Attached files

file filename
EX-31.4 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER FOR WASHINGTON PRIME GROUP, L.P. - WASHINGTON PRIME GROUP INC.exhibit314washprimelpfor10.htm
EX-10.1 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT WITH DEMCHAK DATED AUGUST 25, 2015 - WASHINGTON PRIME GROUP INC.exhibit101wpg_firstamendme.htm
EX-32.1 - CERTIFICATION BY THE CEO AND CFO FOR WP GLIMCHER INC. - WASHINGTON PRIME GROUP INC.exhibit321wpglimcherfor10-.htm
EX-31.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER FOR WP GLIMCHER INC. - WASHINGTON PRIME GROUP INC.exhibit312wpglimcherfor10-.htm
EX-31.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER FOR WP GLIMCHER INC. - WASHINGTON PRIME GROUP INC.exhibit311wpglimcherfor10-.htm
EX-10.2 - SECOND AMENDMENT TO EMPLOYMENT AGREEMENT WITH DEMCHAK DATED OCTOBER 12, 2015 - WASHINGTON PRIME GROUP INC.exhibit102secondamendmentt.htm
EX-10.5 - SERIES 2015A LTIP UNIT AWARD AGREEMENT WITH GOROSPE DATED NOVEMBER 2, 2015 - WASHINGTON PRIME GROUP INC.exhibit105gorospeinducemen.htm
EX-32.2 - CERTIFICATION BY THE CEO AND CFO FOR WASHINGTON PRIME GROUP L.P. - WASHINGTON PRIME GROUP INC.exhibit322washprimelpfor10.htm
EX-10.4 - SEVERANCE BENEFITS AGREEMENT WITH GOROSPE DATED NOVEMBER 2, 2015 - WASHINGTON PRIME GROUP INC.exhibit104gorospeseverance.htm
EX-31.3 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER FOR WASHINGTON PRIME GROUP, L.P. - WASHINGTON PRIME GROUP INC.exhibit313washprimelpfor10.htm
EX-10.3 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT WITH GLIMCHER DATED NOVEMBER 2, 2015 - WASHINGTON PRIME GROUP INC.exhibit103firstamendmentto.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

WP Glimcher Inc.
Washington Prime Group, L.P.
(Exact name of Registrant as specified in its charter)

Indiana (Both Registrants)
(State of incorporation or organization)

001-36252 (WP Glimcher Inc.)
333-205859 (Washington Prime Group, L.P.)
(Commission File No.)

46-4323686 (WP Glimcher Inc.)
46-4674640 (Washington Prime Group, L.P.)
(I.R.S. Employer Identification No.)

180 East Broad Street
Columbus, Ohio 43215
(Address of principal executive offices)

(614) 621-9000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

WP Glimcher Inc. Yes x No ¨ Washington Prime Group, L.P. Yes  ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

WP Glimcher Inc. Yes x  No ¨ Washington Prime Group, L.P. Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

WP Glimcher Inc. (Check One):
Large accelerated filer ¨    Accelerated filer ¨
Non-accelerated filer x    Smaller reporting company ¨
(Do not check if a smaller reporting company)

Washington Prime Group, L.P. (Check One):
Large accelerated filer ¨    Accelerated filer ¨
Non-accelerated filer x    Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

WP Glimcher Inc. Yes¨  No x Washington Prime Group, L.P. Yes¨  No x

As of November 3, 2015, WP Glimcher Inc. had 185,304,555 shares of common stock outstanding.

1



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2015 of WP Glimcher Inc. and Washington Prime Group, L.P. Unless stated otherwise or the context requires otherwise, references to "WPG Inc." mean WP Glimcher Inc., an Indiana corporation, and references to "WPG L.P." mean Washington Prime Group, L.P., an Indiana limited partnership, and its consolidated subsidiaries, in cases where it is important to distinguish between WPG Inc. and WPG L.P. We use the terms “we” or “our” or "WPG" or the "Company” to refer to WPG Inc. and WPG L.P. together, unless the context indicates otherwise.
WPG Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”). WPG Inc. owns properties and conducts operations through WPG L.P., of which WPG Inc. is the sole general partner and of which it holds approximately 84.2% of the partnership interests (“OP units”) at September 30, 2015. The remaining OP units are owned by various limited partners. As the sole general partner of WPG L.P., WPG Inc. has the exclusive and complete responsibility for WPG L.P.’s day-to-day management and control. Management operates WPG Inc. and WPG L.P. as one enterprise. The management of WPG Inc. consists of the same persons who direct the management of WPG L.P. As general partner with control of WPG L.P., WPG Inc. consolidates WPG L.P. for financial reporting purposes, and WPG Inc. does not have significant assets other than its investment in WPG L.P. Therefore, the assets and liabilities of WPG Inc. and WPG L.P. are substantially the same on their respective consolidated and combined financial statements and the disclosures of WPG Inc. and WPG L.P. also are substantially similar.
The Company believes, therefore, that the combination into a single report of the quarterly reports on Form 10-Q of WPG Inc. and WPG L.P. provides the following benefits:
enhances investors' understanding of the operations of WPG Inc. and WPG L.P. by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both WPG Inc. and WPG L.P.; and
creates time and cost efficiencies through the preparation of one set of disclosures instead of two separate sets of disclosures.
The substantive difference between WPG Inc.’s and WPG L.P.’s filings is the fact that WPG Inc. is a REIT with shares traded on a public stock exchange, while WPG L.P. is a limited partnership with no publicly traded equity. In the consolidated and combined financial statements, this difference is primarily reflected in the equity section of the consolidated balance sheets and in the consolidated statements of equity. Apart from the different equity presentation, the consolidated and combined financial statements of WPG Inc. and WPG L.P. are nearly identical.
This combined Form 10-Q for WPG Inc. and WPG L.P. includes, for each entity, separate interim financial statements (but combined footnotes), separate reports on disclosure controls and procedures and internal control over financial reporting, and separate CEO/CFO certifications. In addition, if there were any material differences between WPG Inc. and WPG L.P. with respect to any other financial and non-financial disclosure items required by Form 10-Q, they would be discussed separately herein.

2



WP GLIMCHER INC. AND WASHINGTON PRIME GROUP, L.P.
FORM 10-Q

INDEX
PART I:
FINANCIAL INFORMATION
PAGE
 
 
 
 
 
 
Item 1.
Consolidated and Combined Financial Statements (unaudited, except where noted)
 
 
 
 
 
Financial Statements for WP Glimcher Inc.:
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (audited).
 
 
 
 
Consolidated and Combined Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014.
 
 
 
 
Consolidated and Combined Statements of Cash Flows for the nine months ended September 30, 2015 and 2014.
 
 
 
 
Consolidated Statement of Equity for the nine months ended September 30, 2015.
 
 
 
 
Financial Statements for Washington Prime Group, L.P.:
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (audited).
 
 
 
 
Consolidated and Combined Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014.
 
 
 
 
Consolidated and Combined Statements of Cash Flows for the nine months ended September 30, 2015 and 2014.
 
 
 
 
Consolidated Statement of Equity for the nine months ended September 30, 2015.
 
 
 
 
Condensed Notes to Consolidated and Combined Financial Statements.
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
 
 
Item 4.
Controls and Procedures.
 
 
 
 
 
 
PART II:
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
 
 
 
Item 1A.
Risk Factors.
 
 
 

3



Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
 
 
Item 3.
Defaults Upon Senior Securities.
 
 
 
Item 4.
Mine Safety Disclosures.
 
 
 
Item 5.
Other Information.
 
 
 
Item 6.
Exhibits.
 
