The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report. Overview - Basis of PresentationWashington Prime Group Inc. ("WPG Inc. ") is anIndiana corporation that operates as a fully integrated, selfadministered and selfmanaged real estate investment trust, or REIT, under theU.S. Internal Revenue Code of 1986, as amended (the "Code").WPG Inc. will generally qualify as a REIT forU.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 itsU.S. federal income tax liability for dividends paid by it to REIT shareholders, thereby reducing or eliminating any corporate level taxation toWPG Inc. Washington Prime Group, L.P. ("WPG L.P. ") isWPG Inc.'s majorityowned limited partnership subsidiary that owns, develops and manages, through its affiliates, all ofWPG Inc.'s real estate properties and other assets.WPG Inc. is the sole general partner ofWPG L.P. As ofJune 30, 2021 , our assets consisted of material interests in 101 shopping centers inthe 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 toWPG Inc. ,WPG L.P. and entities in whichWPG Inc. orWPG 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 inthe United States of America ("GAAP"). The consolidated balance sheets as ofJune 30, 2021 andDecember 31, 2020 include the accounts ofWPG Inc. andWPG 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 OnJune 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 theDecember 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 byWeberstown Mall , located inStockton, 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 onJune 23, 2021 in the chapter 11 cases cases (the "Chapter 11 Cases") commenced by the Company Parties onJune 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 theUnited 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 reWashington 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 theDecember 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 theBankruptcy Court and the creditors' rights of enforcement in respect to the applicable credit agreements are subject to the applicable provisions of the Bankruptcy Code. 41 -------------------------------------------------------------------------------- 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 ofJune 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 applicableCompany 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. 42 -------------------------------------------------------------------------------- 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 theBankruptcy 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 theBankruptcy 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, theBankruptcy Court shall have entered the backstop approval order; (d) no later than 45 calendar days after the Petition Date, theBankruptcy Court shall have entered the DIP final order; (e) no later than 60 calendar days after the Petition Date, theBankruptcy 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 theBankruptcy 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 theBankruptcy 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 theBankruptcy Court against the applicableCompany 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. 43 --------------------------------------------------------------------------------
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 endedJune 30, 2021 , certain applicable operational limitations and restrictions remain in effect. In addition, during the six months endedJune 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 acrossthe 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 endedJune 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 endedJune 30, 2021 . During the quarter endedMarch 31, 2020 , we recorded an impairment charge of approximately$1.3 million related to vacant land atGeorgesville Square , located inColumbus, Ohio and a single tenant outparcel located inTopeka, 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 atGeorgesville 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 endedMarch 31, 2021 . New Accounting Pronouncements InMarch 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 afterJanuary 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 afterDecember 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 afterDecember 31, 2022 . As ofJune 30, 2021 , we had approximately$0.1 billion of our aggregate consolidated indebtedness currently indexed to LIBOR and approximately$1.4 billion of our aggregate consolidated indebtedness that was previously indexed to LIBOR but is currently indexed toU.S. Prime (see "Financing & Debt" for additional details). In addition, as ofJune 30, 2021 , we have certain derivative contracts that are indexed to LIBOR (see Note 7 in Part 1 Item 1 for details) that previously hedged certain variable rate debt instruments. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. 44 -------------------------------------------------------------------------------- Four Corners Outparcel Sales We are party to a purchase and sale agreement to sell certain outparcels toFCPT Acquisitions, LLC ("Four Corners"). The following table summarizes the key terms of each of the closings that occurred during the three and six months endedJune 30, 2021 (dollars in thousands): Sales Date Parcels Sold Purchase Price
Sales Proceeds
January 27, 2021 1$ 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 ofJune 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 atJune 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 ofJune 30, 2021 . Ending occupancy for the Tier 1 and open air properties was 92.1% as ofJune 30, 2021 , as compared to 92.4% as ofJune 30, 2020 . Average base minimum rent per square foot for the core portfolio decreased 5.1% when comparingJune 30, 2021 toJune 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%. 45 --------------------------------------------------------------------------------
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 endedJune 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 endedJune 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 ofJune 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 Square1Mall 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
