WASHINGTON PRIME : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

August 09, 2021 at 04:24 pm EDT

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in this report.
Overview - Basis of Presentation
Washington Prime Group Inc. ("WPG Inc.") is an Indiana corporation that operates
as a fully integrated, selfadministered and selfmanaged real estate investment
trust, or REIT, under the U.S. Internal Revenue Code of 1986, as amended (the
"Code"). WPG Inc. will generally qualify as a REIT for U.S. federal income tax
purposes as long as it continues to distribute at least 90% of its REIT taxable
income, exclusive of net capital gains, and satisfy certain other requirements.
WPG Inc. will generally be allowed a deduction against its U.S. federal income
tax liability for dividends paid by it to REIT shareholders, thereby reducing or
eliminating any corporate level taxation to WPG Inc. Washington Prime
Group, L.P. ("WPG L.P.") is WPG Inc.'s majorityowned limited partnership
subsidiary that owns, develops and manages, through its affiliates, all of WPG
Inc.'s real estate properties and other assets. WPG Inc. is the sole general
partner of WPG L.P. As of June 30, 2021, our assets consisted of material
interests in 101 shopping centers in the United States, consisting of open air
properties and enclosed retail properties, comprised of approximately 51 million
square feet of managed gross leasable area.
Unless the context otherwise requires, references to "WPG," the "Company," "we,"
"us" and "our" refer to WPG Inc., WPG L.P. and entities in which WPG Inc. or WPG
L.P. (or any affiliate) has a material ownership or financial interest, on a
consolidated basis.
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
consolidated balance sheets as of June 30, 2021 and December 31, 2020 include
the accounts of WPG Inc. and WPG L.P., as well as their majority owned and
controlled subsidiaries. The consolidated statements of operations include the
consolidated accounts of the Company. All intercompany transactions have been
eliminated in consolidation. In the opinion of management, the consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of the Company and
its results of operations and cash flows for the interim periods presented. The
Company believes that the disclosures made are adequate to prevent the
information presented from being misleading.
Voluntary Reorganization Under Chapter 11
On June 11, 2021, WPG Inc., WPG L.P. and certain of their direct and indirect
subsidiaries (collectively, the "Company Parties"), entered into a Restructuring
Support Agreement (the "Restructuring Support Agreement" or "RSA") with certain
creditors (the "Consenting Stakeholders"), which as of the Agreement Effective
Date (as defined in the RSA), represented at least 74.5% of the $997.0 million
aggregate principal amount of the Term Loan and Revolver (both as defined in
Note 6 - "Indebtedness"), or the "2018 Credit Facility Claims," at least 62.0%
of the $340.0 million aggregate principal amount of the December 2015 Term Loan
(as defined in Note 6 - "Indebtedness"), or the "2015 Credit Facility Claims,"
100.0% of the aggregate $65.0 million principal amount of the term loan secured
by Weberstown Mall, located in Stockton, California (the "Weberstown Term
Loan"), or the "Weberstown Term Loan Facility Claims," and at least 66.7% of the
$720.9 million aggregate principal amount of the Senior Notes due 2024 ( the
"Senior Notes") or the "Unsecured Notes Claims."
Under the RSA, the Consenting Stakeholders have agreed, subject to certain terms
and conditions, to support a financial restructuring (the "Restructuring") of
the existing corporate debt of, existing equity interests in, and certain other
obligations of the Company Parties, pursuant to the chapter 11 plan of
reorganization (as may be amended, modified, or supplemented from time to time,
the "Plan") that was filed on June 23, 2021 in the chapter 11 cases cases (the
"Chapter 11 Cases") commenced by the Company Parties on June 13, 2021 (the
"Petition Date") by filing voluntary petitions for relief under chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court").
The Company Parties are authorized to continue to operate their businesses and
manage their properties as debtors-in-possession pursuant to the Bankruptcy
Code. The Bankruptcy Court granted certain "first-day" relief requested by the
Company Parties providing the authority, among other things, to pay employee
wages and benefits and pay certain vendors and business partners for goods and
services provided both before and after the Petition Date so that those
designated vendors and business partners who continue to work with the Company
Parties on existing terms will be paid in full and in the ordinary course of
business. The Company Parties' Chapter 11 Cases are being jointly administered
for procedural purposes only under the caption In re Washington Prime Group
Inc., et al., Case No. 21-31948 (MI).
The filing of the Chapter 11 Cases constituted an event of default that
accelerated the Company's obligations under the applicable credit agreements
governing the December 2015 Term Loan, the Revolver, the Senior Notes, the Term
Loan and the Weberstown Term Loan. The Company Parties believe that any efforts
to enforce the financial obligations under the applicable credit agreements are
stayed as a result of the filing of the Chapter 11 Cases in the Bankruptcy Court
and the creditors' rights of enforcement in respect to the applicable credit
agreements are subject to the applicable provisions of the Bankruptcy Code.
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In connection with the Chapter 11 Cases, the Company obtained
debtor-in-possession ("DIP") financing in the aggregate principal amount of up
to $100.0 million under a non-amortizing multi-draw super-priority secured term
loan credit facility (the "DIP Facility"), bearing interest at the greater of
the London Inter-Bank Offered Rate ("LIBOR") and the Benchmark Replacement
Adjustment (as defined in the DIP Facility) (which, in each case, is deemed to
be 0.75%, if less than 0.75%) plus 4.25% and 3.25% per annum, respectively. The
DIP Facility includes conditions precedent, representations and warranties,
affirmative and negative covenants and events of default customary for
financings of this type and size. The proceeds of all or a portion of the DIP
Facility may be used for, among other things, general corporate purposes,
including working capital, administrative costs, redevelopment costs, tenant
obligations, expenses and fees of the transactions contemplated by the Chapter
11 Cases, for payment of court approved adequate protection obligations and
other such purposes consistent with the DIP Facility. As of June 30, 2021, $50.0
million was outstanding under the DIP Facility, of which $1.5 million was used
to pay applicable administrative agent fees and the interest rate for the
initial borrowing was 5.0% per annum.
Pursuant to the RSA and the Plan, the Company Parties have a right to "toggle"
from an equitization plan (the "Equitization Restructuring") or an alternative
value-maximizing transaction that would repay, in full in cash, all of the
Company's corporation-level debt. Whether an alternative transaction is
available depends on the results of the Company's 60-day postpetition
continuation of its prepetition marketing process. If elected, the Equitization
Restructuring, tied to certain milestones in the RSA, provides for the treatment
of each class of claims and interests as follows:
•2018 Credit Facility Claims and 2015 Credit Facility Claims: Each holder shall
receive its pro rata share of (i) new term loan exit facility in an aggregate
principal amount of approximately $1.2 billion plus, at the election of the Plan
sponsor, certain prepetition and postpetition interest and (ii) $150.0 million
cash plus cash in the amount of any accrued and unpaid (a) adequate protection
payments and (b) prepetition and postpetition interest not added to the
principal balance of the new term loan exit facility;
•Weberstown Term Loan Facility Claims: Each holder shall receive its pro rata
share of (i) new term loan exit facility in the aggregate principal amount of
$25.0 million plus, at the election of the Plan sponsor, certain prepetition and
postpetition interest and (ii) $40.0 million cash plus cash in the amount of any
accrued and unpaid (a) adequate protection payments and (b) prepetition and
postpetition interest not added to the principal balance of the new term loan
exit facility;
•Secured Property-Level Debt and Guarantee Claims: To the extent that any
secured property-level debt and guarantee claims exist, such secured
property-level mortgage claims shall be reinstated, unimpaired, or receive
treatment reasonably acceptable to the Plan sponsor;
•Unsecured Notes Claims: Each holder shall receive its pro rata share of (i)
100% of the new common equity, less any new common equity distributed to holders
of existing equity interests electing to receive new common equity, subject to
dilution on account of the management incentive plan, and the equity rights
offering and (ii) the right to purchase their pro rata share of 50% of the new
common equity offered in the equity rights offering;
•General Unsecured Claims: Each holder shall, at the option of the applicable
Company Party, (i) receive payment in full in cash or (ii) be reinstated;
•Existing Preferred Equity Interests: Subject to certain eligibility
requirements and election rights set forth in the Plan, each holder shall
receive: (i) if the class of existing preferred equity interests votes to accept
the Plan, such holder's pro rata share of the (A) preferred equity cash pool,
which shall equal $20.0 million if the class of existing common equity interests
votes to accept the Plan and $40.0 million otherwise or (B) the preferred equity
pool, which shall equal 3.0625% if the class of existing common equity interests
votes to accept the Plan and 6.1250% otherwise; or (ii) if the class of existing
preferred equity interests votes to reject the Plan, each holder of existing
preferred equity interests shall not receive any distribution on account of such
existing preferred equity interests, which will be canceled, released, and
extinguished as of the agreement effective date, and will be of no further force
or effect; and
•Existing Common Equity Interests: Subject to certain eligibility requirements
and election rights set forth in the Plan, each holder shall receive: (i) if the
class of existing preferred equity interests and the class of common equity
interests vote to accept the Plan, such holder's pro rata share of (A) $20.0
million or (B) 3.0625% of new common equity; or (ii) if the class of existing
preferred equity interests or existing common equity interests vote to reject
the Plan, holders of existing common equity interests shall not receive any
distribution on account of such interests, which will be canceled, released, and
extinguished as of the agreement effective date, and will be of no further force
or effect.
As part of the Equitization Restructuring, the Company Parties intend to conduct
a backstopped equity rights offering to raise up to $325.0 million in cash from
the offer and sale of new common equity. 50% of the equity rights are available
to holders of the Senior Notes and 50% are available to certain of the
Consenting Stakeholders, which have agreed to fully backstop the equity rights
offering. The new common equity issued in the equity rights offering will dilute
the new common equity distributed to holders of Unsecured Notes Claims, as
explained above, on account of such claims, and any portion of the equity rights
offering in excess of $260.0 million and new common equity issued on account of
the management incentive plan will also dilute the new common equity distributed
to holders of existing equity interests.
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The Plan also contains a proposed debtor release provision and third-party
release provision that releases certain claims belonging to holders of claims
and equity interests that to do not opt out of such third-party release. The
releases in the Plan are subject to the Bankruptcy Court's approval.
The RSA contains various milestones, including the following: (a) no later than
two calendar days after the Petition Date, the Company Parties shall have filed
the Plan and disclosure statement; (b) no later than five calendar days after
the Petition Date the Bankruptcy Court shall have entered the DIP interim order;
(c) no later than 30 calendar days after the Petition Date, or such other date
as agreed by the Plan sponsor and the Company Parties, the Bankruptcy Court
shall have entered the backstop approval order; (d) no later than 45 calendar
days after the Petition Date, the Bankruptcy Court shall have entered the DIP
final order; (e) no later than 60 calendar days after the Petition Date, the
Bankruptcy Court shall have entered the confirmation order; provided that such
milestone may be extended to 74 calendar days in accordance with the procedures
included in the RSA; and (f) no later than 15 calendar days after the entry of
the confirmation order, the Plan effective date shall have occurred. The
milestones can be waived with consent from the applicable parties to the RSA.
In connection with the Restructuring but prior to the Petition Date, the Company
incurred prepetition charges of approximately $52.5 million in 2021, which
consisted of legal, professional and transaction success fees. The Company
expects to continue to incur ongoing legal and professional fees as the Chapter
11 Cases proceed. In addition, the Company's arrangements with certain providers
of legal and professional services include transaction success fees totaling
approximately $11.7 million that are payable upon approval of the Plan by the
Bankruptcy Court and achievement of certain other milestones. Additionally, the
Company incurred approximately $24.4 million of reorganization fees, which
primarily relate to non-cash write offs of capitalized debt issuance cost and
debt discounts associated with certain debt obligations that are subject to
compromise under the Chapter 11 Cases.
The Company cannot predict the ultimate outcome of its Chapter 11 Cases at this
time or the satisfaction of any of the RSA milestones yet to come. For the
duration of the Company's Chapter 11 proceedings, the Company's operations and
ability to develop and execute its business plan are subject to the risks and
uncertainties associated with the Chapter 11 process. As a result of these risks
and uncertainties, the amount and composition of the Company's assets,
liabilities, officers and/or directors could be significantly different
following the outcome of the Chapter 11 proceedings, and the description of the
Company's operations, properties and liquidity and capital resources included in
this quarterly report may not accurately reflect its operations, properties and
liquidity and capital resources following the Chapter 11 process. See "Risk
Factors" in Part II Item 1A of this form 10-Q for more information.
In particular, subject to certain exceptions, under the Bankruptcy Code, the
Company Parties may assume, assume and assign or reject executory contracts and
unexpired leases subject to the approval of the Bankruptcy Court and certain
other conditions. Generally, the rejection of an executory contract or unexpired
lease is treated as a prepetition breach of such executory contract or unexpired
lease and, subject to certain exceptions, relieves the Company Parties of
performing their future obligations under such executory contract or unexpired
lease but entitles the contract counterparty or lessor to a prepetition general
unsecured claim for damages caused by such deemed breach subject, in the case of
the rejection of unexpired leases of real property, to certain caps on damages.
Counterparties to such rejected contracts or leases may assert unsecured claims
in the Bankruptcy Court against the applicable Company Party's estate for such
damages. Generally, the assumption or assumption and assignment of an executory
contract or unexpired lease requires the Company Parties to cure existing
monetary defaults under such executory contract or unexpired lease and provide
adequate assurance of future performance thereunder. Accordingly, any
description of an executory contract or unexpired lease with the Company Parties
in this quarterly report, including where applicable a quantification of the
Company's obligations under any such executory contract or unexpired lease with
the Company Parties is qualified by any overriding rights the Company has under
the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission
with respect to any claim amounts or calculations arising from the assumption,
assumption and assignment or rejection of any executory contract or unexpired
lease and the Company Parties expressly preserve all of their rights with
respect thereto.
Given the acceleration of the aforementioned obligations, as well as the
inherent risks, unknown results and inherent uncertainties associated with the
bankruptcy process and the direct correlation between these matters and the
Company's ability to satisfy its financial obligations that may arise, the
Company believes that there is substantial doubt that it will continue to
operate as a going concern. See Note 2 in Part 1 Item 1 for additional details.
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COVID-19