 
 
SIGNATURES

4



PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

WP Glimcher Inc.
Consolidated Balance Sheets
(dollars in thousands, except share and par value amounts)

 
 
September 30, 2015
 
December 31, 2014
 
 
(unaudited)
 
 
ASSETS:
 
 
 
 
Investment properties at cost
 
$
6,868,547

 
$
5,292,665

Less: accumulated depreciation
 
2,288,238

 
2,113,929


 
4,580,309

 
3,178,736

Cash and cash equivalents
 
121,327

 
108,768

Tenant receivables and accrued revenue, net
 
88,771

 
69,616

Investment in and advances to unconsolidated entities, at equity
 
494,181

 

Deferred costs and other assets
 
317,324

 
170,883

Total assets
 
$
5,601,912

 
$
3,528,003

LIABILITIES:
 
 
 
 
Mortgage notes payable
 
$
1,806,668

 
$
1,435,114

Notes payable
 
249,936

 

Unsecured term loans
 
1,000,000

 
500,000

Revolving credit facility
 
588,750

 
413,750

Accounts payable, accrued expenses, intangibles, and deferred revenues
 
348,671

 
194,014

Distributions payable
 
2,992

 

Cash distributions and losses in partnerships and joint ventures, at equity
 
15,433

 
15,298

Other liabilities
 
15,327

 
11,786

Total liabilities
 
4,027,777

 
2,569,962

Redeemable noncontrolling interests
 
6,130

 

EQUITY:
 
 
 
 
Stockholders' Equity:
 
 
 
 
Series H Cumulative Redeemable Preferred Stock, $0.0001 par value, 4,000,000 shares issued and outstanding as of September 30, 2015
 
104,251

 

Series I Cumulative Redeemable Preferred Stock, $0.0001 par value, 3,800,000 shares issued and outstanding as of September 30, 2015
 
98,325

 

Common stock, $0.0001 par value, 300,000,000 shares authorized,
185,304,555 and 155,162,597 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
 
19

 
16

Capital in excess of par value
 
1,222,244

 
720,921

Accumulated (deficit) earnings
 
(70,927
)
 
68,114

Accumulated other comprehensive loss
 
(2,928
)
 

Total stockholders' equity
 
1,350,984

 
789,051

Noncontrolling interests
 
217,021

 
168,990

Total equity
 
1,568,005

 
958,041

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,601,912

 
$
3,528,003


The accompanying notes are an integral part of these statements.

5



WP Glimcher Inc.
Unaudited Consolidated and Combined Statements of Operations and Comprehensive Income
(dollars in thousands, except per share amounts)

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
REVENUE:
 
 
 
 
 
 
 
Minimum rent
$
146,111

 
$
113,887

 
$
472,448

 
$
328,898

Overage rent
2,583

 
1,747

 
8,138

 
4,991

Tenant reimbursements
62,182

 
50,814

 
198,832

 
145,161

Other income
6,095

 
1,236

 
12,861

 
4,778

Total revenues
216,971

 
167,684

 
692,279

 
483,828

EXPENSES:

 

 
 
 
 
Property operating
39,939

 
29,268

 
123,501

 
81,627

Depreciation and amortization
77,008

 
49,307

 
260,645

 
142,563

Real estate taxes
26,180

 
20,430

 
84,522

 
59,129

Repairs and maintenance
6,435

 
5,169

 
23,769

 
17,253

Advertising and promotion
2,637

 
1,954

 
7,980

 
5,838

Provision for credit losses
238

 
447

 
1,819

 
1,852

General and administrative
12,400

 
4,395

 
34,335

 
6,260

Spin-off costs

 

 

 
39,931

Merger and transaction costs
2,448

 
2,500

 
28,161

 
2,500

Ground rent and other costs
1,550

 
1,108

 
6,846

 
3,508

Impairment loss
9,859

 

 
9,859

 

Total operating expenses
178,694

 
114,578

 
581,437

 
360,461

OPERATING INCOME
38,277

 
53,106

 
110,842

 
123,367

Interest expense, net
(29,898
)
 
(23,219
)
 
(105,794
)
 
(59,813
)
Income and other taxes
(87
)
 
(134
)
 
(1,060
)
 
(275
)
(Loss) income from unconsolidated entities
(164
)
 
99

 
(1,651
)
 
846

Gain upon acquisition of controlling interests and on sale of interests in properties

 
8,969

 
5,147

 
100,479

NET INCOME
8,128

 
38,821

 
7,484

 
164,604

Net income (loss) attributable to noncontrolling interests
563

 
6,620

 
(685
)
 
28,210

NET INCOME ATTRIBUTABLE TO THE COMPANY
7,565

 
32,201

 
8,169

 
136,394

Less: Preferred share dividends
(3,508
)
 

 
(12,481
)
 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
$
4,057

 
$
32,201

 
$
(4,312
)
 
$
136,394

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED
$
0.02

 
$
0.21

 
$
(0.02
)
 
$
0.88

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Net income
$
8,128

 
$
38,821

 
$
7,484

 
$
164,604

Unrealized loss on interest rate derivative instruments
(7,691
)
 

 
(3,480
)
 

Comprehensive income
437

 
38,821

 
4,004

 
164,604

Comprehensive (loss) income attributable to noncontrolling interests
(660
)
 
6,620

 
(1,237
)
 
28,210

Comprehensive income attributable to common shareholders
$
1,097

 
$
32,201

 
$
5,241

 
$
136,394


The accompanying notes are an integral part of these statements.

6



WP Glimcher Inc.
Unaudited Consolidated and Combined Statements of Cash Flows
(dollars in thousands)

 
For the Nine Months Ended September 30,
 
2015

2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
7,484

 
$
164,604

Adjustments to reconcile net income to net cash provided by operating activities:


 

Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and stock compensation
256,258

 
143,768

Gain upon acquisition of controlling interests and on sale of interests in properties
(5,147
)
 
(100,479
)
Impairment loss
9,859

 

Loss on debt extinguishment

 
2,894

Provision for credit losses
1,819

 
1,852

Loss (income) from unconsolidated entities
1,651

 
(846
)
Distributions of income from unconsolidated entities
107

 
880

Changes in assets and liabilities:


 

Tenant receivables and accrued revenue, net
(7,566
)
 
(129
)
Deferred costs and other assets
(22,625
)
 
(13,423
)
Accounts payable, accrued expenses, deferred revenues and other liabilities
(4,269
)
 
(176
)
Net cash provided by operating activities
237,571

 
198,945

CASH FLOWS FROM INVESTING ACTIVITIES:


 

Acquisitions, net of cash acquired
(963,143
)
 
(154,370
)
Capital expenditures, net
(116,077
)
 
(63,868
)
Restricted cash reserves for future capital expenditures, net
(4,117
)
 

Net proceeds from sale of interests in properties
431,823

 
24,976

Investments in unconsolidated entities
(10,662
)
 
(2,493
)
Distributions of capital from unconsolidated entities
551

 
1,180

Net cash used in investing activities
(661,625
)
 
(194,575
)
CASH FLOWS FROM FINANCING ACTIVITIES:


 

Distributions to Simon Property Group, Inc., net

 
(1,060,187
)
Distributions to noncontrolling interest holders in properties
(8
)
 
(845
)
Redemption of preferred shares
(117,384
)
 

Change in lender-required restricted cash reserve on mortgage loan
(1,765
)
 

Net proceeds from issuance of common shares, including common stock plans
1,899

 

Distributions on common and preferred shares/units
(169,494
)
 
(47,055
)
Proceeds from issuance of debt, net of transaction costs
2,486,659

 
1,379,575

Repayments of debt including prepayment penalties
(1,763,294
)
 
(180,907
)
Net cash provided by financing activities
436,613

 
90,581

INCREASE IN CASH AND CASH EQUIVALENTS
12,559

 
94,951

CASH AND CASH EQUIVALENTS, beginning of period
108,768

 
25,857

CASH AND CASH EQUIVALENTS, end of period
$
121,327

 
$
120,808


The accompanying notes are an integral part of these statements.