46 -------------------------------------------------------------------------------- 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). •OnJanuary 31, 2020 , we completed the sale ofDekalb Plaza , located inKing of Prussia, Pennsylvania , to an unaffiliated private real estate investor. •OnJanuary 14, 2020 , we completed the sale ofMatteson Plaza , located inMatteson, 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 EndedJune 30, 2021 vs. Three Months EndedJune 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. ForWPG 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 inWPG L.P. During the six months endedJune 30, 2021 , a significant portion of the outstandingWPG L.P. units were converted toWPG Inc. common stock, which resulted inWPG Inc.'s weighted average ownership percentage increasing from 84.7% for the three months endedJune 30, 2020 to 98.6% for the three months endedJune 30, 2021 . 47 -------------------------------------------------------------------------------- Six Months EndedJune 30, 2021 vs. Six Months EndedJune 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 ofMatteson 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. ForWPG 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 inWPG L.P. During the six months endedJune 30, 2021 , a significant portion of the outstandingWPG L.P. units were converted toWPG Inc. common stock, which resulted inWPG Inc.'s weighted average ownership percentage increasing from 84.7% for the six months endedJune 30, 2020 to 93.0% for the six months endedJune 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 endedJune 30, 2021 was$26.4 million as compared to cash flows used in operations of$(2.1) million during the six months endedJune 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 endedJune 30, 2021 are not necessarily indicative of the cash flows from operations expected for the rest of 2021. 48 -------------------------------------------------------------------------------- Our balance of cash and cash equivalents decreased$1.3 million for the six months endedJune 30, 2021 to$91.3 million as ofJune 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. AtJune 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. OnJune 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 endedDecember 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 endedJune 30, 2021 , respectively. Additionally, we have$50.0 million of remaining capacity available on the DIP Facility as ofJune 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 ofJune 30, 2021 , or an increase of approximately$72.1 million fromDecember 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 andWPG 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$26.4 million during the six months endedJune 30, 2021 , as compared to$(2.1) million of cash flow used in operating activities during the six months endedJune 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$3.6 million . We anticipate that cash generated from operations and capacity available under the DIP Facility will be sufficient for the expected timeline of the Chapter 11 Cases until emergence to meet operating expenses, monthly debt service, recurring capital expenditures, committed redevelopment and cover the majority of distributions to shareholders necessary to maintainWPG Inc.'s status as a REIT. 49 -------------------------------------------------------------------------------- Financing and Debt Mortgage Debt Total mortgage indebtedness atJune 30, 2021 andDecember 31, 2020 was as follows (in thousands): June 30, December 31, 2021 2020 Face amount of mortgage loans$ 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 fromDecember 31, 2020 toJune 30, 2021 is summarized as follows (in thousands): Balance atDecember 31, 2020
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 atJune 30, 2021 $ 1,029,308 OnJuly 9, 2021 , the borrower, a consolidated subsidiary ofWPG L.P. , executed an extension of the$37.4 million non-recourse mortgage loan secured byGrand Central Mall , located inParkersburg, West Virginia . Under the terms of the extension, the maturity date was extended toJuly 6, 2023 , with two additional one-year extension options available to the borrower. OnJune 8, 2021 , the borrower, a consolidated subsidiary ofWPG L.P. , executed an extension of the$50.3 million non-recourse mortgage loan secured by TownCenter atAurora , located inAurora, Colorado . Under the terms of the extension, the maturity date was extended toApril 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. OnJune 8, 2021 , the$65.0 million Weberstown Term Loan matured (see "Voluntary Reorganization Under Chapter 11" for additional details). OnApril 22, 2021 , the borrower, a consolidated subsidiary ofWPG L.P. , executed a modification of the$35.4 million full-recourse mortgage loan secured bySouthgate Mall , located inMissoula, 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 toSeptember 27, 2023 . Under the modified terms, the mortgage loan bears interest atU.S. Prime plus 150 basis points, with a floor of 4.75% per annum. Highly-levered Assets As ofJune 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 encumberAnderson Mall , located inAnderson, South Carolina ;Brunswick Square Mall , located in EastBrunswick, New York ;Charlottesville Fashion Square , located inCharlottesville, Virginia ;Cottonwood Mall , located inAlbuquerque, New Mexico ;Dayton Mall , located inDayton, Ohio ;Lincolnwood Town Center , located inLincolnwood, Illinois ;Muncie Mall , located inMuncie, Indiana ;Oak Court Mall & Offices, located inMemphis, Tennessee ; andPort Charlotte Town Center , located inPort 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 ofJune 30, 2021 . 50 -------------------------------------------------------------------------------- Corporate and Other Debt OnFebruary 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. OnJune 13, 2021 , or the Petition Date, the Company Parties commenced the Chapter 11 Cases in theBankruptcy 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 theDecember 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 theBankruptcy 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 endedMarch 31, 2021 , the stated interest rates, depending on total leverage levels, on our Revolver, Term Loan andDecember 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 ofU.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 atJune 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 ofJanuary 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, theDecember 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 fromMarch 15, 2021 through the Petition Date, which resulted in additional interest expense of approximately$7.1 million for the three and six months endedJune 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. OnJune 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, commencingJuly 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$11.2 million in connection with the extinguishment. The proceeds were used for general corporate purposes. 51 --------------------------------------------------------------------------------