The novel strain of coronavirus ("COVID-19") continues to have a negative impact
on both the Company's operations and our tenants' revenues and businesses. While
all of our shopping centers were open during the six months ended June 30, 2021,
certain applicable operational limitations and restrictions remain in effect. In
addition, during the six months ended June 30, 2021, we granted additional rent
relief to certain of our tenants through a combination of approximately $3.3
million of rent abatements as well as rent deferrals to future periods which has
impacted our fiscal year 2021 operating cash flows. A further worsening of the
financial condition of our tenants may impact our continual assessment of future
collectibility of rents, which could cause us to write-off additional
straight-line rent that has not yet been billed. The situation continues to
evolve as vaccine distribution continues to accelerate while certain geographic
regions across the United States are experiencing a surge in new cases as a
result of mutant strains of COVID-19, which could result in shoppers limiting
their in-store purchases in exchange for curbside or on-line purchases.
Additional impacts to the business and operations may arise that we are not
aware of currently. We cannot predict whether, when or the manner in which the
conditions surrounding COVID-19 will change, including the timing of potential
additional closure requirements or the subsequent lifting of any said
restrictions.
Impairment
During the quarter ended June 30, 2020, we recorded an impairment charge of
approximately $23.8 million related to two enclosed retail properties based on
the total estimated fair value of $12.6 million and the related carrying value.
The impairment charge was attributed to declines in the estimated undiscounted
cash flows which resulted in the carrying value not being recoverable. The fair
value of each property was based on the respective discounted future cash flows
of each property, using a discount rate range of 18.8% to 19.3% and a terminal
capitalization rate range of 16.8% to 17.3%, which were determined using
management's assessment of the property operating performance and general market
conditions. We did not have any impairment losses during the quarter ended June
30, 2021.
During the quarter ended March 31, 2020, we recorded an impairment charge of
approximately $1.3 million related to vacant land at Georgesville Square,
located in Columbus, Ohio and a single tenant outparcel located in Topeka,
Kansas (the "Topeka Property"). The impairment charges in both instances were
due to changes in facts and circumstances when we decided to hold the assets for
a shorter period which resulted in the carrying value not being recoverable from
the projected cash flows. In the case of the vacant land at Georgesville Square,
which was sold during the second quarter of 2020, the fair value was based on
the sales price. In the case of the Topeka Property, the fair value was based on
general market conditions. We did not have any impairment losses during the
quarter ended March 31, 2021.
New Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting."
ASU 2020-04 provides temporary optional expedients and exceptions to GAAP
guidance on contract modifications and hedge accounting to ease the financial
reporting burdens of the expected market transition from LIBOR and other
interbank offered rates to alternative reference rates, such as the Secured
Overnight Financing Rate ("SOFR"). Entities can elect not to apply certain
modification accounting requirements to contracts affected by reference rate
reform, if certain criteria are met. If elected, an entity would not have to
remeasure the contracts at the modification date or reassess a previous
accounting determination. Entities electing relief would need to apply it
consistently for all eligible modified contracts accounted for under a
particular codification topic or industry subtopic. Additionally, entities can
elect various optional expedients that would allow them to continue to apply
hedge accounting for hedging relationships affected by reference rate reform, if
certain criteria are met. Entities electing relief related to hedging
relationships can generally elect to apply the optional expedients on a
hedge-by-hedge basis.
The guidance is effective upon issuance and can be applied to modifications of
existing contracts made after January 1, 2020 and can be applied to eligible
hedging relationships existing as of or entered into after the same date. The
relief is temporary and cannot be applied to contract modifications that occur
after December 31, 2022 or hedging relationships entered into or evaluated after
that date. However, certain optional expedients can be applied to hedging
relationships evaluated in periods after December 31, 2022. As of June 30, 2021,
we had approximately $0.1 billion of our aggregate consolidated indebtedness
currently indexed to LIBOR and approximately $1.4 billion of our aggregate
consolidated indebtedness that was previously indexed to LIBOR but is currently
indexed to U.S. Prime (see "Financing & Debt" for additional details). In
addition, as of June 30, 2021, we have certain derivative contracts that are
indexed to LIBOR (see Note 7 in Part 1 Item 1 for details) that previously
hedged certain variable rate debt instruments. The Company continues to evaluate
the impact of the guidance and may apply other elections as applicable as
additional changes in the market occur.
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Four Corners Outparcel Sales
We are party to a purchase and sale agreement to sell certain outparcels to FCPT
Acquisitions, LLC ("Four Corners"). The following table summarizes the key terms
of each of the closings that occurred during the three and six months ended
June 30, 2021 (dollars in thousands):
                Sales Date         Parcels Sold      Purchase Price

Sales Proceeds


              January 27, 2021                 1    $        2,121      $

2,109




The net proceeds were generally used to fund ongoing redevelopment efforts and
for general corporate purposes. Based upon the closings above and amendments
executed as of June 30, 2021, the Company has approximately $15.6 million
remaining to close, subject to due diligence and closing conditions.
Business Opportunities
We derive our revenues primarily from retail tenant leases, including fixed
minimum rent leases, percentage rent leases based on tenants' sales volumes and
reimbursements from tenants for certain expenses. We seek to re-lease our spaces
at higher rents and increase our occupancy rates, and to enhance the performance
of our properties and increase our revenues by, among other things, adding or
replacing anchors or big-box tenants, re-developing or renovating existing
properties to increase the leasable square footage, and increasing the
productivity of occupied locations through aesthetic upgrades, re-merchandising
and/or changes to the retail use of the space. We seek growth in earnings, funds
from operations ("FFO") and cash flows by enhancing the profitability and
operation of our properties and investments.
Additionally, we feel there are opportunities to enhance our portfolio and
balance sheet through active portfolio management. We believe that there are
opportunities for us to acquire additional shopping centers that match our
investment and strategic criteria. We invest in real estate properties to
maximize total financial return which includes both operating cash flows and
capital appreciation. We also seek to dispose of assets that no longer meet our
strategic criteria. These dispositions will be a combination of asset sales and
transitions of over-levered properties to lenders.
We consider FFO, net operating income, or NOI, and comparable NOI (NOI for
properties owned and operating in both periods under comparison) to be key
measures of operating performance that are not specifically defined by GAAP. We
use these measures internally to evaluate the operating performance of our
portfolio and provide a basis for comparison with other real estate companies.
Reconciliations of these measures to the most comparable GAAP measure are
included elsewhere in this report.
Portfolio Data
The portfolio data discussed in this overview includes key operating statistics
for the Company including period ending occupancy, average base minimum rent per
square foot and comparable NOI for the core properties owned and managed at
June 30, 2021. The Company generates approximately 90% of the NOI from our Tier
1 and open air properties. As these properties are core to our future growth and
receive the majority of our capital allocation, we disclose our operating
metrics for this portion of our portfolio and exclude our noncore properties as
well as our Tier 2 properties. Refer to "Enclosed Retail Property Tiers" below
for our property listing as of June 30, 2021.
Ending occupancy for the Tier 1 and open air properties was 92.1% as of June 30,
2021, as compared to 92.4% as of June 30, 2020. Average base minimum rent per
square foot for the core portfolio decreased 5.1% when comparing June 30, 2021
to June 30, 2020. Comparable NOI for the Tier 1 and open air properties
increased 52.7% in the second quarter of 2021 when compared to the second
quarter of 2020. The Tier 1 properties had an increase in comparable NOI of
69.5%, and the open air properties had an increase in comparable NOI of 29.5% in
the second quarter of 2021 as compared to the same period in 2020. This
year-over-year increase in NOI was primarily due to the number of temporary
closures at our properties in addition to the significant rental relief provided
in the 2020 period due the COVID-19 pandemic, which did not occur in the 2021
period. While the NOI growth is an encouraging sign towards stability, we are
down 16.9% and 2.7%, respectively, in our Tier 1 and open air properties
compared to the second quarter of 2019, and a combined decline for these core
properties from the second quarter of 2019 of 12.4%.
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The following table sets forth key operating statistics for the combined portfolio of the Tier 1 and open air properties:


                                                            June 30, 2021              June 30, 2020               % Change
Ending occupancy(1)                                             92.1%                      92.4%                    (0.3)%
Average base minimum rent per square foot(2)                    $20.15                     $21.24                   (5.1)%