7



WP Glimcher Inc.
Unaudited Consolidated Statement of Equity
(dollars in thousands, except per share/unit amounts)

 
 
Preferred Series G
 
Preferred Series H
 
Preferred Series I
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Accumulated Earnings (Deficit)
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders'
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Redeemable Non-Controlling Interests
Balance, December 31, 2014
 
$

 
$

 
$

 
$
16

 
$
720,921

 
$
68,114

 
$

 
$
789,051

 
$
168,990

 
$
958,041

 
$

Issuance of shares and units in connection with the Merger
 
117,384

 
104,251

 
98,325

 
3

 
535,035

 

 

 
854,998

 
29,482

 
884,480

 
6,148

Exercise of stock options
 

 

 

 

 
2,381

 

 

 
2,381

 

 
2,381

 

Noncontrolling interest in property
 

 

 

 

 

 

 

 

 
(8
)
 
(8
)
 

Equity-based compensation
 

 

 

 

 
9,286

 

 

 
9,286

 

 
9,286

 

Adjustments to noncontrolling interests
 

 

 

 

 
(45,379
)
 

 

 
(45,379
)
 
45,379

 

 

Distributions on common shares/units ($0.75 per common share/unit)
 

 

 

 

 

 
(134,729
)
 

 
(134,729
)
 
(25,434
)
 
(160,163
)
 

Distributions declared on preferred shares
 

 

 

 

 

 
(12,481
)
 

 
(12,481
)
 

 
(12,481
)
 

Redemption of preferred shares
 
(117,384
)
 

 

 

 

 

 

 
(117,384
)
 

 
(117,384
)
 

Other comprehensive loss
 

 

 

 

 

 

 
(2,928
)
 
(2,928
)
 
(552
)
 
(3,480
)
 

Net income (loss), excluding $169 of distributions to preferred unitholders
 

 

 

 

 

 
8,169

 

 
8,169

 
(836
)
 
7,333

 
(18
)
Balance, September 30, 2015
 
$

 
$
104,251

 
$
98,325

 
$
19

 
$
1,222,244

 
$
(70,927
)
 
$
(2,928
)
 
$
1,350,984

 
$
217,021

 
$
1,568,005

 
$
6,130


The accompanying notes are an integral part of this statement.

8



Washington Prime Group, L.P.
Consolidated Balance Sheets
(dollars in thousands, except unit amounts)

 
 
September 30, 2015
 
December 31, 2014
 
 
(unaudited)
 
 
ASSETS:
 
 
 
 
Investment properties at cost
 
$
6,868,547

 
$
5,292,665

Less: accumulated depreciation
 
2,288,238

 
2,113,929


 
4,580,309

 
3,178,736

Cash and cash equivalents
 
121,327

 
108,768

Tenant receivables and accrued revenue, net
 
88,771

 
69,616

Investment in and advances to unconsolidated entities, at equity
 
494,181

 

Deferred costs and other assets
 
317,324

 
170,883

Total assets
 
$
5,601,912

 
$
3,528,003

LIABILITIES:
 
 
 
 
Mortgage notes payable
 
$
1,806,668

 
$
1,435,114

Notes payable
 
249,936

 

Unsecured term loans
 
1,000,000

 
500,000

Revolving credit facility
 
588,750

 
413,750

Accounts payable, accrued expenses, intangibles, and deferred revenues
 
348,671

 
194,014

Distributions payable
 
2,992

 

Cash distributions and losses in partnerships and joint ventures, at equity
 
15,433

 
15,298

Other liabilities
 
15,327

 
11,786

Total liabilities
 
4,027,777

 
2,569,962

Redeemable noncontrolling interests
 
6,130

 

EQUITY:
 
 
 
 
Partners' Equity:
 
 
 
 
General partner
 
 
 
 
Preferred equity, 7,800,000 units issued and outstanding as of September 30, 2015
 
202,576

 

Common equity, 185,304,555 and 155,162,597 units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
 
1,148,408

 
789,051

Total general partners' equity
 
1,350,984

 
789,051

Limited partners, 34,855,854 and 33,030,944 units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
 
216,012

 
167,973

Total partners' equity
 
1,566,996

 
957,024

Noncontrolling interests
 
1,009

 
1,017

Total equity
 
1,568,005

 
958,041

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,601,912

 
$
3,528,003


The accompanying notes are an integral part of these statements.


9



Washington Prime Group, L.P.
Unaudited Consolidated and Combined Statements of Operations and Comprehensive Income
(dollars in thousands, except per unit amounts)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
REVENUE:
 
 
 
 
 
 
 
Minimum rent
$
146,111

 
$
113,887

 
$
472,448

 
$
328,898

Overage rent
2,583

 
1,747

 
8,138

 
4,991

Tenant reimbursements
62,182

 
50,814

 
198,832

 
145,161

Other income
6,095

 
1,236

 
12,861

 
4,778

Total revenues
216,971

 
167,684

 
692,279

 
483,828

EXPENSES:

 

 
 
 
 
Property operating
39,939

 
29,268

 
123,501

 
81,627

Depreciation and amortization
77,008

 
49,307

 
260,645

 
142,563

Real estate taxes
26,180

 
20,430

 
84,522

 
59,129

Repairs and maintenance
6,435

 
5,169

 
23,769

 
17,253

Advertising and promotion
2,637

 
1,954

 
7,980

 
5,838

Provision for credit losses
238

 
447

 
1,819

 
1,852

General and administrative
12,400

 
4,395

 
34,335

 
6,260

Spin-off costs

 

 

 
39,931

Merger and transaction costs
2,448

 
2,500

 
28,161

 
2,500

Ground rent and other costs
1,550

 
1,108

 
6,846

 
3,508

Impairment loss
9,859

 

 
9,859

 

Total operating expenses
178,694

 
114,578

 
581,437

 
360,461

OPERATING INCOME
38,277

 
53,106

 
110,842

 
123,367

Interest expense, net
(29,898
)
 
(23,219
)
 
(105,794
)
 
(59,813
)
Income and other taxes
(87
)
 
(134
)
 
(1,060
)
 
(275
)
(Loss) income from unconsolidated entities
(164
)
 
99

 
(1,651
)
 
846

Gain upon acquisition of controlling interests and on sale of interests in properties

 
8,969

 
5,147

 
100,479

NET INCOME
8,128

 
38,821

 
7,484

 
164,604

Net loss attributable to noncontrolling interests
(18
)
 

 
(18
)
 

NET INCOME ATTRIBUTABLE TO UNITHOLDERS
8,146

 
38,821

 
7,502

 
164,604

Less: Preferred unit distributions
(3,508
)
 

 
(12,481
)
 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS
$
4,638

 
$
38,821

 
$
(4,979
)
 
$
164,604

 
 
 
 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS:
 
 
 
 
 
 
 
General partner
$
4,057

 
$
32,201

 
$
(4,312
)
 
$
136,394

Limited partners
581

 
6,620

 
(667
)
 
28,210

Net income (loss) attributable to common unitholders
$
4,638

 
$
38,821

 
$
(4,979
)
 
$
164,604

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON UNIT, BASIC AND DILUTED
$
0.02

 
$
0.21

 
$
(0.02
)
 
$
0.88

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Net income
$
8,128

 
$
38,821

 
$
7,484

 
$
164,604

Unrealized loss on interest rate derivative instruments
(7,691
)
 

 
(3,480
)
 

Comprehensive income
437

 
38,821

 
4,004

 
164,604

Comprehensive loss attributable to noncontrolling interests
(18
)
 

 
(18
)
 

Comprehensive income attributable to unitholders
$
455

 
$
38,821

 
$
4,022

 
$
164,604


The accompanying notes are an integral part of these statements.

10



Washington Prime Group, L.P.
Unaudited Consolidated and Combined Statements of Cash Flows
(dollars in thousands)

 
For the Nine Months Ended September 30,
 
2015

2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
7,484

 
$
164,604

Adjustments to reconcile net income to net cash provided by operating activities:


 

Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation
256,258

 
143,768

Gain upon acquisition of controlling interests and on sale of interests in properties
(5,147
)
 
(100,479
)
Impairment loss
9,859

 

Loss on debt extinguishment

 
2,894

Provision for credit losses
1,819

 
1,852

Loss (income) from unconsolidated entities
1,651

 
(846
)
Distributions of income from unconsolidated entities
107

 
880

Changes in assets and liabilities:


 

Tenant receivables and accrued revenue, net
(7,566
)
 
(129
)
Deferred costs and other assets
(22,625
)
 
(13,423
)
Accounts payable, accrued expenses, deferred revenues and other liabilities
(4,269
)
 
(176
)
Net cash provided by operating activities
237,571

 
198,945

CASH FLOWS FROM INVESTING ACTIVITIES:


 

Acquisitions, net of cash acquired
(963,143
)
 
(154,370
)
Capital expenditures, net
(116,077
)
 
(63,868
)
Restricted cash reserves for future capital expenditures, net
(4,117
)
 

Net proceeds from sale of interests in properties
431,823

 
24,976

Investments in unconsolidated entities
(10,662
)
 
(2,493
)
Distributions of capital from unconsolidated entities
551

 
1,180

Net cash used in investing activities
(661,625
)
 
(194,575
)
CASH FLOWS FROM FINANCING ACTIVITIES:


 

Distributions to unitholders, net
(169,494
)
 
(1,107,242
)
Distributions to noncontrolling interest holders in properties
(8
)
 
(845
)
Redemption of preferred units
(117,384
)
 

Change in lender-required restricted cash reserve on mortgage loan
(1,765
)
 

Net proceeds from issuance of common units, including equity-based compensation plans
1,899

 

Proceeds from issuance of debt, net of transaction costs
2,486,659

 
1,379,575

Repayments of debt including prepayment penalties
(1,763,294
)
 
(180,907
)
Net cash provided by financing activities
436,613

 
90,581

INCREASE IN CASH AND CASH EQUIVALENTS
12,559

 
94,951

CASH AND CASH EQUIVALENTS, beginning of period
108,768

 
25,857

CASH AND CASH EQUIVALENTS, end of period
$
121,327

 
$
120,808


The accompanying notes are an integral part of these statements.

