
Gain on Marketable securities, net | $ | 1,627 |  |  | $ | (7,671 | ) |  | $ | 1,282 |  |  | $ | (21,947 | )
Items Measured at Fair Value on a Nonrecurring Basis Impairment Charges During the nine months ended September 30, 2023, the Company reduced its holding period and intended use at a property as a result of a loan in maturity default and deed-in-lieu foreclosure (Note 7, Note 16). During 2022, the Company reduced its holding period and intended use, and projected 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 (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. 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 |  | September 30, 2023 |  |  | December 31, 2022 |
Core |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | $ | — |  |  |  |  |  |  |  |  |  |  |  | Other Liabilities |  | $ | — |  |  | $ | (46 | )
Interest Rate Swaps |  |  | 856,000 |  |  | May 2022 - May 2023 |  | Mar 2025 - Jul 2030 |  | 1.98% |  | — |  | 3.61% |  | Other Assets |  |  | 60,367 |  |  |  | 40,884 |
|  | $ | 856,000 |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 60,367 |  |  | $ | 40,838 |
Fund II |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap |  | $ | 50,000 |  |  | Jan 2023 |  | Dec 2029 |  | 3.23% |  | — |  | 3.23% |  | Other Assets |  | $ | 2,678 |  |  | $ | 1,108 |
Fund III |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Cap |  | $ | 33,000 |  |  | Sep 2023 |  | Oct 2025 |  | 5.50% |  | — |  | 5.50% |  | Other Assets |  | $ | 149 |  |  | $ | 232 |
Fund IV |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Cap |  | $ | 57,000 |  |  | Dec 2022 |  | Dec 2023 |  | 3.00% |  | — |  | 3.00% |  | Other Assets |  | $ | 255 |  |  | $ | 1,093 |
Fund V |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | $ | 344,890 |  |  | Apr 2022 - Jul 2023 |  | Mar 2024- Dec 2027 |  | 1.14% |  | — |  | 4.54% |  | Other Assets |  | $ | 10,555 |  |  | $ | 11,585 |
Interest Rate Caps |  |  | 72,588 |  |  | Jan 2023 - Aug 2023 |  | Jan 2024 - Sep 2025 |  | 3.64% |  | — |  | 5.00% |  | Other Assets |  |  | 475 |  |  |  | — |
|  | $ | 417,478 |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 11,030 |  |  | $ | 11,585 |
Total asset derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 74,479 |  |  | $ | 54,902 |
Total liability derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | — |  |  | $ | (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 $32.4 million included in Accumulated other comprehensive income related to derivatives will be reclassified as a reduction to interest expense within the next twelve months. As of September 30, 2023 and December 31, 2022, 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. 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):
|  |  |  |  | September 30, 2023 |  |  | December 31, 2022 |
|  | Level |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Notes Receivable (a) |  |  | 3 |  |  | $ | 123,813 |  |  | $ | 121,976 |  |  | $ | 123,903 |  |  | $ | 122,716 |
City Point Loan (a) |  |  | 3 |  |  |  | 66,741 |  |  |  | 65,209 |  |  |  | 65,945 |  |  |  | 65,856 |
Mortgage and Other Notes Payable (a) |  |  | 3 |  |  |  | 969,716 |  |  |  | 949,550 |  |  |  | 935,917 |  |  |  | 906,348 |
Investment in non-traded equity securities (b) |  |  | 3 |  |  |  | 4,242 |  |  |  | 4,784 |  |  |  | 4,160 |  |  |  | 5,593 |
Unsecured notes payable and Unsecured line of credit (c) |  |  | 2 |  |  |  | 862,553 |  |  |  | 860,069 |  |  |  | 869,497 |  |  |  | 868,399 |
(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 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 6.06% to 14.74% for the Company's notes receivable and City Point Loan, and 6.07% to 10.72% for the Company's mortgage and other notes payable, depending on the attributes of the specific loans. (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 September 30, 2023.

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- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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