(1)  Ending occupancy is the percentage of managed gross leasable area, or GLA,
which is leased as of the last day of the reporting period. We include all
Company-owned space except for anchors, majors, freestanding office and outlots
at our enclosed retail properties in the calculation of ending occupancy. Open
air property GLA included in the calculation relates to all Company-owned space
other than office space.
(2)  Average base minimum rent per square foot is the average base minimum rent
charge in effect for the reporting period for all tenants that would qualify to
be included in ending occupancy.
Current Leasing Activities
During the six months ended June 30, 2021, we signed new leases and renewal
leases with terms in excess of a year (excluding enclosed retail property
anchors, majors, offices, and in-line spaces in excess of 10,000 square feet)
across the Tier 1 and open air portfolio, comprising approximately 1,268,300
square feet. The average annual initial base minimum rent for new leases was
$23.22 per square foot ("psf") and for renewed leases was $19.78 psf. For these
leases, the average for tenant allowances was $26.90 psf for new leases and
$5.01 psf for renewals. During the six months ended June 30, 2020, we signed new
leases and renewal leases with terms in excess of a year (excluding enclosed
retail property anchors, majors, offices, and in-line spaces in excess of 10,000
square feet) across the Tier 1 and open air portfolio, comprising approximately
880,300 square feet. The average annual initial base minimum rent for new leases
was $21.06 psf and for renewed leases was $17.21 psf. For these leases, the
average for tenant allowances was $28.18 psf for new leases and $4.49 psf for
renewals. The leasing activity for the first six months of 2021 compared to the
same period in 2020, when including all leases, increased 46% to 3.1 million
square feet.
Enclosed Retail Property Tiers
The following table categorizes the enclosed retail properties into their
respective tiers as of June 30, 2021:
                             Tier 1                                                                 Tier 2/Noncore
Arbor Hills                   Morgantown Mall                                     Tier 2
Arboretum, The                Northtown Mall                                             Boynton Beach Mall
Ashland Town Center           Northwoods Mall                                            Chautauqua Mall
Bowie Town Center             Oklahoma City Properties                                   Indian Mound Mall
Clay Terrace                  Orange Park Mall                                           Lima Mall
Edison Mall                   Paddock Mall                                               Maplewood Mall
Grand Central Mall            Pearlridge Center                                          New Towne Mall
Great Lakes Mall              Polaris Fashion Place                                      Rolling Oaks Mall
Irving Mall                   Scottsdale Quarter                                         Sunland Park Mall
Jefferson Valley Mall         Southern Hills Mall                                        Westminster Mall
Lindale Mall                  Southern Park Mall                                 Noncore
Longview Mall                 Southgate Mall                                             Anderson Mall1
Malibu Lumber Yard            The Outlet Collection | Seattle                            Brunswick Square1
Mall at Fairfield Commons,
The                           Town Center at Aurora                                      Charlottesville Fashion Square
Mall at Johnson City, The     Town Center Crossing & Plaza                               Cottonwood Mall1
Markland Mall                 Waterford Lakes Town Center                                Dayton Mall1
Melbourne Square              Weberstown Mall                                            Lincolnwood Town Center1
Mesa Mall                     WestShore Plaza                                            Muncie Mall
                                                                                         Oak Court Mall1
                                                                                         Port Charlotte Town Center1

1 During the quarter ended March 31, 2021, the property changed tiers.


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Results of Operations
Activities Affecting Results
The COVID-19 pandemic had a material impact on our 2020 results and continues to
have an impact on our 2021 results, which is discussed throughout this report.
Additionally, the commencement of the Chapter 11 Cases and Restructuring has had
a significant impact on our 2021 results and is discussed throughout this
report. Finally, the following property related transactions affected our
results in the comparative periods:
•During the 2021 fiscal year, we completed the sale of one outparcel to Four
Corners (see further details in Note 4 of the Condensed Notes to the Unaudited
Consolidated Financial Statements in Part I, Item 1).
•On January 31, 2020, we completed the sale of Dekalb Plaza, located in King of
Prussia, Pennsylvania, to an unaffiliated private real estate investor.
•On January 14, 2020, we completed the sale of Matteson Plaza, located in
Matteson, Illinois, to an unaffiliated private real estate investor.
•During the 2020 fiscal year, we completed the sale of six outparcels to Four
Corners.
For the purposes of the following comparisons, the transactions listed above are
referred to as the "Property Transactions," and "comparable properties" refers
to the remaining properties we owned and operated throughout both of the periods
under comparison.
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Rental income increased $37.4 million due to the improving operating conditions
as the 2020 period was significantly impacted by rental abatements and rent
deferrals instituted in response to the COVID-19 pandemic as well as tenant
specific bankruptcy activity throughout 2020. Other income increased $2.3
million which was primarily due to a $1.3 million increase related to fee income
recognized in the current period and a $1.0 million increase in property
ancillary income.
Property operating expenses increased $8.5 million, which was directly
attributable to increased operating expenses as the properties were operating at
full capacity during the 2021 period, whereas the 2020 period was impacted by
mandatory closures and capacity limitations in response to the COVID-19
pandemic. General and administrative expenses increased $1.6 million, which was
primarily attributable to a change in executive equity incentive and bonus
compensation as a result of the Company's restructuring efforts. The $38.1
million of prepetition charges recognized in the 2021 period primarily relate to
legal and professional fees incurred prior to the commencement of the Chapter 11
Cases, whereas the 2020 period had no such costs. The $23.8 million impairment
charge recorded in the 2020 period related to the write down of the two Tier 2
enclosed retail properties. There was no impairment charge recognized in the
2021 period.
Interest expense, net, increased $15.1 million, which was primarily attributed
to $9.2 million of default interest charges related to our corporate debt and
certain mortgage notes payable, a $4.7 million increase due to the draw on the
DIP Facility and a change in interest rates on our Revolver and Term Loans (see
"Financing & Debt" for capitalized terms) and a $1.2 million increase due to
higher amortization of capitalized debt issuance costs related to costs incurred
during our third quarter 2020 credit facility modifications which were
subsequently written off in connection with the Chapter 11 Cases, as noted
below. The $11.2 million impairment on note receivable recorded in the 2020
period was attributed to the discounted payoff of the seller financing provided
in conjunction with our other indebtedness (see "Financing and Debt" for further
details). The $24.4 million of reorganization items incurred in the 2021 period
primarily relate to the write off of debt issuance costs and debt discounts
related to our debt obligations that are subject to compromise. No such costs
were incurred in the 2020 period.
Loss from unconsolidated entities decreased $3.9 million which was primarily
attributable to the improving operating conditions as the 2020 period results
were materially impacted by the COVID-19 pandemic.
For WPG Inc., net loss attributable to noncontrolling interests primarily
relates to the allocation of loss to third parties based on their respective
weighted average ownership of limited partnership interest in WPG L.P. During
the six months ended June 30, 2021, a significant portion of the outstanding WPG
L.P. units were converted to WPG Inc. common stock, which resulted in WPG Inc.'s
weighted average ownership percentage increasing from 84.7% for the three months
ended June 30, 2020 to 98.6% for the three months ended June 30, 2021.
                                       47
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Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Rental income increased $17.8 million due to the improving operating conditions
as the 2020 period was significantly impacted by rental abatements and rent
deferrals instituted in response to the COVID-19 pandemic as well as tenant
specific bankruptcy activity throughout 2020. Other income increased $1.2
million which was primarily due to an increase of $1.6 million related to fee
income recognized in the current period offset by a $0.4 million decrease in
property ancillary income recognized in the current period.
Property operating expenses increased $10.6 million, which was directly
attributable to increased operating expenses as the properties were operating at
full capacity during the 2021 period, whereas the 2020 period was impacted by
mandatory closures and capacity limitations in response to the COVID-19
pandemic. Depreciation and amortization decreased $7.8 million, primarily due to
the accelerated depreciation of certain tenant improvements, leasing
commissions, and lease-in-place intangibles during 2020 as a result of increased
lease terminations due to COVID-19 and related tenant bankruptcies, in addition
to the lower depreciation as a result of the 2020 impairment write-downs of
certain depreciable assets. Real estate taxes decreased $1.0 million, which was
primarily attributable to successful tax appeals during the first quarter of
2021. General and administrative expenses increased $3.3 million, which was
primarily attributable to a change in executive equity incentive and bonus
compensation as a result of the Company's restructuring efforts. The $52.5
million of prepetition charges recognized in the 2021 period primarily relate to
legal and professional fees incurred prior to the commencement of the Chapter 11
Cases, whereas the 2020 period had no such costs.
The $25.1 million impairment charge recorded in the 2020 period related to the
write down of two Tier 2 enclosed retail properties, the Topeka Property and
vacant land. There was no impairment charge recognized in the 2021 period.
Interest expense, net, increased $28.0 million, which was primarily attributed
to a net $12.1 million adjustment due to the discontinuation of hedge accounting
as a result of our capital restructuring efforts, $9.2 million of default
interest charges related to our corporate debt and certain mortgage notes
payable, a $4.3 million increase due to the DIP Facility and a change in
interest rates on our Revolver and Terms Loans (see "Financing & Debt" for
capitalized terms) and a $2.4 million increase due to higher amortization of
capitalized debt issuance costs related to costs incurred during our third
quarter 2020 credit facility modifications which were subsequently written off
in connection with the Chapter 11 Cases, as noted below. The $11.2 million
impairment on note receivable recorded in the 2020 period was attributed to the
discounted payoff of the seller financing provided in conjunction with our other
indebtedness (see "Financing and Debt" for further details). The $24.4 million
of reorganization items incurred in the 2021 period primarily relate to the
write off of debt issuance costs and debt discounts related to our debt
obligations that are subject to compromise. No such costs were incurred in the
2020 period.
Gain on disposition of interests in properties, net decreased $24.7 million
which is primarily attributable to gains recognized during the first quarter of
2020 related to the dispositions of Matteson Plaza, Dekalb Plaza, and an
unconsolidated joint venture.
Loss from unconsolidated entities decreased $2.7 million which was primarily
attributable to the improving operating conditions as the 2020 period results
were materially impacted by the COVID-19 pandemic.
For WPG Inc., net loss attributable to noncontrolling interests primarily
relates to the allocation of loss to third parties based on their respective
weighted average ownership of limited partnership interest in WPG L.P. During
the six months ended June 30, 2021, a significant portion of the outstanding WPG
L.P. units were converted to WPG Inc. common stock, which resulted in WPG Inc.'s
weighted average ownership percentage increasing from 84.7% for the six months
ended June 30, 2020 to 93.0% for the six months ended June 30, 2021.
Liquidity and Capital Resources
See "Voluntary Reorganization Under Chapter 11" at the beginning of this Item 2.
Our primary uses of cash include payment of operating expenses, working capital,
debt repayment, including principal and interest, reinvestment in properties,
development and redevelopment of properties, and tenant allowances. Currently,
our primary sources of cash are operating cash flow and the remaining capacity
under our DIP Facility.
Annually, we derive most of our liquidity from leases that generate positive net
cash flow from operations. Total cash flows from operations during the six
months ended June 30, 2021 was $26.4 million as compared to cash flows used in
operations of $(2.1) million during the six months ended June 30, 2020. The 2020
period was directly impacted by rent relief provided to our tenants and higher
tenant receivable balances as a result of the COVID-19 pandemic while the 2021
period has been impacted by costs incurred to date related to the Restructuring.
Due to the seasonal nature of certain operational activities as well as the
ongoing impact of both the COVID-19 pandemic and Restructuring, the cash flows
from operations for the six months ended June 30, 2021 are not necessarily
indicative of the cash flows from operations expected for the rest of 2021.
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Our balance of cash and cash equivalents decreased $1.3 million for the six
months ended June 30, 2021 to $91.3 million as of June 30, 2021. The decrease
was primarily due to the payment of capital expenditures in addition to costs
incurred to date related to the Restructuring, offset by a $50.0 million draw on
the DIP Facility. See "Cash Flows" below for more information.
Because we own primarily long-lived income-producing assets, our financing
strategy has historically relied on a combination of long-term mortgage debt as
well as secured and unsecured debt supported by a quality unencumbered asset
pool, providing us with ample flexibility from a liquidity perspective. Our
strategy is to have the majority of our debt fixed either through fixed rate
mortgages or interest rate swaps that effectively fix the interest rate. At
June 30, 2021, floating rate debt (excluding loans hedged to fixed interest and
including debt subject to compromise under the Chapter 11 Case) comprised 45.6%
of our total consolidated debt. We will continue to monitor our borrowing mix to
limit market risk.
On June 30, 2021, we had an aggregate available borrowing capacity of $3.0
million under the Revolver, net of outstanding borrowings of $647.0 million,
which is unchanged from the year ended December 31, 2020. However, we are unable
to draw on the remaining capacity at this time. The weighted average interest
rate on the Revolver, excluding accrued default interest, was 4.5% and 3.9%
during the three and six months ended June 30, 2021, respectively. Additionally,
we have $50.0 million of remaining capacity available on the DIP Facility as of
June 30, 2021.
The consolidated indebtedness of our business, including debt instruments
subject to compromise under the Chapter 11 Cases, was approximately $3.3 billion
as of June 30, 2021, or an increase of approximately $72.1 million from
December 31, 2020, which is attributed to the $50.0 million draw on the DIP
Facility in addition to the accelerated amortization of bond discounts and
capitalized debt issuance costs associated with those debt instruments that are
subject to compromise under the Chapter 11 Cases.
Additionally, as part of the Equitization Restructuring, we expect to receive
subscriptions pursuant to the equity rights offering contemplated under the Plan
with respect to shares of our new common stock, including amounts fully
backstopped by certain of the Consenting Stakeholders. It is contemplated that
the equity rights offering of up to $325.0 million will be closed on the
effective date of the Plan.
Outlook
Our business model and WPG Inc.'s status as a REIT require us to regularly
access the debt markets to raise funds for acquisition, development and
redevelopment activity, and to refinance maturing debt. We may also, from time
to time, access the equity capital markets to accomplish our business
objectives. See "Voluntary Reorganization Under Chapter 11" at the beginning of
this Item 2 for additional details on our outlook for 2021.
Cash Flows
Our net cash flow from operating activities totaled $26.4 million during the six
months ended June 30, 2021, as compared to $(2.1) million of cash flow used in
operating activities during the six months ended June 30, 2020. This increase
was directly attributable improving economic conditions in addition to improving
collection rates of previously deferred rents, offset by costs incurred to date
related to the Restructuring. During this period, we also:
•funded capital expenditures and redevelopment projects of $68.7 million;
•received net proceeds from the sale of interests in properties and outparcels
of $4.5 million;
•funded investments in unconsolidated entities of $3.9 million;
•received distributions of capital from unconsolidated entities of $2.4 million;
•received net proceeds from debt financing, refinancing and repayment activities
of $42.0 million; and
•funded distributions to preferred shareholders and unitholders of $3.6 million.
We anticipate that cash generated from operations and capacity available under
the DIP Facility will be sufficient for the expected timeline of the Chapter 11
Cases until emergence to meet operating expenses, monthly debt service,
recurring capital expenditures, committed redevelopment and cover the majority
of distributions to shareholders necessary to maintain WPG Inc.'s status as a
REIT.
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Financing and Debt
Mortgage Debt
Total mortgage indebtedness at June 30, 2021 and December 31, 2020 was as
follows (in thousands):
                                                    June 30,        December 31,
                                                      2021              2020
            Face amount of mortgage loans         $ 1,032,641      $  1,104,375
            Fair value adjustments, net                 1,059             1,685
            Debt issuance cost, net                    (4,392)           (4,407)
            Carrying value of mortgage loans      $ 1,029,308      $  1,101,653