11



Washington Prime Group, L.P.
Unaudited Consolidated Statement of Equity
(dollars in thousands, except per unit amounts)

 
 
General Partner
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Equity
 
Common Equity
 
Total Equity
 
Limited Partners
 
Total
Partners'
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Redeemable Non-Controlling Interests
Balance, December 31, 2014
 
$

 
$
789,051

 
$
789,051

 
$
167,973

 
$
957,024

 
$
1,017

 
$
958,041

 
$

Issuance of units in connection with the Merger
 
319,960

 
535,038

 
854,998

 
29,482

 
884,480

 

 
884,480

 
6,148

Exercise of stock options
 

 
2,381

 
2,381

 

 
2,381

 

 
2,381

 

Noncontrolling interest in property
 

 

 

 

 

 
(8
)
 
(8
)
 

Equity-based compensation
 

 
9,286

 
9,286

 

 
9,286

 

 
9,286

 

Adjustments to limited partners' interests
 

 
(45,379
)
 
(45,379
)
 
45,379

 

 

 

 

Distributions on common units ($0.75 per common unit)
 

 
(134,729
)
 
(134,729
)
 
(25,434
)
 
(160,163
)
 

 
(160,163
)
 

Distributions declared on preferred units
 
(12,481
)
 

 
(12,481
)
 

 
(12,481
)
 

 
(12,481
)
 

Redemption of preferred units
 
(117,384
)
 

 
(117,384
)
 

 
(117,384
)
 

 
(117,384
)
 

Other comprehensive loss
 

 
(2,928
)
 
(2,928
)
 
(552
)
 
(3,480
)
 

 
(3,480
)
 

Net income (loss), excluding $169 of distributions to preferred unitholders
 
12,481

 
(4,312
)
 
8,169

 
(836
)
 
7,333

 

 
7,333

 
(18
)
Balance, September 30, 2015
 
$
202,576

 
$
1,148,408

 
$
1,350,984

 
$
216,012

 
$
1,566,996

 
$
1,009

 
$
1,568,005

 
$
6,130


The accompanying notes are an integral part of this statement.


12


WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)

1.
Organization
WP Glimcher Inc. (formerly named Washington Prime Group Inc.) (“WPG Inc.”) is an Indiana corporation that operates as a self‑administered and self‑managed real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. REITs will generally not be liable for federal corporate income taxes as long as they continue to distribute not less than 100% of their taxable income and satisfy certain other requirements. Washington Prime Group, L.P. (“WPG L.P.”) is WPG Inc.'s majority‑owned limited partnership subsidiary that owns, develops and manages, through its affiliates, all of WPG Inc.'s real estate properties and other assets. WPG Inc. is the sole general partner of WPG L.P. As of September 30, 2015, our assets consisted of interests in 121 shopping centers in the United States, consisting of strip centers and malls.
WPG (defined below) was created to hold the strip center business and smaller enclosed malls of Simon Property Group, Inc. (“SPG”) and its subsidiaries. On May 28, 2014, WPG separated from SPG through the distribution of 100% of the outstanding units of WPG L.P. to the owners of Simon Property Group, L.P. (“SPG L.P.”), SPG's operating partnership, and 100% of the outstanding shares of WPG Inc. to the SPG shareholders in a tax‑free distribution. Prior to the separation, WPG Inc. and WPG L.P. were wholly owned subsidiaries of SPG and its subsidiaries. As described in Note 2 - "Basis of Presentation and Principles of Consolidation and Combination," WPG’s results prior to the separation are presented herein on a carve-out basis. Prior to or concurrent with the separation, SPG engaged in certain formation transactions that were designed to consolidate the ownership of its interests in 98 properties (the “SPG Businesses”) and distribute such interests to us. Pursuant to the separation agreement, on May 28, 2014, SPG distributed 100% of the common shares of WPG Inc. on a pro rata basis to SPG’s shareholders as of the May 16, 2014 record date.
Unless the context otherwise requires, references to "WPG", the "Company", “we”, “us” and “our” refer to WPG Inc., WPG L.P. and entities in which WPG Inc. or WPG L.P. (or an affiliate) has a material ownership or financial interest, on a consolidated basis, after giving effect to the transfer of assets and liabilities from SPG as well as to the SPG Businesses prior to the date of the completion of the separation. Before the completion of the separation, the SPG Businesses were operated as subsidiaries of SPG, which operates as a REIT.
At the time of the separation and distribution, WPG Inc. owned a percentage of the outstanding units of partnership interest, or units, of WPG L.P. that was approximately equal to the percentage of outstanding units of partnership interest that SPG owned of SPG L.P., with the remaining units of WPG L.P. being owned by the limited partners who were also limited partners of SPG L.P. as of the May 16, 2014 record date. The units in WPG L.P. held by limited partners are exchangeable, at their election, for WPG Inc. common shares on a one‑for‑one basis or cash, at the determination of WPG Inc.
Before the separation, we had not conducted any business as a separate company and had no material assets or liabilities. The operations of the business transferred to us by SPG on the separation date are presented as if the transferred business was our business for all historical periods described and at the carrying value of such assets and liabilities reflected in SPG’s books and records. Additionally, the financial statements reflect the common shares and units outstanding at the separation date as outstanding for all periods prior to the separation.
Prior to the separation, WPG entered into agreements with SPG under which SPG provides various services to us, including accounting, asset management, development, human resources, information technology, leasing, legal, marketing, public reporting and tax. The charges for the services are based on an hourly or per transaction fee arrangement and pass‑through of out‑of‑pocket costs (see Note 10 - "Related Party Transactions").
At the time of the separation, our assets consisted of interests in 98 shopping centers. In addition to the above properties, the combined historical financial statements include an interest in one shopping center held within a joint venture portfolio of properties which was sold on February 28, 2014.
We derive our revenues primarily from retail tenant leases, including fixed minimum rent leases, overage and percentage rent leases based on tenants’ sales volumes, offering property operating services to our tenants and others, including energy, waste handling and facility services, and reimbursements from tenants for certain recoverable expenditures such as property operating, real estate taxes, repair and maintenance, and advertising and promotional expenditures.