The following table identifies our total corporate debt outstanding at
June 30 ,
2021 2020 Debtor-in-possession financing Face amount(1)$ 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 onAugust 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 atU.S. Prime plus 3.60% or 6.85% per annum and will mature onDecember 30, 2022 . (5) TheDecember 2015 Term Loan bears interest atU.S. Prime plus 3.60% or 6.85% per annum and will mature onJanuary 10, 2023 . (6) The Revolver provides borrowings on a revolving basis up to$650.0 million , bears interest atU.S. Prime plus 3.25%, and will initially mature onDecember 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. AtJune 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. AtJune 30, 2021 , the applicable interest rate on the Revolver wasU.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 onJune 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 ofJune 30, 2021 . (8) Represents the financial liability associated with our failed sale and master ground leaseback of land atEdison Mall , located inFort Myers, Florida ;Great Lakes Mall , located inMentor, Ohio ;Irving Mall , located inIrving, Texas ; andJefferson Valley Mall , located inYorktown 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 ofJune 30, 2021 and the applicable debt issuance costs and discounts were written off to reorganization items. 52 --------------------------------------------------------------------------------
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. OnFebruary 15, 2021 , we deferred the semi-annual interest payment on the Senior Notes. OnJune 13, 2021 the Company Parties commenced the Chapter 11 Cases in theBankruptcy 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 theDecember 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 theBankruptcy 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 ofJune 30, 2021 . AtJune 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. OnJuly 23, 2021 , we received a notice of default letter datedJuly 21, 2021 , from the special servicer to the borrower, a consolidated subsidiary ofWPG L.P. , concerning the$34.6 million mortgage loan secured byAshland Town Center , located inAshland, Kentucky . The notice was issued by the special servicer because the borrower did not repay the loan in full by itsJuly 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. OnJune 17, 2021 , the$92.6 million mortgage loan secured byCottonwood Mall was transferred to special servicing because the borrower, a consolidated subsidiary ofWPG L.P. , elected to not make monthly debt service payments beginning inMay 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. OnJune 30, 2021 , we received a letter dated the same date, from the lender notifying the borrower, a consolidated subsidiary ofWPG L.P. , that the$77.0 million mortgage loan secured byDayton Mall was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning inMay 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. OnJune 30, 2021 , we received a letter datedJune 28, 2021 , from the lender notifying the borrower, a consolidated subsidiary ofWPG L.P. , that the$67.7 million mortgage loan secured byBrunswick Square Mall was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning inMay 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 ofWPG L.P. , on the$35.4 million full-recourse mortgage loan secured bySouthgate 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 onApril 22, 2021 , as described above, to address the technical default as well as extend the loan maturity date toSeptember 27, 2023 . OnFebruary 9, 2021 , we received a notice of default letter, dated that same day, from the special servicer to the borrower, a consolidated subsidiary ofWPG L.P. , concerning the$47.3 million mortgage loan secured byLincolnwood Town Center . The notice was issued by the special servicer because the funds maintained in the cash management account were insufficient to pay the fullJanuary 2021 mortgage payment. OnApril 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. 53 -------------------------------------------------------------------------------- OnFebruary 2, 2021 , we received a notice of default letter, datedDecember 8, 2020 , from the special servicer to the borrower, a consolidated subsidiary ofWPG L.P. , concerning the$16.6 million mortgage loan secured byAnderson Mall . The notice was issued by the special servicer because the borrower elected to not make monthly debt service payments beginning inApril 2020 in response to the COVID-19 pandemic. OnMarch 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. OnMay 26, 2020 , we received a notice of default letter, datedMay 14, 2020 , from the special servicer to the borrower, a consolidated subsidiary ofWPG L.P. , concerning the$40.9 million mortgage loan secured byPort Charlotte Town Center . The notice was issued by the special servicer because the borrower elected to not pay theMay 2020 mortgage payment due to disruption caused by the COVID-19 pandemic. OnAugust 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. OnMay 13, 2020 , we received a letter dated that same date, from the lender notifying the borrower, a consolidated subsidiary ofWPG L.P. , that the$36.1 million mortgage loan secured byOak Court Mall & Offices was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning inApril 2020 . OnMay 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. OnFebruary 21, 2020 , we received a letter, dated that same date, from the lender notifying the borrower, a consolidated subsidiary ofWPG L.P. , that the$33.1 million mortgage loan secured