A roll forward of mortgage indebtedness from December 31, 2020 to June 30, 2021
is summarized as follows (in thousands):
Balance at December 31, 2020

$ 1,101,653

Write off of issuance costs associated with liabilities subject to compromise

                                                                             19
Debt amortization payments

(6,734)

Reclass of Weberstown Term Loan to liabilities subject to compromise

(65,000)


Issuance costs incurred upon debt modifications

(790)


Amortization of fair value and other adjustments

(626)


Amortization of debt issuance costs                                                   786
Balance at June 30, 2021                                                     $  1,029,308


On July 9, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed
an extension of the $37.4 million non-recourse mortgage loan secured by Grand
Central Mall, located in Parkersburg, West Virginia. Under the terms of the
extension, the maturity date was extended to July 6, 2023, with two additional
one-year extension options available to the borrower.
On June 8, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed
an extension of the $50.3 million non-recourse mortgage loan secured by Town
Center at Aurora, located in Aurora, Colorado. Under the terms of the extension,
the maturity date was extended to April 1, 2024, with two additional one-year
extension options available to the borrower. The extension requires monthly
interest payments and a quarterly principal payment of $0.3 million and will
bear interest at one-month LIBOR plus 300 basis points per annum.
On June 8, 2021, the $65.0 million Weberstown Term Loan matured (see "Voluntary
Reorganization Under Chapter 11" for additional details).
On April 22, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed
a modification of the $35.4 million full-recourse mortgage loan secured by
Southgate Mall, located in Missoula, Montana. The modification addressed a
technical default resulting from a shortfall in the debt service coverage ratio,
and extended the maturity of the mortgage note to September 27, 2023. Under the
modified terms, the mortgage loan bears interest at U.S. Prime plus 150 basis
points, with a floor of 4.75% per annum.
Highly-levered Assets
As of June 30, 2021, we have identified nine consolidated mortgage loans that
have leverage levels in excess of our targeted leverage. These mortgage loans
total $456.2 million and encumber Anderson Mall, located in Anderson, South
Carolina; Brunswick Square Mall, located in East Brunswick, New York;
Charlottesville Fashion Square, located in Charlottesville, Virginia; Cottonwood
Mall, located in Albuquerque, New Mexico; Dayton Mall, located in Dayton, Ohio;
Lincolnwood Town Center, located in Lincolnwood, Illinois; Muncie Mall, located
in Muncie, Indiana; Oak Court Mall & Offices, located in Memphis, Tennessee; and
Port Charlotte Town Center, located in Port Charlotte, Florida, all of which
have been identified as noncore properties. We have commenced discussions with
the special servicers on these non-recourse mortgages, and we expect to improve
our leverage once all, or a portion of them, are transitioned to the lenders,
with minimal impact to net cash flows. See "Covenants" below for further
discussion on these highly-levered assets as of June 30, 2021.
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Corporate and Other Debt
On February 15, 2021, we deferred the approximately $23.2 million semi-annual
interest payment on the Senior Notes and commenced a 30-day grace period under
the terms of the indenture governing the Senior Notes. On June 13, 2021, or the
Petition Date, the Company Parties commenced the Chapter 11 Cases in the
Bankruptcy Court and filed the Plan and disclosure statement in connection with
such cases. The filing of the Chapter 11 Cases constituted an event of default
that accelerated the Company's obligations under the applicable credit
agreements governing the December 2015 Term Loan, the Revolver, the Senior
Notes, the Term Loan and the Weberstown Term Loan. The Company Parties believe
that any efforts to enforce the financial obligations under the applicable
credit agreements are stayed as a result of the filing of the Chapter 11 Cases
in the Bankruptcy Court and the creditors' rights of enforcement in respect to
the applicable credit agreements are subject to the applicable provisions of the
Bankruptcy Code.
During the three months ended March 31, 2021, the stated interest rates,
depending on total leverage levels, on our Revolver, Term Loan and December 2015
Term Loan (see below for capitalized terms) switched from a range of LIBOR plus
2.00% to 2.60%, with a LIBOR floor of 0.50% to a range of U.S. Prime plus 1.00%
to 1.60% pursuant to the terms of the underlying debt agreements. As a result of
the rate change, we expect an annualized increase of approximately $23.4 million
in interest payments based on rates in place at June 30, 2021. Additionally,
pursuant to forbearance agreements executed prior to the Petition Date and the
uncertainty surrounding the current and forecasted payment of LIBOR-indexed
interest, we discontinued hedge accounting on all of our derivatives as of
January 1, 2021. As a result, approximately $12.1 million was released from
accumulated other comprehensive loss to interest expense as the Company is not
able to assert that future interest payments are probable of occurring. Further,
due to the commencement of the Chapter 11 Cases, the December 2015 Term Loan,
the Revolver and the Term Loan were assessed an additional 200 basis point
default interest rate and the Weberstown Term Loan was assessed an additional
300 basis point default interest rate from March 15, 2021 through the Petition
Date, which resulted in additional interest expense of approximately $7.1
million for the three and six months ended June 30, 2021. Stated rates in the
table below include any default spreads but may not be indicative of future
interest costs as the payment of postpetition default interest may not occur.
On June 22, 2020, in order to accelerate repayment and bolster liquidity, the
Company accepted the terms of a reduced payoff of the $55.0 million bridge
financing provided in connection with the failed sale and leaseback noted below.
In exchange for settling the bridge financing, the Company received $30.0
million in cash and the buyer/lessor reduced monthly payments that we owe under
the leases totaling approximately $15.7 million over 27 months, commencing July
1, 2020. The present value of the reduced rent payments was reclassified from
note receivable to other indebtedness, which is presented net of the accretion
adjustment in the table below, and the Company recorded an impairment on the
note receivable of approximately $11.2 million in connection with the
extinguishment. The proceeds were used for general corporate purposes.
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The following table identifies our total corporate debt outstanding at June 30, 2021 and December 31, 2020 (in thousands):

June 30,

December 31,


                                                               2021             2020
    Debtor-in-possession financing
    Face amount(1)                                          $  50,000      $           -

    Notes payable:
    Face amount - Senior Notes due 2024(2)(9)               $ 720,900      $     720,900
    Debt discount, net                                              -             (6,338)
    Debt issuance costs, net                                        -             (4,086)
    Total carrying value of notes payable                   $ 720,900      $     710,476

    Term loans
    Face amount - Term Loan(3)(4)(9)                        $ 350,000      $     350,000
    Face amount - December 2015 Term Loan(5)(9)               340,000            340,000
    Face amount - Weberstown Term Loan(7)(9)                   65,000                  -
    Debt issuance costs, net                                        -             (8,437)
    Total carrying value of term loans                      $ 755,000      $     681,563

    Revolving credit facility:(3)(6)
    Face amount(9)                                          $ 647,000      $     647,000
    Debt issuance costs, net                                        -             (7,024)
    Total carrying value of revolving credit facility       $ 647,000      $     639,976

    Other indebtedness:(8)
    Anticipated settlement amount                           $ 109,285      $     109,285
    Debt issuance costs, net                                   (1,483)            (1,509)
    Future accretion, net                                     (16,396)           (19,969)
    Total carrying value of other indebtedness              $  91,406      $      87,807