13

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


We seek to enhance the performance of our properties and increase our revenues by, among other things, securing leases of anchor and inline tenant spaces, 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.
The Merger
On January 15, 2015, the Company acquired Glimcher Realty Trust (“Glimcher”), pursuant to a definitive agreement and plan of merger with Glimcher and certain affiliated parties of each dated September 16, 2014, (the “Merger Agreement”), in a stock and cash transaction valued at approximately $4.2 billion, including the assumption of debt (the “Merger”). Prior to the Merger, Glimcher was a Maryland REIT engaged in the ownership, management, acquisition and development of retail properties, including mixed‑use, open‑air and enclosed regional malls as well as outlet centers. As of December 31, 2014, Glimcher owned material interests in and managed 25 properties with total gross leasable area of approximately 17.2 million square feet, including the two properties sold to SPG concurrent with the Merger as noted below. Prior to the Merger, Glimcher’s common shares were listed on the NYSE under the symbol “GRT.”
In the Merger, Glimcher common shareholders received, for each Glimcher common share, $14.02 consisting of $10.40 in cash and 0.1989 of a share of WPG Inc.’s common stock valued at $3.62 per Glimcher common share, based on the closing price of WPG Inc.’s common stock on the Merger closing date. Approximately 29.9 million shares of WPG Inc.'s common stock were issued to Glimcher shareholders in the Merger, and WPG L.P. issued to WPG Inc. a like number of common units as consideration for the common shares issued. Additionally included in consideration were operating partnership units held by limited partners and preferred stock as noted below. In connection with the closing of the Merger, an indirect subsidiary of WPG L.P. was merged into Glimcher’s operating partnership. In the Merger, we acquired 23 shopping centers comprised of approximately 15.8 million square feet of gross leasable area and assumed additional mortgages on 14 properties with a fair value of approximately $1.4 billion. The combined company, which was renamed WP Glimcher Inc. post-Merger upon receiving shareholder approval, is comprised of approximately 69 million square feet of gross leasable area (compared to approximately 53 million square feet for the Company as of December 31, 2014) and has a combined portfolio of 121 properties as of September 30, 2015.
In the Merger, the preferred stock of Glimcher was converted into preferred stock of WPG Inc., and WPG L.P. issued to WPG Inc. preferred units as consideration for the preferred shares issued. Additionally, each outstanding common unit of Glimcher’s operating partnership held by limited partners was converted into 0.7431 of a unit of WPG LP. Further, each outstanding stock option in respect of Glimcher common stock was converted into a WPG Inc. option, and certain other Glimcher equity awards were assumed by WPG Inc. and converted into equity awards in respect of WPG Inc.'s common shares.
Concurrent with the closing of the Merger, Glimcher completed a transaction with SPG under which affiliates of SPG acquired Jersey Gardens in Elizabeth, New Jersey, and University Park Village in Fort Worth, Texas, properties previously owned by affiliates of Glimcher, for an aggregate purchase price of $1.09 billion, including SPG’s assumption of approximately $405.0 million of associated mortgage indebtedness (the “Property Sale”).
The cash portion of the Merger consideration was funded by the Property Sale and draws under the Bridge Loan (see Note 6 - "Indebtedness"). During the three and nine months ended September 30, 2015, the Company incurred $2.4 million and $28.2 million of costs in connection with the Merger, respectively, which are included in merger and transaction costs in the accompanying consolidated and combined statements of operations and comprehensive income. Additionally, during the year ended December 31, 2014, the Company incurred $8.8 million of costs related to the Merger, including $2.5 million included in merger and transaction costs in the accompanying consolidated and combined statements of operations and comprehensive income for the three and nine months ended September 30, 2014.

14

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


On June 1, 2015, the Company announced a management transition plan through which Mark S. Ordan, the Executive Chairman of the Board, will transition to serve as an active non-executive Chairman of the Board and will provide consulting services to the Company under a transition and consulting agreement, effective as of January 1, 2016. Michael P. Glimcher will continue to serve as the Company’s Vice Chairman and Chief Executive Officer. In addition, the Company expects a further reduction in overhead related to its Bethesda, Maryland-based transition operations led by C. Marc Richards, the Company’s Executive Vice President and Chief Administrative Officer, who is anticipated to depart the Company upon substantial completion of integration activities in early 2016. These management changes are expected to result in severance and related charges for 2015 of up to $8.0 million, consisting of approximately $4.0 million in cash severance and $4.0 million in non-cash stock compensation charges. During the three and nine months ended September 30, 2015, the Company incurred $1.7 million and $5.9 million of such severance costs, respectively, which are included in the total merger and transaction costs disclosed above. Additionally, WPG Inc.'s Board of Directors appointed Mr. Gregory A. Gorospe as the Company’s new Executive Vice President, General Counsel and Secretary, effective as of October 12, 2015. Finally, in addition to our headquarters in Columbus, Ohio, the Company will be opening a new leasing, management and operations office in Indianapolis, Indiana, in December 2015.
On June 1, 2015, the Company completed a joint venture transaction with a third party with respect to the ownership and operation of five of the malls and certain related out-parcels acquired in the Merger (see Note 4 - "Investment in Real Estate").

See the “Litigation” section of Note 9 - "Commitments and Contingencies" for a discussion of Merger‑related litigation.

2.    Basis of Presentation and Principles of Consolidation and Combination

The accompanying consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated balance sheet as of September 30, 2015 includes the accounts of WPG Inc. and WPG L.P., as well as their wholly owned subsidiaries. The accompanying consolidated and combined statements of operations include the consolidated accounts of the Company and the combined accounts of the SPG Businesses. All intercompany transactions have been eliminated in consolidation and combination. Due to the seasonal nature of certain operational activities, the results for the interim period ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

These consolidated and combined financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by GAAP for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying consolidated and combined 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. These consolidated and combined unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements and related notes included in WPG Inc.'s 2014 Annual Report on Form 10-K.

Combined Presentation
The financial statements of both WPG Inc. and WPG L.P. are included in this report.
As the sole general partner of WPG L.P., WPG Inc. has the exclusive and complete responsibility for WPG L.P.’s day-to-day management and control. Management operates WPG Inc. and WPG L.P. as one enterprise. The management of WPG Inc. consists of the same persons who direct the management of WPG L.P. As general partner with control of WPG L.P., WPG Inc. consolidates WPG L.P. for financial reporting purposes, and WPG Inc. does not have significant assets other than its investment in WPG L.P. Therefore, the assets and liabilities of WPG Inc. and WPG L.P. are substantially the same on their respective consolidated and combined financial statements and the disclosures of WPG Inc. and WPG L.P. also are substantially similar.
The Company believes, therefore, that providing one set of notes for the financial statements of WPG Inc. and WPG L.P. provides the following benefits:
enhances investors' understanding of the operations of WPG Inc. and WPG L.P. by enabling investors to view the business as a whole in the same manner as management views and operates the business;

15

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both WPG Inc. and WPG L.P.; and
creates time and cost efficiencies through the preparation of one set of notes instead of two separate sets of notes.
In addition, in light of the combined notes, the Company believes it is important for investors to understand the few differences between WPG Inc. and WPG L.P. The substantive difference between WPG Inc. and WPG L.P. is the fact that WPG Inc. is a REIT with stock traded on a public exchange, while WPG L.P. is a limited partnership with no publicly traded equity. In the consolidated and combined financial statements, this difference is primarily reflected in the equity section of the consolidated balance sheets and in the consolidated statements of equity. Apart from the different equity presentation, the consolidated and combined financial statements of WPG Inc. and WPG L.P. are nearly identical.

Accounting for the Separation

The results presented for the periods ended September 30, 2014 reflect the aggregate operations and changes in cash flows of the SPG Businesses on a carve-out basis for the period from January 1, 2014 through May 27, 2014 and of the Company on a consolidated basis subsequent to May 27, 2014. The accompanying financial statements for the periods prior to the separation are prepared on a carve-out basis from the consolidated financial statements of SPG using the historical results of operations and bases of the assets and liabilities of the transferred businesses and including allocations from SPG. The financial statements were presented on a combined (as opposed to consolidated) basis prior to the separation as the ownership interests in the SPG Businesses were under common control and ownership of SPG.

For accounting and reporting purposes, the historical financial statements of WPG have been restated to include the operating results of the SPG Businesses as if the SPG Businesses had been a part of WPG for all periods presented. The historical financial statements of the SPG Businesses have been renamed as WPG Inc. or WPG L.P., as the case may be. Equity and income have been adjusted retroactively to reflect WPG's ownership interest and the noncontrolling interest holders' interest in the SPG Businesses as of the separation date as if such interests were held for all periods presented in the financial statements. WPG Inc.'s earnings per common share and WPG L.P.'s earnings per common unit have been presented for all historical periods as if the number of common shares and units issued in connection with the separation were outstanding during each of the periods presented.

For periods presented prior to the separation, our historical combined financial results reflect charges for certain SPG corporate costs and we believe such charges are reasonable; however, such results do not necessarily reflect what our expenses would have been had we been operating as a separate stand-alone public company. These charges are further discussed in Note 10 - "Related Party Transactions." Costs of the services that were charged to us were based on either actual costs incurred or a proportion of costs estimated to be applicable to us. The historical combined financial information presented may therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone public company during the periods presented prior to the separation or of our future performance as an independent, stand-alone public company. For joint venture or mortgaged properties, SPG has a standard management agreement for management, leasing and development activities provided to the properties. Management fees were based upon a percentage of revenues. For any wholly owned property that does not have a management agreement, SPG allocated the proportion of the underlying costs of management, leasing and development, in a manner that is materially consistent with the percentage of revenue-based management fees and/or upon the actual volume of leasing and development activity occurring at the property.