byMuncie 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. OnApril 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. OnNovember 5, 2019 , we received a letter datedOctober 30, 2019 , from the lender notifying the borrower, a consolidated subsidiary ofWPG L.P. , that the$45.1 million mortgage loan secured byCharlottesville 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. OnMarch 17, 2020 , we received notification that a receiver had been appointed to manage, insure, and lease the property. OnJuly 16, 2021 , the trustee, on behalf of the mortgage lender, conducted a non-judicial foreclosure sale ofCharlottesville 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$35.0 million related to the extinguishment of the mortgage loan during the third quarter of 2021. An affiliate of WPG still holds title to the property as of the date of this form 10-Q.The Company has assessed each of the defaulted properties for impairment indicators and have concluded no impairment charges were warranted as ofJune 30, 2021 . Summary of Financing Our consolidated debt and the effective weighted average interest rates as ofJune 30, 2021 andDecember 31, 2020 , consisted of the following (dollars in thousands): Weighted Weighted Average December 31, Average June 30, 2021 Interest Rate 2020 Interest Rate Fixed-rate debt, face amount (1)(2)$ 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 onJanuary 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. 54 -------------------------------------------------------------------------------- (3) Includes approximately$1.4 billion of variable rate debt that is subject to compromise under the Chapter 11 Cases. Contractual Obligations The following table summarizes the material aspects of the Company's future obligations for consolidated entities as ofJune 30, 2021 , for the remainder of 2021 and for subsequent years thereafter assuming the obligations remain outstanding through maturities noted below (in thousands): 2021 2022 - 2023 2024 - 2025 Thereafter Total Long term debt(1)$ 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$(16,396) as ofJune 30, 2021 . The principal maturities reflect any available extension options within the control of the Company. (2) Variable rate interest payments are estimated based on the LIBOR orU.S. Prime rates atJune 30, 2021 . (3) Since there is no required redemption, distributions on the Series H Preferred Shares/Units, Series I Preferred Shares/Units and Series I-1 Preferred Units may be paid in perpetuity; for purposes of this table, such distributions are included upon declaration by the Board or as recognized as a deduction to net loss as the preferred shares/units are callable at the Company's discretion. (4) Represents minimum future lease payments due through the end of the initial lease term under executed leases. (5) Includes amounts due under executed leases and commitments to vendors for development and other matters. The following table summarizes the material aspects of the Company's proportionate share of future obligations for unconsolidated entities as ofJune 30, 2021 , for the remainder of 2021 and for subsequent years thereafter assuming the obligations remain outstanding through maturities noted below (in thousands): 2021 2022 - 2023 2024 - 2025 Thereafter Total Long term debt(1)$ 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 ofJune 30, 2021 . In addition, the principal maturities reflect any available extension options. (2) Variable rate interest payments are estimated based on the LIBOR rate atJune 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 ofJune 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. 55 -------------------------------------------------------------------------------- Equity Activity Reverse-Stock Split OnDecember 17, 2020 ,WPG Inc.'s common shareholders approved an amendment toWPG Inc.'s Amended and Restated Articles of Incorporation that effectuated a one-for-nine reverse-stock split ofWPG Inc.'s common shares (the "Split"). As a result of the Split, the number of outstanding common shares ofWPG Inc. was reduced from approximately 187.4 million to approximately 21.0 million upon the effective date of the Split. In addition, all outstandingWPG 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 ofWPG Inc.'s common shares and satisfied the continued listing criteria set forth in Section 802.01C of the Listed Company Manual of theNew York Stock Exchange ("NYSE") and cured the noncompliance notification received byWPG Inc. onApril 28, 2020 , for which we received notification from the NYSE onJanuary 4, 2021 thatWPG 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 ofWPG L.P. , limited partners inWPG L.P. have, at their option, the right to exchange all or any portion of their units for shares ofWPG Inc. common stock on a oneforone basis or cash, as determined byWPG Inc. Therefore, the common units held by limited partners are considered byWPG Inc. to be share equivalents and classified as noncontrolling interests within permanent equity, and classified byWPG 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 ofWPG Inc.'s common stock as determined pursuant to the terms of the WPG L.P. Partnership Agreement. During the six months endedJune 30, 2021 ,WPG Inc. issued 3,450,397 shares of common stock to certain limited partners ofWPG L.P. in exchange for an equal number of units pursuant to theWPG L.P. Partnership Agreement in several separate redemption transactions. These transactions increasedWPG Inc.'s ownership interest inWPG L.P. by approximately 13.9%. There were no similar transactions during the six months endedJune 30, 2020 . AtJune 30, 2021 ,WPG Inc. had reserved 310,991 shares of common stock for possible issuance upon the exchange of units held byWPG L.P. limited partners. Stock Based CompensationThe WPG Inc. Board of Directors (the "Board") has adopted theWashington Prime Group, L.P. 2014 Stock Incentive Plan (the "2014 Plan") and theWashington 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 inWPG Inc. , long term incentive units ("LTIP units" or "LTIPs") or performance units ("Performance LTIP Units") inWPG L.P. The 2019 Plan, per its terms, terminates onMay 16, 2029 . The following is a summary by type of the awards that the Company issued during the six months endedJune 