(1) The DIP Facility provides for financing in the aggregate principal amount of
$100.0 million under a non-amortizing multiple draw super-priority secured term
loan facility and bears interest at the greater of LIBOR or 0.75% plus 4.25% per
annum.
(2) The Senior Notes due 2024 were issued at a 1.533% discount and bear interest
at 6.450% per annum. The Senior Notes due 2024 mature on August 15, 2024.
(3) The revolving credit facility, or "Revolver" and term loan, or "Term Loan"
are collectively known as the "Facility."
(4) The Term Loan bears interest at U.S. Prime plus 3.60% or 6.85% per annum and
will mature on December 30, 2022.
(5) The December 2015 Term Loan bears interest at U.S. Prime plus 3.60% or 6.85%
per annum and will mature on January 10, 2023.
(6) The Revolver provides borrowings on a revolving basis up to $650.0 million,
bears interest at U.S. Prime plus 3.25%, and will initially mature on
December 30, 2021, subject to two six-month extensions available at our option
subject to compliance with terms of the Facility and payment of a customary
extension fee. At June 30, 2021, we had an aggregate available borrowing
capacity of $3.0 million under the Revolver, however, we are unable to draw on
the remaining capacity at this time. At June 30, 2021, the applicable interest
rate on the Revolver was U.S. Prime plus 3.25%, or 6.50% per annum.
(7) The Weberstown Term Loan bears interest at the greater of LIBOR or 50 basis
points, plus 5.30% or 5.80% and matured on June 1, 2021. In connection with the
commencement of the Chapter 11 Cases, this term loan was reclassified from
mortgage notes payable to liabilities subject to compromise as of June 30, 2021.
(8) Represents the financial liability associated with our failed sale and
master ground leaseback of land at Edison Mall, located in Fort Myers, Florida;
Great Lakes Mall, located in Mentor, Ohio; Irving Mall, located in Irving,
Texas; and Jefferson Valley Mall, located in Yorktown Heights, New York
(collectively, the "Properties"). The master ground lease has a 99-year term and
includes fixed annual payments at an initial annualized rate of 7.4%, with
annual rent escalators over the aforementioned term. The anticipated settlement
amount represents the year 30 repurchase option price of $109.3 million to
reacquire the fee interest in the land at the Properties, to which the carrying
value of the financial liability is being accreted to, through interest expense,
during the repurchase period. Expense is being recognized utilizing an effective
interest rate of 8.52% per annum during the repurchase period.
(9) In connection with the commencement of the Chapter 11 Cases, the principal
amount of the applicable corporate debt was reclassified to liabilities subject
to compromise in the accompanying consolidated balance sheet as of June 30, 2021
and the applicable debt issuance costs and discounts were written off to
reorganization items.
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Covenants

Our corporate debt agreements contain financial and other covenants. If we were
to fail to comply with these covenants, after the expiration of the applicable
cure periods, the debt maturity could be accelerated or other remedies could be
sought by the lender including adjustments to the applicable interest rate. On
February 15, 2021, we deferred the semi-annual interest payment on the Senior
Notes. On June 13, 2021 the Company Parties commenced the Chapter 11 Cases in
the Bankruptcy Court. The filing of the Chapter 11 Cases constituted an event of
default that accelerated the Company's obligations under the applicable credit
agreements governing the December 2015 Term Loan, the Revolver, the Senior
Notes, the Term Loan and the Weberstown Term Loan. The Company Parties believe
that any efforts to enforce the financial obligations under the applicable
credit agreements are stayed as a result of the filing of the Chapter 11 Cases
in the Bankruptcy Court and the creditors' rights of enforcement in respect to
the applicable credit agreements are subject to the applicable provisions of the
Bankruptcy Code.
The total balance of mortgages was approximately $1.0 billion as of June 30,
2021. At June 30, 2021, certain of our consolidated subsidiaries were the
borrowers under 20 non-recourse loans and two full-recourse loans secured by
mortgages encumbering 24 properties, including one separate pool of
cross-defaulted and cross-collateralized mortgages encumbering a total of four
properties. Under these cross-default provisions, a default under any mortgage
included in the cross-defaulted pool may constitute a default under all
mortgages within that pool and may lead to acceleration of the indebtedness due
on each property within the pool. Certain of our secured debt instruments
contain financial and other non-financial covenants which are specific to the
properties which serve as collateral for that debt. If the borrower fails to
comply with these covenants, the lender could accelerate the debt and enforce
its right against their collateral. Our existing non-recourse mortgage loans
generally prohibit our subsidiaries that are borrowers thereunder from incurring
additional indebtedness, subject to certain customary and limited exceptions. In
addition, certain of these instruments limit the ability of the applicable
borrower's parent entity from incurring mezzanine indebtedness unless certain
conditions are satisfied, including compliance with maximum loan to value ratio
and minimum debt service coverage ratio tests. Further, under certain of these
existing agreements, if certain cash flow levels in respect of the applicable
mortgaged property (as described in the applicable agreement) are not maintained
for at least two consecutive quarters, the lender could accelerate the debt and
enforce its right against its collateral. The consolidated subsidiaries
discussed below are not subject to the Chapter 11 Cases.
On July 23, 2021, we received a notice of default letter dated July 21, 2021,
from the special servicer to the borrower, a consolidated subsidiary of WPG
L.P., concerning the $34.6 million mortgage loan secured by Ashland Town Center,
located in Ashland, Kentucky. The notice was issued by the special servicer
because the borrower did not repay the loan in full by its July 6, 2021 maturity
date. The borrower has commenced discussions with the special servicer regarding
extending this non-recourse loan. The Company continues to own, manage and lease
the property.
On June 17, 2021, the $92.6 million mortgage loan secured by Cottonwood Mall was
transferred to special servicing because the borrower, a consolidated subsidiary
of WPG L.P., elected to not make monthly debt service payments beginning in May
2021. The borrower continues to have discussions with the special servicer
regarding this non-recourse loan. The Company continues to own, manage and lease
the property.
On June 30, 2021, we received a letter dated the same date, from the lender
notifying the borrower, a consolidated subsidiary of WPG L.P., that the $77.0
million mortgage loan secured by Dayton Mall was transferred to special
servicing because the borrower elected to not make monthly debt service payments
beginning in May 2021. The borrower continues to have discussions with the
special servicer regarding this non-recourse loan. The Company continues to own,
manage and lease the property.
On June 30, 2021, we received a letter dated June 28, 2021, from the lender
notifying the borrower, a consolidated subsidiary of WPG L.P., that the $67.7
million mortgage loan secured by Brunswick Square Mall was transferred to
special servicing because the borrower elected to not make monthly debt service
payments beginning in May 2021. The borrower continues to have discussions with
the special servicer regarding this non-recourse loan. The Company continues to
own, manage and lease the property.
During the first quarter of 2021, the borrower, a consolidated subsidiary of WPG
L.P., on the $35.4 million full-recourse mortgage loan secured by Southgate Mall
experienced a technical default as a result of the debt service coverage ratio
being below the minimum allowable ratio. We modified the mortgage loan on April
22, 2021, as described above, to address the technical default as well as extend
the loan maturity date to September 27, 2023.
On February 9, 2021, we received a notice of default letter, dated that same
day, from the special servicer to the borrower, a consolidated subsidiary of WPG
L.P., concerning the $47.3 million mortgage loan secured by Lincolnwood Town
Center. The notice was issued by the special servicer because the funds
maintained in the cash management account were insufficient to pay the full
January 2021 mortgage payment. On April 8, 2021, the Company received
notification that a receiver had been appointed to manage and lease the
property. The borrower continues to have discussions with the special servicer
regarding this non-recourse loan. An affiliate of WPG continues to hold title to
the property.
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On February 2, 2021, we received a notice of default letter, dated December 8,
2020, from the special servicer to the borrower, a consolidated subsidiary of
WPG L.P., concerning the $16.6 million mortgage loan secured by Anderson Mall.
The notice was issued by the special servicer because the borrower elected to
not make monthly debt service payments beginning in April 2020 in response to
the COVID-19 pandemic. On March 8, 2021, the Company received notification that
a receiver had been appointed to manage and lease the property. The borrower
continues to have discussions with the special servicer regarding this
non-recourse loan. An affiliate of WPG continues to hold title to the property.
On May 26, 2020, we received a notice of default letter, dated May 14, 2020,
from the special servicer to the borrower, a consolidated subsidiary of WPG
L.P., concerning the $40.9 million mortgage loan secured by Port Charlotte Town
Center. The notice was issued by the special servicer because the borrower
elected to not pay the May 2020 mortgage payment due to disruption caused by the
COVID-19 pandemic. On August 2, 2021, the Company received notification that a
receiver had been appointed to manage and lease the property. The borrower
continues to have discussions with the special servicer regarding this
non-recourse loan. An affiliate of WPG continues hold title to the property.
On May 13, 2020, we received a letter dated that same date, from the lender
notifying the borrower, a consolidated subsidiary of WPG L.P., that the $36.1
million mortgage loan secured by Oak Court Mall & Offices was transferred to
special servicing because the borrower elected to not make monthly debt service
payments beginning in April 2020. On May 25, 2021, the Company received
notification that a receiver had been appointed to manage and lease the
property. The borrower continues to have discussions with the special servicer
of the non-recourse loan. An affiliate of WPG continues to hold title to the
property.
On February 21, 2020, we received a letter, dated that same date, from the
lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the
$33.1 million mortgage loan secured by Muncie Mall was transferred to special
servicing because the borrower notified the lender that future projected cash
flows will be insufficient to ensure future compliance with the mortgage loan
due to the loss of certain tenants. On April 14, 2020, the Company received
notification that a receiver had been appointed to manage and lease the
property. The borrower continues to have discussions with the special servicer
regarding this non-recourse loan. An affiliate of WPG continues to hold title to
the property.
On November 5, 2019, we received a letter dated October 30, 2019, from the
lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the
$45.1 million mortgage loan secured by Charlottesville Fashion Square was
transferred to special servicing because the borrower notified the lender that
future projected cash flows will be insufficient to ensure future compliance
with the mortgage loan due to the loss of certain tenants. On March 17, 2020, we
received notification that a receiver had been appointed to manage, insure, and
lease the property. On July 16, 2021, the trustee, on behalf of the mortgage
lender, conducted a non-judicial foreclosure sale of Charlottesville Fashion
Square. The mortgage lender was the successful bidder at the sale and ownership
is expected to transfer in the third quarter of 2021. The Company will record a
gain between $30.0 million and $35.0 million related to the extinguishment of
the mortgage loan during the third quarter of 2021. An affiliate of WPG still
holds title to the property as of the date of this form 10-Q.
The Company has assessed each of the defaulted properties for impairment
indicators and have concluded no impairment charges were warranted as of
June 30, 2021.
Summary of Financing
Our consolidated debt and the effective weighted average interest rates as of
June 30, 2021 and December 31, 2020, consisted of the following (dollars in
thousands):
Weighted Weighted
Average December 31, Average
June 30, 2021 Interest Rate 2020 Interest Rate
Fixed-rate debt, face amount (1)(2) $ 1,812,576 5.13 % $ 2,459,560 5.55 %
Variable-rate debt, face amount(3) 1,502,250 6.43 % 812,000 2.80 %
Total face amount of debt 3,314,826 5.71 % 3,271,560 4.87 %
Note discount - (6,338)
Fair value adjustments, net 1,059 1,685
Future accretion, net (16,396) (19,969)
Debt issuance costs, net (5,875) (25,463)
Total carrying value of debt $ 3,293,614 $ 3,221,475