In connection with the separation, we incurred $39.9 million of expenses, including investment banking, legal, accounting, tax and other professional fees, which are included in spin-off costs for the nine months ended September 30, 2014 in the accompanying consolidated and combined statements of operations and comprehensive income.

General

These consolidated and combined financial statements reflect the consolidation of properties that are wholly owned or properties in which we own less than a 100% interest but that we control. Control of a property is demonstrated by, among other factors, our ability to refinance debt and sell the property without the consent of any other unaffiliated partner or owner, and the inability of any other unaffiliated partner or owner to replace us.


16

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


We also consolidate a variable interest entity, or VIE, when we are determined to be the primary beneficiary. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements. There have been no changes during the nine months ended September 30, 2015 to any of our previous conclusions about whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE. In connection with the Merger, the Company acquired an interest in a VIE in which we are deemed to be the primary beneficiary. Accordingly, we have consolidated the VIE, which consists solely of undeveloped land. During the nine months ended September 30, 2015, we did not provide financial or other support to a previously identified VIE that we were not previously contractually obligated to provide.

Investments in partnerships and joint ventures represent our noncontrolling ownership interests in properties. We account for these investments using the equity method of accounting. We initially record these investments at cost and we subsequently adjust for net equity in income or loss, which we allocate in accordance with the provisions of the applicable partnership or joint venture agreement and cash contributions and distributions, if applicable. The allocation provisions in the partnership or joint venture agreements are not always consistent with the legal ownership interests held by each general or limited partner or joint venture investee primarily due to partner preferences. We separately report investments in joint ventures for which accumulated distributions have exceeded investments in and our share of net income from the joint ventures within cash distributions and losses in partnerships and joint ventures, at equity in the consolidated and combined balance sheets. The net equity of certain joint ventures is less than zero because of financing or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization, and WPG has committed to or intends to fund the venture.

As of September 30, 2015, our assets consisted of interests in 121 shopping centers. The consolidated and combined financial statements as of that date reflect the consolidation of 108 wholly owned properties and seven additional properties that are less than wholly owned, but which we control or for which we are the primary beneficiary. We account for our interests in the remaining six properties, or the joint venture properties, using the equity method of accounting, as we have determined that we have significant influence over their operations. We manage the day-to-day operations of the joint venture properties, but do not control the operations as we have determined that our partner or partners have substantive participating rights with respect to the assets and operations of these joint venture properties.

We allocate net operating results of WPG L.P. to third parties and to WPG Inc. based on the partners' respective weighted average ownership interests in WPG L.P. Net operating results of WPG L.P. attributable to third parties are reflected in net income attributable to noncontrolling interests. WPG Inc.'s weighted average ownership interest in WPG L.P. was 84.1% and 82.9% for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, WPG Inc.'s ownership interest in WPG L.P. was 84.2% and 82.4%, respectively. We adjust the noncontrolling limited partners' interests at the end of each period to reflect their interest in WPG L.P.

3.    Summary of Significant Accounting Policies

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents generally consist of commercial paper, bankers' acceptances, repurchase agreements, and money market deposits or securities. Financial instruments that potentially subject us to concentrations of credit risk include our cash and cash equivalents and our tenant receivables. We place our cash and cash equivalents with high credit quality institutions. However, at certain times, such cash and cash equivalents may be in excess of FDIC and SIPC insurance limits.


17

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Investment Properties

We record investment properties at fair value when acquired. Investment properties include costs of acquisitions; development, predevelopment, and construction (including allocable salaries and related benefits); tenant allowances and improvements; and interest and real estate taxes incurred during construction. We capitalize improvements and replacements from repair and maintenance when the repair and maintenance extends the useful life, increases capacity, or improves the efficiency of the asset. All other repair and maintenance items are expensed as incurred. We capitalize interest on projects during periods of construction until the projects are ready for their intended purpose based on interest rates in place during the construction period. We record depreciation on buildings and improvements utilizing the straight-line method over an estimated original useful life, which is generally five to 40 years. We review depreciable lives of investment properties periodically and we make adjustments when necessary to reflect a shorter economic life. We amortize tenant allowances and tenant improvements utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. We record depreciation on equipment and fixtures utilizing the straight-line method over three to ten years.

We review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not limited to, declines in a property's cash flows, ending occupancy or declines in tenant sales. We measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization plus its residual value is less than the carrying value of the property. To the extent impairment has occurred, we charge to expense the excess of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as operating income, estimated capitalization rates, or multiples, leasing prospects and local market information. We may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. We also review our investments, including investments in unconsolidated entities, if events or circumstances change indicating that the carrying amount of our investments may not be recoverable. We will record an impairment charge if we determine that a decline in the fair value of the investments in unconsolidated entities is other-than-temporary. Changes in economic and operating conditions that occur subsequent to our review of recoverability of investment property and other investments in unconsolidated entities could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

Investments in Unconsolidated Entities

Joint ventures are common in the real estate industry. We use joint ventures to finance properties, develop new properties, and diversify our risk in a particular property or portfolio of properties. On June 1, 2015, we completed a joint venture transaction with respect to the ownership and operation of five of our properties (see Note 4 - "Investment in Real Estate"). We held material unconsolidated joint venture ownership interests in six properties as of September 30, 2015 and one property as of December 31, 2014. Additionally, in connection with the Merger, we acquired joint venture interests in two entities, one in the development stage and the other with retail operations.

Certain of our joint venture properties are subject to various rights of first refusal, buy-sell provisions, put and call rights, or other sale or marketing rights for partners which are customary in real estate joint venture agreements and the industry. We and our partners in these joint ventures may initiate these provisions (subject to any applicable lock up or similar restrictions), which may result in either the sale of our interest or the use of available cash or borrowings to acquire the joint venture interest from our partner.

Fair Value Measurements

The Company measures and discloses its fair value measurements in accordance with Accounting Standards Codification Topic 820 - “Fair Value Measurement” (“Topic 820”). Topic 820 guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).  The fair value hierarchy, as defined by Topic 820, contains three levels of inputs that may be used to measure fair value as follows:


18

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves, that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity's own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Note 6 - "Indebtedness" includes a discussion of the fair value of debt measured using Level 2 inputs. Note 4 - "Investment in Real Estate" includes a discussion of the fair values recorded in purchase accounting, using Level 2 and Level 3 inputs. Level 3 inputs to our purchase accounting analyses include our estimations of net operating results of the property, capitalization rates and discount rates. Similar Level 3 inputs are used in our impairment analyses noted above and in Note 4 - "Investment in Real Estate."

The Company has derivatives that must be measured under the fair value standard (see Note 7 - "Derivative Financial Instruments"). The Company currently does not have any non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

Purchase Accounting Allocation

We allocate the purchase price of acquisitions and any excess investment in unconsolidated entities to the various components of the acquisition based upon the fair value of each component which may be derived from various observable or unobservable inputs and assumptions. Also, we may utilize third party valuation specialists. These components typically include buildings, land and intangibles related to in-place leases and we estimate:

the fair value of land and related improvements and buildings on an as-if-vacant basis,

the market value of in-place leases based upon our best estimate of current market rents and amortize the resulting market rent adjustment into revenues,

the value of costs to obtain tenants, including tenant allowances and improvements and leasing commissions, and

the value of revenue and recovery of costs foregone during a reasonable lease-up period, as if the space was vacant.

Amounts allocated to building are depreciated over the estimated remaining life of the acquired building or related improvements. We amortize amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. We also estimate the value of other acquired intangible assets, if any, which are amortized over the remaining life of the underlying related intangibles.

Use of Estimates

We prepared the accompanying consolidated and combined financial statements in accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported period. Our actual results could differ from these estimates.