30, 2021 andJune 30, 2020 under the 2014 Plan and 2019 Plan. Annual Long-Term Incentive Awards During the six months endedJune 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 oneWPG 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 toWPG 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 onWPG 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 toWPG Inc.'s common shareholders for the applicable dividend payment dates will accrue and be deemed reinvested in additional 56 -------------------------------------------------------------------------------- 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 aMonte Carlo model and the related compensation expense is recognized over the three-year performance period. No comparable awards were issued during the six months endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2021 . Stock Options During the six months endedJune 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 ofJune 30, 2021 , there were 57,817 stock options outstanding. During the six months endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2021 , no common share/unit dividends were declared by the Board. For the six months endedJune 30, 2020 , the Board declared common share/unit dividends of$1.125 . Additionally, for the three and six months endedJune 30, 2021 , no dividends were declared by the Board on the Series H Cumulative Redeemable Preferred Stock, Series I Cumulative Redeemable Preferred Stock or theSeries I-1 Preferred Units. The$3.6 million distributions paid during the six months endedJune 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. 57 -------------------------------------------------------------------------------- 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 ActivityNew 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 inSioux City, Iowa , we plan to replace the former Sears withTilt 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 inParkersburg, West Virginia , inMarch 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 ofGrand Central Mall from a traditional enclosed regional center into a hybrid town center. •We proactively terminated a lease with Sears atSouthern Park Mall inYoungstown, 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. 58 -------------------------------------------------------------------------------- •At Mesa Mall, located inGrand 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 inMorgantown, West Virginia , we added a 70,000 square footDunham's Sports store, which opened inApril 2020 , to replace a former Elder-Beerman (formerBon-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 inJuly 2020 . Finally, Ollie's Bargain Outlet opened inOctober 2020 , occupying a portion of space in the former Belk location and we executed a lease inMay 2021 withBurke'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 atPolaris Fashion Place® inColumbus, Ohio , with a grand opening inJune 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. AtTown Center at Aurora® inAurora, 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. •AtThe Mall at Johnson City inJohnson City, Tennessee , we plan to replace the former Sears with a first-to-market Home Goods. We proactively negotiated an early termination with Sears inJanuary 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 andChicken 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 endedJune 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.
59 -------------------------------------------------------------------------------- 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 obtainBankruptcy 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; theBankruptcy 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 forWPG Inc. andWPG L.P. for the year endedDecember 31, 2020 and other reports filed with theSecurities 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 theNational 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. 60 -------------------------------------------------------------------------------- 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 endedJune 30, 2021 and 2020 (in thousands, except share/unit amounts): For the Three
Months Ended
2021 2020 2021 2020 Net loss$ (103,406)
(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
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)
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 endedJune 30, 2021 compared to the six months endedJune 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 endedJune 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 endedJune 30, 2020 we recorded an$11.2 million impairment on a note receivable that related to seller bridge financing that the Company provided in connection with a failed sale-leaseback transaction that occurred during the fourth quarter of 2019. We did not have similar activity during the six months endedJune 30, 2021 . (2) Prior period share and per share information has been restated for the effects of the Company's one-for-nine reverse common share/unit split that occurred inDecember 2020 . 61 -------------------------------------------------------------------------------- We deem NOI and comparable NOI to be important measures for investors and management to use in assessing our operating performance, as these measures enable us to present the core operating results from our portfolio, excluding certain non-cash, corporate-level and nonrecurring items. Specifically, we exclude from operating income the following items in our calculations of comparable NOI: •straight-line rents and fair value rent amortization; •prepetition charges and reorganization items attributable to the Chapter 11 Cases; •management fee allocation to promote comparability across periods; and •termination income, out-parcel sales and material insurance proceeds, which are deemed to be outside of normal operating results. The following schedule reconciles comparable NOI for our Tier 1 and open air properties to net loss and presents comparable NOI percent change for the three and six months endedJune 30, 2021 and 2020 (in thousands): For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Net loss$ (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
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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