(1) Includes variable rate debt whose interest rates were fixed via swap
agreements in 2020. Upon the discontinuation of hedge accounting on January 1,
2021, certain debt amounts were reclassified from fixed rate debt to
variable-rate debt. See "Corporate and Other Debt" above for further discussion.
(2) Includes approximately $0.7 billion of fixed rate debt that is subject to
compromise under the Chapter 11 Cases.
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(3) Includes approximately $1.4 billion of variable rate debt that is subject to
compromise under the Chapter 11 Cases.
Contractual Obligations
The following table summarizes the material aspects of the Company's future
obligations for consolidated entities as of June 30, 2021, for the remainder of
2021 and for subsequent years thereafter assuming the obligations remain
outstanding through maturities noted below (in thousands):
2021 2022 - 2023 2024 - 2025 Thereafter Total
Long term debt(1) $ 2,408,885 $ 202,282 $ 272,003 $ 431,656 $ 3,314,826
Interest payments(2) 89,278 73,279 47,808 270,567 480,932
Distributions(3) 7,136 - - - 7,136
Ground rent/operating leases(4) 1,114 3,778 2,138 19,369 26,399
Purchase/tenant obligations(5) 58,052 58,052 - - 116,104
Total $ 2,564,465 $ 337,391 $ 321,949 $ 721,592 $ 3,945,397

(1) Represents principal maturities only and therefore excludes net fair value
adjustments of $1,059, debt issuance costs of $(5,875) and net future accretion
of $(16,396) as of June 30, 2021. The principal maturities reflect any available
extension options within the control of the Company.
(2) Variable rate interest payments are estimated based on the LIBOR or U.S.
Prime rates at June 30, 2021.
(3) Since there is no required redemption, distributions on the Series H
Preferred Shares/Units, Series I Preferred Shares/Units and Series I-1 Preferred
Units may be paid in perpetuity; for purposes of this table, such distributions
are included upon declaration by the Board or as recognized as a deduction to
net loss as the preferred shares/units are callable at the Company's discretion.
(4) Represents minimum future lease payments due through the end of the initial
lease term under executed leases.
(5) Includes amounts due under executed leases and commitments to vendors for
development and other matters.
The following table summarizes the material aspects of the Company's
proportionate share of future obligations for unconsolidated entities as of
June 30, 2021, for the remainder of 2021 and for subsequent years thereafter
assuming the obligations remain outstanding through maturities noted below (in
thousands):
2021 2022 - 2023 2024 - 2025 Thereafter Total
Long term debt(1) $ 38,155 $ 20,720 $ 363,487 $ 185,389 $ 607,751
Interest payments(2) 11,874 45,307 30,959 8,922 97,062
Ground rent/operating leases(3) 2,010 8,130 8,789 180,922 199,851
Purchase/tenant obligations(4) 10,609 10,609 - - 21,218
Total $ 62,648 $ 84,766 $ 403,235 $ 375,233 $ 925,882

(1) Represents principal maturities only and therefore excludes net fair value
adjustments of $2,852 and debt issuance costs of $(1,758) as of June 30, 2021.
In addition, the principal maturities reflect any available extension options.
(2) Variable rate interest payments are estimated based on the LIBOR rate at
June 30, 2021.
(3) Represents minimum future lease payments due through the end of the initial
lease term under executed leases.
(4) Includes amounts due under executed leases and commitments to vendors for
development and other matters.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements consist primarily of investments in joint
ventures which are common in the real estate industry. Joint ventures typically
fund their cash needs through secured debt financings obtained by and in the
name of the joint venture entity. The joint venture debt is secured by a first
mortgage, is without recourse to the joint venture partners, and does not
represent a liability of the partners, except to the extent the partners or
their affiliates expressly guarantee the joint venture debt. As of June 30,
2021, there were no guarantees of joint venture related mortgage indebtedness.
In addition to obligations under mortgage indebtedness, our joint ventures have
obligations under ground leases and purchase/tenant obligations. Our share of
obligations under joint venture debt, ground leases and purchase/tenant
obligations is quantified in the unconsolidated entities table within
"Contractual Obligations" above. WPG may elect to fund cash needs of a joint
venture through equity contributions (generally on a basis proportionate to our
ownership interests), advances or partner loans, although such fundings are not
required contractually or otherwise.
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Equity Activity
Reverse-Stock Split
On December 17, 2020, WPG Inc.'s common shareholders approved an amendment to
WPG Inc.'s Amended and Restated Articles of Incorporation that effectuated a
one-for-nine reverse-stock split of WPG Inc.'s common shares (the "Split"). As a
result of the Split, the number of outstanding common shares of WPG Inc. was
reduced from approximately 187.4 million to approximately 21.0 million upon the
effective date of the Split. In addition, all outstanding WPG L.P. common
operating units and all outstanding equity awards under the Company's equity
plans were also adjusted by the same conversion ratio relating to the Split. The
implementation of the Split increased the per share trading price of WPG Inc.'s
common shares and satisfied the continued listing criteria set forth in Section
802.01C of the Listed Company Manual of the New York Stock Exchange ("NYSE") and
cured the noncompliance notification received by WPG Inc. on April 28, 2020, for
which we received notification from the NYSE on January 4, 2021 that WPG Inc.
was no longer in violation.
Unless otherwise noted, all common share/unit and per share/unit information
contained herein has been restated to reflect the Split as if it had occurred as
of the beginning of the earliest period presented.
Exchange Rights
Subject to the terms of the limited partnership agreement of WPG L.P., limited
partners in WPG L.P. have, at their option, the right to exchange all or any
portion of their units for shares of WPG Inc. common stock on a oneforone
basis or cash, as determined by WPG Inc. Therefore, the common units held by
limited partners are considered by WPG Inc. to be share equivalents and
classified as noncontrolling interests within permanent equity, and classified
by WPG L.P. as permanent equity. The amount of cash to be paid if the exchange
right is exercised and the cash option is selected will be based on the market
value of WPG Inc.'s common stock as determined pursuant to the terms of the WPG
L.P. Partnership Agreement. During the six months ended June 30, 2021, WPG Inc.
issued 3,450,397 shares of common stock to certain limited partners of WPG L.P.
in exchange for an equal number of units pursuant to the WPG L.P. Partnership
Agreement in several separate redemption transactions. These transactions
increased WPG Inc.'s ownership interest in WPG L.P. by approximately 13.9%.
There were no similar transactions during the six months ended June 30, 2020. At
June 30, 2021, WPG Inc. had reserved 310,991 shares of common stock for possible
issuance upon the exchange of units held by WPG L.P. limited partners.
Stock Based Compensation
The WPG Inc. Board of Directors (the "Board") has adopted the Washington Prime
Group, L.P. 2014 Stock Incentive Plan (the "2014 Plan") and the Washington Prime
Group, L.P. 2019 Stock Incentive Plan (the "2019 Plan"), which replaced the 2014
Plan with respect to the issuance of new awards, to grant awards to current and
prospective directors, officers, employees and consultants of the Company or any
affiliate. Under the 2014 Plan, an aggregate of 1,111,112 shares of common stock
were reserved for issuance, with a maximum number of awards to be granted to a
participant in any calendar year of 55,556 shares/units. Upon the adoption of
the 2019 Plan, the annual threshold was removed. Under the 2019 Plan, an
aggregate of 810,000 shares of common stock are reserved for issuance, excluding
carryover shares from the 2014 Plan. Awards may be in the form of stock options,
stock appreciation rights, restricted stock, restricted stock units ("RSUs") or
other stock-based awards in WPG Inc., long term incentive units ("LTIP units" or
"LTIPs") or performance units ("Performance LTIP Units") in WPG L.P. The 2019
Plan, per its terms, terminates on May 16, 2029.
The following is a summary by type of the awards that the Company issued during
the six months ended June 30, 2021 and June 30, 2020 under the 2014 Plan and
2019 Plan.
Annual Long-Term Incentive Awards
During the six months ended June 30, 2020, the Company approved the terms and
conditions of the 2020 annual awards (the "2020 Annual Long-Term Incentive
Awards") for certain executive officers and employees of the Company. Under the
terms of the awards program, each participant is provided the opportunity to
receive (i) time-based RSUs and (ii) performance-based stock units ("PSUs").
RSUs represent a contingent right to receive one WPG Inc. common share for each
vested RSU. RSUs will vest in one-third installments on each annual anniversary
of the respective Grant Date (as referenced below), subject to the participant's
continued employment with the Company through each vesting date and the
participant's continued compliance with certain applicable covenants. During the
service period, dividend equivalents will be paid in cash accruals or under some
circumstances, common shares, with respect to the RSUs corresponding to the
amount of any cash dividends paid by the Company to WPG Inc.'s common
shareholders for the applicable dividend payment dates. Compensation expense is
recognized on a straight-line basis over the three year vesting term. Actual
PSUs earned may range from 0% to 150% of the PSUs allocated to the award
recipient, based on WPG Inc.'s total shareholder return ("TSR") compared to a
peer group based on companies with similar assets and revenue over a three-year
performance period that commenced on the respective Grant Date (as referenced
below). During the performance period, dividend equivalents corresponding to the
amount of any regular cash dividends paid by the Company to WPG Inc.'s common
shareholders for the applicable dividend payment dates will accrue and be deemed
reinvested in additional
56
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PSUs, which will be settled in common shares at the same time and only to the
extent that the underlying PSU is earned and settled in common shares. Payout of
the PSUs is also subject to the participant's continued employment with the
Company through the end of the performance period. The PSUs were valued through
the use of a Monte Carlo model and the related compensation expense is
recognized over the three-year performance period. No comparable awards were
issued during the six months ended June 30, 2021.
The following table summarizes the issuance of the 2020 Annual Long-Term
Incentive Awards:
2020 Annual Long-Term Incentive Awards
Grant Date February 25, 2020