19

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Segment Disclosure

Our primary business is the ownership, development and management of retail real estate. We have aggregated our operations, including malls and strip centers, into one reportable segment because they have similar economic characteristics and we provide similar products and services to similar types of, and in many cases, the same tenants.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 revises GAAP by offering a single comprehensive revenue recognition standard instead of numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. An entity has the option to apply the provisions of ASU No. 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. On July 9, 2015, the FASB announced it would defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also decided to permit early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating our method of adopting and the impact, if any, the adoption of this standard will have on our consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." This standard changes the way reporting enterprises must evaluate the consolidation of limited partnerships, variable interests and similar entities. It is effective for the first annual reporting period beginning after December 15, 2015, with early adoption permitted. We are currently evaluating the impact, if any, the adoption of this standard will have on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We expect this new guidance will reduce total assets and total long-term debt on our consolidated balance sheets by amounts classified as deferred debt issuance costs, but do not expect this standard to have any other effect on our consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under this ASU, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company elected to early adopt this ASU in the third quarter of 2015, resulting in no material impact on our consolidated financial statements.


20

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


4.    Investment in Real Estate

The O'Connor Joint Venture
On June 1, 2015, we completed a joint venture transaction with O'Connor Mall Partners, L.P. ("O'Connor"), an unaffiliated third party, with respect to the ownership and operation of five of the Company’s malls and certain related out-parcels (the "O'Connor Joint Venture") acquired in the Merger, which were valued at approximately $1.625 billion, consisting of the following: The Mall at Johnson City located in Johnson City, Tennessee; Pearlridge Center located in Aiea, Hawaii; Polaris Fashion Place® located in Columbus, Ohio; Scottsdale Quarter® located in Scottsdale, Arizona and Town Center Plaza (which consists of Town Center Plaza and the adjacent Town Center Crossing) located in Leawood, Kansas (collectively the "O'Connor Properties"). Under the terms of the joint venture agreement, we retained a 51% interest and sold a 49% interest to O'Connor. In addition, the Company received reimbursement for 49% of costs incurred as of June 1, 2015 related to development activity at Scottsdale Quarter®. The transaction generated net proceeds, after taking into consideration the assumption of debt (including the new loans on Pearlridge Center and Scottsdale Quarter®) and costs associated with the transaction, of approximately $432 million (including $28.7 million for the partial reimbursement of the Scottsdale Quarter® development costs), which was used to repay a portion of the Bridge Loan (see Note 6 - "Indebtedness"). Since we no longer control the operations of the O'Connor Properties, we deconsolidated the properties and recorded a gain in connection with this sale of $5.1 million, which is included in gain upon acquisition of controlling interests and on sale of interests in properties for the nine months ended September 30, 2015 within the accompanying consolidated and combined statements of operations and comprehensive income. We retained management and leasing responsibilities for the O'Connor Properties.
The Merger

On January 15, 2015, we acquired 23 properties in the Merger (see Note 1 - "Organization"). We reflected the assets and liabilities of the properties acquired in the Merger at the estimated fair value on the January 15, 2015 acquisition date. The following table summarizes the purchase price allocation for the acquisition, which is preliminary and subject to revision within the measurement period, not to exceed one year from the date of acquisition:

Investment properties
$
3,054,194

Cash and cash equivalents (1)
547,294

Tenant accounts receivable
14,263

Investment in and advances to unconsolidated real estate entities
15,803

Deferred costs and other assets (including intangibles)
322,977

Accounts payable, accrued expenses, intangibles, and deferred revenue
(196,847
)
Distributions payable
(2,658
)
Redeemable noncontrolling interests, including preferred units
(6,148
)
Total assets acquired and liabilities assumed
3,748,878

Fair value of mortgage notes payable assumed
(1,358,184
)
Net assets acquired
2,390,694

Less: Common shares issued
(535,490
)
Less: Preferred shares issued
(319,960
)
Less: Common operating partnership units issued to limited partners
(29,482
)
Less: Cash and cash equivalents acquired
(547,294
)
Net cash paid for acquisition
$
958,468


(1)    Includes the proceeds from the Property Sale, net of the repayment of the $155.0 million balance on the Glimcher credit facility.

The consolidated balance sheet at September 30, 2015 contains certain intangible assets associated with the Merger. Intangibles of $90.4 million, which relate primarily to above-market leases and lease in place values (excluding the amounts related to the O'Connor Properties, which were transferred to unconsolidated entities upon deconsolidation on June 1, 2015), are included in “Deferred costs and other assets” at September 30, 2015. Intangibles of $48.5 million, which are primarily related to below-market leases, are included in “Accounts payable, accrued expense, intangibles, and deferred revenue” at September 30, 2015.


21

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Total revenues and net loss (excluding transaction costs and costs of corporate borrowing) from the properties we acquired in the Merger (including the amounts from the O'Connor Properties for periods prior to the date of the O'Connor Joint Venture transaction) were $46.3 million and $10.4 million, respectively, for the three months ended September 30, 2015 and $186.3 million and $11.8 million, respectively, for the nine months ended September 30, 2015 and are included in the accompanying consolidated and combined statements of operations and comprehensive income.

2015 Acquisition

On January 13, 2015, we acquired Canyon View Marketplace, a shopping center located in Grand Junction, Colorado, for $10.0 million including the assumption of an existing mortgage with a principal balance of $5.5 million. The source of funding for the acquisition was cash on hand.

2014 Acquisitions and Dispositions

During 2014, we acquired our partners' interests in the following properties, which were previously accounted for under the equity method, but are now consolidated as they are either wholly or majority owned and controlled post-acquisition:

Shopping Center Name
Acquisition Date
Location
Percent Acquired
Purchase Price
(In Millions)
Gain
(In Millions)
Whitehall Mall
December 1, 2014
Whitehall, PA
50%
$
14.9

$
10.5

Clay Terrace
June 20, 2014
Carmel, IN
50%
$
22.9

$
46.6

Seven Open-Air Shopping Centers
June 18, 2014
Various
Various
$
162.0

$
42.3


We reflected the assets and liabilities of the above 2014 acquisition properties at their estimated fair value on the respective acquisition dates. The purchase price allocations as of September 30, 2015, which include no material changes from the amounts disclosed as of December 31, 2014 in the Company's 2014 Annual Report on Form 10-K, have been finalized. The consolidation of the previously unconsolidated properties resulted in the remeasurement of our previously held interests to fair value and corresponding non-cash gains noted above.

On July 17, 2014, we sold Highland Lakes Center, a wholly owned shopping center in Orlando, Florida, for net proceeds of $20.5 million, resulting in a gain of approximately $9.0 million, which is included in gain upon acquisition of controlling interests and on sale of interests in properties in the accompanying consolidated and combined statements of operations and comprehensive income.
On June 23, 2014, we sold New Castle Plaza, a wholly owned shopping center in New Castle, Indiana, for net proceeds of $4.4 million, resulting in a gain of approximately $2.4 million, which is included in gain upon acquisition of controlling interests and on sale of interests in properties in the accompanying consolidated and combined statements of operations and comprehensive income.
On February 28, 2014, SPG disposed of its interest in one unconsolidated shopping center and recorded a gain of approximately $0.2 million, which is included in gain upon acquisition of controlling interests and on sale of interests in properties in the consolidated and combined statements of operations and comprehensive income.

Intangible Assets and Liabilities Associated with Acquisitions

Intangible assets and liabilities as of September 30, 2015, which were recorded at the respective acquisition dates, are associated with the Company's acquisitions of properties at fair value, including the properties acquired in the Merger.


22

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


The intangibles associated with properties acquired in the Merger are based upon management's best available information at the time of the preparation of the financial statements. However, the business acquisition accounting for these properties is not complete and, accordingly, such estimates of the value of acquired assets and liabilities are provisional until the valuation is finalized. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuations and complete the purchase price allocations as soon as practicable, but no later than one year from the acquisition date.

The gross intangibles recorded as of their respective acquisition dates are comprised of an asset for acquired above-market leases of $40,214 in which the Company is the lessor, a liability for acquired below-market leases of $102,007 in which the Company is the lessor, a liability of $5,490 for an acquired above-market lease in which the Company is the lessee, and an asset for in-place leases for $159,731.

The intangibles related to above and below-market leases in which the Company is the lessor are amortized to minimum rents on a straight-line basis over the estimated life of the lease. The above and below-market leases in which the Company is the lessee are amortized to other operating expenses over the life of the non-cancelable lease terms. In-place leases are amortized to depreciation and amortization expense over the life of the leases to which they pertain.

Net amortization for all of the acquired intangibles is a decrease to net income in the amount of $5,893 and $1,489 for the three months ended September 30, 2015 and 2014, respectively, and $18,397 and $4,437 for the nine months ended September 30, 2015 and 2014, respectively.