RSUs issued 152,610
Grant Date fair value per unit $21.69

PSUs issued 152,610
Grant Date fair value per unit $15.66

During the six months ended June 30, 2021, the performance period related to
PSUs awarded in conjunction with the 2018 annual awards ended. There was no
payout as the Company's TSR performance during the applicable performance period
did not exceed the minimum required threshold for payout and 52,753 PSUs were
forfeited.
WPG Restricted Stock Units
During the six months ended June 30, 2020, the Company awarded 136,805 RSUs,
with a grant date fair value of $0.8 million, to certain employees and
non-employee members of the Board. The RSUs are service-based awards and the
related fair value is expensed over the applicable service periods, except in
instances that result in accelerated vesting due to severance arrangements or
retirement of Board members. There were no comparable awards issued during the
six months ended June 30, 2021.
Stock Options
During the six months ended June 30, 2021, no stock options were granted to
employees, no stock options were exercised by employees and 5,626 stock options
were canceled, forfeited or expired. As of June 30, 2021, there were 57,817
stock options outstanding. During the six months ended June 30, 2020, no stock
options were granted to employees, no stock options were exercised by employees
and 3,493 stock options were canceled, forfeited or expired.
Share Award Related Compensation Expense
During the three and six months ended June 30, 2021, the Company recorded
compensation expense pertaining to the awards granted of $1.2 million and $2.5
million, respectively, in general and administrative and property operating
expense within the consolidated statements of operations and comprehensive loss.
During the three and six months ended June 30, 2020, the Company recorded
compensation expense pertaining to the awards granted of $1.9 million and $3.8
million, respectively, in general and administrative and property operating
expense within the consolidated statements of operations and comprehensive loss.
In certain instances, employment agreements and stock compensation programs
provide for accelerated vesting when executives are terminated without cause.
Additionally, the Committee may, in its discretion, accelerate the vesting for
retiring Board members.
Distributions
For the three and six months ended June 30, 2021, no common share/unit dividends
were declared by the Board. For the six months ended June 30, 2020, the Board
declared common share/unit dividends of $1.125.
Additionally, for the three and six months ended June 30, 2021, no dividends
were declared by the Board on the Series H Cumulative Redeemable Preferred
Stock, Series I Cumulative Redeemable Preferred Stock or the Series I-1
Preferred Units. The $3.6 million distributions paid during the six months ended
June 30, 2021 related to the fourth quarter 2020 preferred dividend declaration.
The undeclared preferred dividends are cumulative and are credited to the
applicable preferred equity accounts until they are declared by the Board, at
which time they are reclassified to distributions payable until settled.
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Acquisitions and Dispositions
Buy-sell, marketing rights, and other exit mechanisms are common in real estate
partnership agreements. Most of our partners are institutional investors who
have a history of direct investment in retail real estate. We and our partners
in our joint venture properties may initiate these provisions (subject to any
applicable lock up or similar restrictions). If we determine it is in our
shareholders' best interests for us to purchase the joint venture interest and
we believe we have adequate liquidity to execute the purchase without hindering
our cash flows, then we may initiate these provisions or elect to buy. If we
decide to sell any of our joint venture interests, we expect to use the net
proceeds to reduce outstanding indebtedness or to reinvest in development,
redevelopment, or expansion opportunities.
Acquisitions. We pursue the acquisition of properties that meet our strategic
criteria. No acquisitions were completed during the six months ended June 30,
2021.
Dispositions. We pursue the disposition of properties that no longer meet our
strategic criteria or interests in properties to generate proceeds for alternate
business uses.
During the six months ended June 30, 2021, we completed the sale of 1 outparcel
to Four Corners. The allocated purchase price was $2.1 million (see details
under "Overview - Basis of Presentation - Four Corners Outparcel Sales").
Additionally, during the six months ended June 30, 2021, the Company sold
certain developed land parcels for an aggregate purchase price of $2.6 million.
In connection with the sales noted above, the Company recorded a net gain of
$2.5 million for the six months ended June 30, 2021 which is included in gain on
disposition of interests in properties, net in the consolidated statements of
operations and comprehensive loss. The net proceeds were used to fund ongoing
redevelopment efforts and for general corporate purposes.
Development Activity
New Development, Expansions and Redevelopments. We invest our capital in
redevelopment to reposition former department stores and other big box vacancies
to add home furnishings, dining, grocery, entertainment, mixed-use components as
well as dynamic retail offerings. The adaptive reuse of these former retail
stores represents an opportunity to increase traffic, enhance overall leasing
and stabilize the property cash flows. Our share of development costs for
calendar year 2020 related to these activities was approximately $131 million,
which was impacted by the COVID-19 pandemic with some openings delayed until
2021. We maintain our commitment to complete our redevelopment projects, and
project to spend approximately $90 million on redevelopment in 2021 and the
pendency of the Chapter 11 Cases is not expected to delay or hinder any of our
redevelopment plans. Our estimated stabilized return or yield, on invested
capital typically ranges in the high single digits.
We have identified 24 department store spaces (Sears, The Bon-Ton Stores, and
one former Belk store) in our Tier 1 and open air portfolio that we plan to
redevelop and we are actively working on repositioning. Of these locations, one
is an operating Sears location that hasn't announced a closure, resulting in 23
that we can currently develop. At the end of the second quarter 2021, 17 of
these former department store locations have been addressed with signed letters
of intent (LOIs), fully executed leases, or replacement tenant openings. Nine of
these projects have been completed and five others are under construction with
scheduled openings in 2021. These former department store locations represent an
opportunity to enhance the experience at the property by bringing in offerings
such as dining, grocery, entertainment, home furnishings, and mixed-use
components as well as dynamic retail offerings. These stores in our Tier 1 and
open air properties exclude vacant stores owned by third parties such as
Seritage as well as vacancies owned by other department stores. With $119
million already incurred through the second quarter of 2021, we plan to spend up
to an additional $105 million to $115 million over the next two to three years
to complete the redevelopment of these spaces formerly occupied by department
stores. The progress on some of these repositioning projects are discussed
below:
•At Southern Hills Mall in Sioux City, Iowa, we plan to replace the former Sears
with Tilt Entertainment. We executed the lease during the first quarter of 2021
and the new family entertainment destination is scheduled to open in 2022. We
will invest between $5 million and $6 million in this redevelopment with an
expected yield of approximately 9% - 10%.
•At Grand Central Mall in Parkersburg, West Virginia, in March 2021 we held the
grand opening of our new exterior facing element to the center featuring dynamic
first-to-market retailers, including Home Goods, PetSmart, Ross Dress for Less,
and TJ Maxx. This new open air component completes the transformation of Grand
Central Mall from a traditional enclosed regional center into a hybrid town
center.
•We proactively terminated a lease with Sears at Southern Park Mall in
Youngstown, Ohio and the store closed during the third quarter of 2018. In 2019,
we completed the demolition of the former Sears store and plans include an
exciting line up of outward facing retail stores and restaurants, as well as
green space that can be used for community events. The planned additions include
fitness, dining and shopping offerings that will diversify the mix at the
property.
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•At Mesa Mall, located in Grand Junction, Colorado, a newly constructed
Dillard's is scheduled to open in the fall of 2021 and will replace Sears, which
formerly occupied the site. In addition, a new Dick's Sporting Goods will
replace a former Herberger's and is also scheduled to open in the fall of 2021.
These two new retailers will join the recent addition of a new Home Goods at the
property that replaced a former Sports Authority.
•At Morgantown Mall, located in Morgantown, West Virginia, we added a 70,000
square foot Dunham's Sports store, which opened in April 2020, to replace a
former Elder-Beerman (former Bon-Ton, Inc. Stores). In addition, WVU Medicine
repurposed the former Sears location as a logistics, distribution and
fulfillment center serving the broader WVU Medicine network, and opened in July
2020. Finally, Ollie's Bargain Outlet opened in October 2020, occupying a
portion of space in the former Belk location and we executed a lease in May 2021
with Burke's Outlet and HomeCentric (a Beall's subsidiary) to add this
first-to-market retailer to the remaining space.
•FieldhouseUSA replaced the former Sears department store location at Polaris
Fashion Place® in Columbus, Ohio, with a grand opening in June 2021.
FieldhouseUSA specializes in sporting leagues, events and tournaments by
offering year-round league and tournament play in team sports such as
basketball, soccer, volleyball and flag football in addition to programs such as
birthday parties, corporate events, performance training and skills training. At
Town Center at Aurora® in Aurora, Colorado, the FieldhouseUSA is expected to
open in the fall of 2021. The Company proactively gained control of both Sears
spaces in 2018 for redevelopment efforts. New retail and complementary mixed
uses are planned for both projects with additional details being announced in
the future.
•At The Mall at Johnson City in Johnson City, Tennessee, we plan to replace the
former Sears with a first-to-market Home Goods. We proactively negotiated an
early termination with Sears in January 2020 to gain control to bring this
tenant to the market. We also completed the addition of a new multi-tenant
building in the location of the former Sears Auto Center and a Chipotle Mexican
Grill and Chicken Salad Chick opened in this location during the first quarter
of 2021. In addition to these new retail additions, we will complete an
extensive renovation of the property.
Capital Expenditures
The following table summarizes total consolidated capital expenditures on a cash
basis for the six months ended June 30, 2021 (in thousands):
Redevelopments and expansions $ 39,326
Tenant allowances 15,905
Operational capital expenditures 8,244
Total(1) $ 63,475

(1)Excludes capitalized interest, applicable wages and real estate taxes, as well as expenditures for certain equipment and fixtures, commissions, and project costs, which are included in capital expenditures, net on the consolidated statement of cash flows.


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Forward-Looking Statements
Certain statements made in this section or elsewhere in this report may be
deemed "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Although we believe the expectations reflected in
any forward-looking statements are based on reasonable assumptions, we can give
no assurance that our expectations will be attained, and it is possible that our
actual results may differ materially from those indicated by these
forward-looking statements due to a variety of risks and uncertainties. Such
factors include, but are not limited to: consummation of the Restructuring;
potential adverse effects of the Chapter 11 Cases on the Company's liquidity and
results of operations; risks and uncertainties relating to the Chapter 11 Cases,
including but not limited to, the Company's ability to obtain Bankruptcy Court
approval with respect to motions in the Chapter 11 Cases, including the
approvals of the terms and conditions of the Restructuring and any Plan; the
Bankruptcy Court's ruling in the Chapter 11 Cases; objections to the Company's
recapitalization process or other pleadings filed that could protract the
Chapter 11 Cases; employee attrition and the Company's ability to retain senior
management and other key personnel due to the distractions and uncertainties
posed, in part, by the Chapter 11 Cases; the Company's ability to comply with
financing arrangements, including any DIP financing; the Company's ability to
maintain relationships with its tenants, suppliers, customers, employees,
sponsors, and other third parties and regulatory authorities as a result of the
Chapter 11 Cases; the length of time that the Company will operate under Chapter
11 protection and the continued availability of operating capital during the
pendency of the Chapter 11 Cases; risks associated with third party motions in
the Chapter 11 Cases, which may interfere with the Company's ability to
consummate or complete the Restructuring or an alternative restructuring; the
effects and the length of the 2019 novel coronavirus (COVID-19) pandemic; and
other litigation and inherent risks involved in a bankruptcy process; ability to
sustain revenue and earnings growth; changes in political, economic or market
conditions generally and the real estate and capital markets specifically; the
impact of increased competition; the availability of capital and financing;
tenant or joint venture partner(s) bankruptcies; the failure to increase
enclosed retail store occupancy and same-store operating income; risks
associated with acquisitions, dispositions, development, expansion, leasing and
management of properties; changes in market rental rates; trends in the retail
industry; relationships with anchor tenants; risks relating to joint venture
properties; costs of common area maintenance; competitive market forces; the
level and volatility of interest rates; the rate of revenue increases as
compared to expense increases; the financial stability of tenants within the
retail industry; the restrictions in current financing arrangements or the
failure to comply with such arrangements; the liquidity of real estate
investments; risks arising from potential delisting of the Company's common
stock from the NYSE; the impact of changes to tax legislation and our tax
positions; losses associated with closures, failures and stoppages associated
with the spread and proliferation of the COVID-19 (including any mutant strains
of the virus) outbreak; failure to qualify as a real estate investment trust;
the failure to refinance debt at favorable terms and conditions; loss of key
personnel; material changes in the dividend rates on securities or the ability
to pay dividends on common shares or other securities; possible restrictions on
the ability to operate or dispose of any partially-owned properties; the failure
to achieve earnings/funds from operations targets or estimates; the failure to
achieve projected returns or yields on (re)development and investment properties
(including joint ventures); expected gains on debt extinguishment; changes in
generally accepted accounting principles or interpretations thereof; terrorist
activities and international hostilities; the unfavorable resolution of legal or
regulatory proceedings; the impact of future acquisitions and divestitures;
assets that may be subject to impairment charges; and significant costs related
to environmental issues; and changes in LIBOR reporting practices or the method
in which LIBOR is determined. We discussed these and other risks and
uncertainties under Part I, "Item 1A. Risk Factors" in the combined Annual
Report on Form 10-K for WPG Inc. and WPG L.P. for the year ended December 31,
2020 and other reports filed with the Securities and Exchange Commission. We
undertake no duty or obligation to update or revise these forward-looking
statements, whether as a result of new information, future developments, or
otherwise.
Non-GAAP Financial Measures
Industry practice is to evaluate real estate properties in part based on FFO,
NOI and comparable NOI. We believe that these non-GAAP measures are helpful to
investors because they are widely recognized measures of the performance of
REITs and provide a relevant basis for our comparison among REITs. We also use
these measures internally to measure the operating performance of our portfolio.
We determine FFO based on the definition set forth by the National Association
of Real Estate Investment Trusts, or NAREIT, as net loss computed in accordance
with GAAP:
•excluding real estate related depreciation and amortization;
•excluding gains and losses from extraordinary items and cumulative effects of
accounting changes;
•excluding gains and losses from the sales or disposals of previously
depreciated retail operating properties;
•excluding gains and losses upon acquisition of controlling interests in
properties;
•excluding impairment charges of depreciable real estate;
•plus the allocable portion of FFO of unconsolidated entities accounted for
under the equity method of accounting based upon economic ownership interest.
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We include in FFO gains and losses realized from the sale of land, marketable
and non-marketable securities, and investment holdings of non-retail real
estate.
You should understand that our computation of these non-GAAP measures might not
be comparable to similar measures reported by other REITs and that these
non-GAAP measures:
•do not represent cash flow from operations as defined by GAAP;
•should not be considered as alternatives to net loss determined in accordance
with GAAP as a measure of operating performance; and
•are not alternatives to cash flows as a measure of liquidity.
The following schedule reconciles total FFO to net loss for the three and six
months ended June 30, 2021 and 2020 (in thousands, except share/unit amounts):
                                                        For the Three

Months Ended June 30, For the Six Months Ended June 30,


                                                             2021                 2020                  2021                 2020
Net loss                                                $  (103,406)

$ (93,413) $ (163,240) $ (85,853) Less: Preferred dividends and distributions on preferred operating partnership units

                        (3,568)               (3,568)              (7,136)               (7,136)
Adjustments to Arrive at FFO:
Real estate depreciation and amortization,
including joint venture impact                               63,262                63,732              124,226               133,501
Impairment loss, including (gain) on disposition
of interests in properties, net                                   -                23,817               (1,304)                 (293)
FFO of the Operating Partnership (1)                        (43,712)               (9,432)             (47,454)               40,219
FFO allocable to limited partners                              (595)               (1,467)              (3,316)                6,258

FFO allocable to common shareholders/unitholders $ (43,117)

$ (7,965) $ (44,138) $ 33,961



Diluted loss per share/unit                             $     (4.26)         $      (3.88)         $     (6.77)         $      (3.73)
Adjustments to arrive at FFO per share/unit:
Real estate depreciation and amortization,
including joint venture impact                                 2.52                  2.55                 4.94                  5.35
Impairment loss, including (gain) on disposition
of interests in properties, net                                   -                  0.95                (0.06)                (0.01)
Diluted FFO per share/unit                              $     (1.74)

$ (0.38) $ (1.89) $ 1.61

Weighted average shares outstanding - basic (2) 24,778,868

    21,171,230           23,402,736            21,093,577
Weighted average limited partnership units
outstanding (2)                                             341,960             3,831,728            1,757,974             3,837,747

Weighted average shares/units outstanding -
diluted (2)                                              25,120,828            25,002,958           25,160,710            24,931,324



(1)  FFO of the operating partnership was $(47.5) million and represented an
$87.7 million decrease for the six months ended June 30, 2021 compared to the
six months ended June 30, 2020. We incurred $76.9 million in prepetition charges
and reorganization items, including approximately $21.3 million in non-cash
charges attributed to the write off of certain debt issuance and discount costs,
related to the Company's capital restructuring efforts and Chapter 11 Cases.
There was not a similar expense during the six months ended June 30, 2020.
Lastly, we incurred approximately $28.0 million in additional interest expense.
This increase can primarily be attributable to the discontinuation of hedge
accounting, changes in both index rates and spreads on our corporate debt as
well as default interest on the Company's corporate debt as a result of the
commencement of the Chapter 11 Cases. Offsetting these decreases to FFO, the
Company received $7.4 million in additional operating income, primarily
attributed to the improving economic climate at our properties. Additionally,
during the quarter ended June 30, 2020 we recorded an $11.2 million impairment
on a note receivable that related to seller bridge financing that the Company
provided in connection with a failed sale-leaseback transaction that occurred
during the fourth quarter of 2019. We did not have similar activity during the
six months ended June 30, 2021.
(2)  Prior period share and per share information has been restated for the
effects of the Company's one-for-nine reverse common share/unit split that
occurred in December 2020.
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We deem NOI and comparable NOI to be important measures for investors and
management to use in assessing our operating performance, as these measures
enable us to present the core operating results from our portfolio, excluding
certain non-cash, corporate-level and nonrecurring items. Specifically, we
exclude from operating income the following items in our calculations of
comparable NOI:
•straight-line rents and fair value rent amortization;
•prepetition charges and reorganization items attributable to the Chapter 11
Cases;
•management fee allocation to promote comparability across periods; and
•termination income, out-parcel sales and material insurance proceeds, which are
deemed to be outside of normal operating results.
The following schedule reconciles comparable NOI for our Tier 1 and open air
properties to net loss and presents comparable NOI percent change for the three
and six months ended June 30, 2021 and 2020 (in thousands):
                                                      For the Three Months Ended June
                                                                    30,                      For the Six Months Ended June 30,
                                                          2021                2020                2021                2020
Net loss                                             $  (103,406)         $ (93,413)         $  (163,240)         $ (85,853)
Loss from unconsolidated entities                            873              4,754                3,080              5,786
Income and other taxes                                       544                593                  263                (24)

Impairment on note receivable                                  -             11,237                    -             11,237
Gain on disposition of interests in
properties, net                                                -               (437)              (2,462)           (27,192)
Reorganization items                                      24,389                  -               24,389                  -
Interest expense, net                                     52,503             37,445              104,054             76,080
Operating loss                                           (25,097)           (39,821)             (33,916)           (19,966)

Depreciation and amortization                             55,059             55,380              107,314            115,084
Impairment loss                                                -             23,800                    -             25,119
General and administrative                                12,954             11,350               26,878             23,614
Prepetition charges                                       38,078                  -               52,529                  -
Fee income                                                (2,562)            (1,230)              (5,043)            (3,417)
Management fee allocation                                     96                 36                  147                 36
Pro-rata share of unconsolidated joint
ventures in comp NOI                                      15,466             10,577               30,300             27,936
Property allocated corporate expense                       5,343              4,727               10,766             10,106
Non-comparable properties and other (1)                      367               (237)                 339             (1,474)
NOI from sold properties                                     (36)                (4)                   -               (100)
Termination income                                          (918)               (27)              (1,472)              (106)
Straight-line rents, net of change in
assessment of collectibility                                (216)              (128)                (414)             1,493
Ground lease adjustments for straight-line and
fair market value                                             13                  5                   20                 10
Fair market value and inducement adjustments
to base rents                                             (1,057)            (1,647)              (1,990)            (2,632)
Less: Tier 2 and noncore properties (2)                  (10,359)            (5,729)             (18,866)           (22,415)

Comparable NOI - Tier 1 and open air
properties                                           $    87,131          $

57,052 $ 166,592 $ 153,288


  Comparable NOI percentage change - Tier 1
and open air properties                                  52.7%                                    8.7%



(1)  Represents an adjustment to remove the NOI amounts from properties not
owned and operated in all periods presented, certain non-recurring expenses
(such as hurricane related expenses), as well as material insurance proceeds and
other non-recurring income received in the periods presented. This also includes
adjustments related to the rents from the outparcels sold to Four Corners and
from unmanaged properties.
(2)  NOI from the Tier 2 and noncore properties held in each period presented.
                                       62

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4th Dimension Properties acquired WPG Northtown Venture LLC from Washington Prime Group Inc. for $31 million.	23-08-14	CI
Spinoso Real Estate Group, LLC acquired Dayton Mall from Washington Prime Group Inc.	21-12-27	CI
Four Corners Property Trust Buys National Tire and Battery Property in Maryland for $1.6 Million	21-12-16	MT
Four Corners Property Trust, Inc. acquired National Tire and Battery Property in Maryland from National Tire and Battery Property in Maryland for $1.6 million.	21-12-15	CI
Strategic Value Excelsior Fund AIV, L.P. and Dime Aggregator LP, funds managed by Strategic Value Partners, LLC offered to acquire 29% stake in Washington Prime Group Inc. for $5.2 million.	21-11-23	CI
Washington Prime Group Inc. Announces Changes of Chief Executive Officer	21-10-21	CI
Washington Prime Group Inc. Announces Board Changes	21-10-21	CI
Washington Prime Group Inc. Emerged from Bankruptcy	21-10-21	CI
Four Corners Property Trust : Acquires Raising Cane's Restaurant Property in Illinois From Washington Prime Group	21-10-20	MT
Four Corners Property Trust, Inc. acquired Raising Cane’s restaurant property from Washington Prime Group Inc. (OTCPK:WPGG.Q) for $2.2 million.	21-10-18	CI
Four Corners Property Trust : Buys Three Properties From Washington Prime Group for $5.1 Million	21-09-27	MT
Four Corners Property Trust, Inc. acquired Three Property Portfolio in Florida and Pennsylvania from Washington Prime Group Inc. for $5.1 million.	21-09-23	CI
Washington Prime : Financial Stocks Still Unable to Climb Back to Positive Ground	21-09-08	MT
Sector Update: Financial	21-09-08	MT
Washington Prime : Plans to Voluntarily Delist Shares From NYSE as Part of Chapter 11 Proceedings	21-09-07	MT
News Highlights : Top Company News of the Day	21-09-05	DJ
Second Amended Joint Reorganization Plan and Disclosure Statement Approved for Washington Prime Group Inc.	21-09-03	CI
Washington Prime : Shares Jump Amid Heavy Trading	21-09-01	MT
Second Amended Reorganization Plan Filed by Washington Prime Group Inc.	21-09-01	CI
Consumer Cos. Climb On Hopes For Pandemic Inroads -- Consumer Roundup	21-08-25	DJ
Modification to Amended Disclosure Statement Conditionally Approved for Washington Prime Group Inc.	21-08-25	CI
First Amended Joint Reorganization Plan And Disclosure Statement Filed by Washington Prime Group Inc.	21-08-24	CI
Columbia Property Trust : , Centerspace, Digital Realty Best Performing REIT Stocks Last Week, Says Janney	21-08-20	MT
Washington Prime Group Inc. Reports Earnings Results for the Second Quarter Ended June 30, 2021	21-08-09	CI
Washington Prime : Earnings Flash (WPG) WASHINGTON PRIME GROUP Reports Q2 AFFO $0.75	21-08-09	MT

	1st Jan change	Capi.
SIMON PROPERTY GROUP, INC.	+5.34%	48.97B
KIMCO REALTY CORPORATION	-9.24%	13.04B
THE LINK REAL ESTATE INVESTMENT TRUST	-16.88%	11.8B
REGENCY CENTERS CORPORATION	-9.63%	11.16B
NNN REIT, INC.	-0.84%	7.84B
BRIXMOR PROPERTY GROUP INC.	-4.08%	6.72B
AGREE REALTY CORPORATION	-4.40%	6.04B
VICINITY CENTRES	-3.19%	5.86B
KITE REALTY GROUP TRUST	-7.52%	4.64B

Washington Prime Group Inc.

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WASHINGTON PRIME : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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