The table below identifies the types of intangible assets and liabilities, their location on the Consolidated Balance Sheets, their weighted average amortization period, and their book value, which is net of accumulated amortization, as of September 30, 2015 and December 31, 2014:

 
 
 
 
 
 
Balance as of
Intangible
Asset/Liability
 
Location on the
Consolidated Balance Sheets
 
Weighted Average Remaining Amortization (in years)
 
September 30,
2015
 
December 31,
2014
Above-Market Leases - Company is lessor
 
Deferred costs and other assets
 
5.6
 
$
27,690

 
$
17,237

Below-Market Leases - Company is lessor
 
Accounts payable, accrued expenses, intangibles and deferred revenues
 
11.9
 
$
76,356

 
$
35,808

Above-Market Lease - Company is lessee
 
Accounts payable, accrued expenses, intangibles and deferred revenues
 
32.3
 
$
5,414

 
$

In-Place Leases
 
Deferred costs and other assets
 
9.1
 
$
109,224

 
$
38,382


Impairment Loss

During the third quarter of 2015, we were informed that a major anchor tenant of Chesapeake Square, located in Chesapeake, Virginia, intends to close their store at the property during the first half of 2016. This impending closure was deemed a triggering event and, therefore, we evaluated the fair value of this property in conjunction with our quarterly impairment review and preparation of our financial statements. The Company used Level 3 inputs within the fair value hierarchy to determine the estimated fair value of this property. In using these inputs, we applied market capitalization rates for similar properties to our estimated future cash flows of the property, taking into consideration the above mentioned impending closure. This analysis yielded a shortfall against net book value. Accordingly, we wrote the value of the investment in real estate down to its estimated fair value of $25.4 million by recording an impairment loss of $9.9 million in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2015. Furthermore, on October 30, 2015, we received a notice of default letter and have commenced discussion with the special servicer regarding the $63.0 million non-recourse mortgage encumbering this property (see Note 6 - "Indebtedness").


23

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Condensed Pro Forma Financial Information (Unaudited)

The results of operations of acquired properties are included in the consolidated and combined statements of operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information is presented as if the Merger and the Property Sale described in Note 1 - "Organization," which were completed on January 15, 2015, had been consummated on January 1, 2014. The unaudited condensed pro forma financial information assumes the O'Connor Joint Venture transaction completed on June 1, 2015 and the 2014 acquisitions listed above also occurred as of January 1, 2014. Additionally, adjustments have been made to reflect the following transactions as if they occurred on January 1, 2014: the issuance of the Notes Payable on March 24, 2015 (see Note 6 - "Indebtedness"), the redemption of all of the outstanding Series G Preferred Shares on April 15, 2015 (see Note 8 - "Equity"), the refinancings of property mortgages on May 21, 2015 (see Note 6 - "Indebtedness"), and the receipt of funds from the New Term Loan on June 4, 2015 (see Note 6 - "Indebtedness"). Finally, the January 13, 2015 acquisition of Canyon View Marketplace has been excluded from this analysis since it would not have a significant impact. The unaudited condensed pro forma financial information is for comparative purposes only and not necessarily indicative of what actual results of operations of the Company would have been had the Merger and other transactions noted above been consummated on January 1, 2014, nor does it purport to represent the results of operations for future periods.

WPG Inc. Condensed Pro Forma Financial Information (Unaudited)

The table below contains information related to the unaudited condensed pro forma financial information of WPG Inc. for the three and nine months ended September 30, 2015 and 2014 is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues
$
216,971

 
$
215,302

 
$
644,866

 
$
646,820

Net income attributable to the Company
$
9,492

 
$
20,146

 
$
30,144

 
$
14,985

Net income attributable to common shareholders
$
5,984

 
$
16,638

 
$
19,504

 
$
4,461

Earnings per common share-basic and diluted
$
0.03

 
$
0.09

 
$
0.11

 
$
0.02

Weighted average shares outstanding-basic (in thousands)
184,264

 
183,992

 
184,192

 
183,992

Weighted average shares outstanding-diluted (in thousands)
220,269

 
219,608

 
220,157

 
219,475

WPG L.P. Condensed Pro Forma Financial Information (Unaudited)
The table below contains information related to the unaudited condensed pro forma financial information of WPG L.P. for the three and nine months ended September 30, 2015 and 2014 is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues
$
216,971

 
$
215,302

 
$
644,866

 
$
646,820

Net income attributable to unitholders
$
10,617

 
$
23,232

 
$
33,772

 
$
15,813

Net income attributable to common unitholders
$
7,109

 
$
19,724

 
$
23,132

 
$
5,289

Earnings per common unit-basic and diluted
$
0.03

 
$
0.09

 
$
0.11

 
$
0.02

Weighted average units outstanding-basic (in thousands)
218,660

 
218,362

 
218,584

 
218,362

Weighted average units outstanding-diluted (in thousands)
220,269

 
219,608

 
220,157

 
219,475



24

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


5.
Investment in Unconsolidated Entities, at Equity
The Company's investment activity in unconsolidated real estate entities for the nine months ended September 30, 2015 consisted of investments in the following joint ventures listed below:
The O'Connor Joint Venture
This investment consists of a 51% interest held by the Company in the O'Connor Joint Venture that owns and operates the O'Connor Properties. One of the properties in this venture, Pearlridge Center, is subject to a ground lease.
The Seminole Joint Venture
This investment consists of a 45% interest held by the Company in Seminole Towne Center, an approximate 1.1 million square foot enclosed regional mall located in the Orlando, Florida area. The Company's effective financial interest in this property (after preferences) is approximately 11%.
Other Joint Venture
The Company also holds an indirect 12.5% ownership interest in certain real estate through a joint venture with an unaffiliated third party.
Individual agreements specify which services the Company is to provide to each joint venture. The Company, through its affiliates may provide management, development, construction, leasing and legal services for a fee to each of the joint ventures described above.
The results for the O'Connor Joint Venture are included below for the period from June 1, 2015 through September 30, 2015.
The results for the joint venture that previously owned Clay Terrace, located in Carmel, Indiana, are included in the results below for the period from January 1, 2014 through June 19, 2014. On June 20, 2014, the Company purchased the remaining ownership interest in this property from its former joint venture partner. As a result, the Company now owns all of the equity interest in this property.
The results for the joint venture that previously owned seven open-air shopping centers located in various locations are included in the results below for the period from January 1, 2014 through June 17, 2014. On June 18, 2014, the Company purchased a controlling ownership interest in these properties from its former joint venture partner. As a result, the Company now owns essentially all of the equity interest in these properties.
The results for the joint venture that previously owned Whitehall Mall, located in Whitehall, Pennsylvania, are included in the results below for the period from January 1, 2014 through September 30, 2014. On December 1, 2014, the Company purchased the remaining ownership interest in this property from its former joint venture partner. As a result, the Company now owns all of the equity interest in this property.
The results for Seminole Towne Center are included below for all periods presented. The results for the indirect 12.5% ownership interest in certain real estate are included for the period from January 15, 2015 through September 30, 2015.

25

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


The following table presents the combined statements of operations for the unconsolidated joint venture properties for the periods indicated above during which the Company accounted for these investments as unconsolidated entities for the three and nine months ended September 30, 2015 and 2014:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues
$
46,394

 
$
5,639

 
$
76,348

 
$
36,398

Operating expenses
18,678

 
2,051

 
32,523

 
13,354

Depreciation and amortization
18,335

 
1,200

 
29,416

 
8,500

Operating income
9,381

 
2,388

 
14,409

 
14,544

Interest expense, net
(7,554
)
 
(1,084
)
 
(11,981
)
 
(7,919
)
Net income from the Company's unconsolidated real estate entities
1,827

 
1,304

 
2,428

 
6,625

Our share of (loss) income from the Company's unconsolidated real estate entities
$
(164
)
 
$
99

 
$
(1,651
)
 
$
846


6.
Indebtedness

Mortgage Debt

Total mortgage indebtedness at September 30, 2015 and December 31, 2014 was as follows:

 
 
September 30,
2015
 
December 31,
2014
Face amount of mortgage loans
 
$
1,787,103

 
$
1,431,516

Fair value adjustments, net
 
19,565

 
3,598

Carrying value of mortgage loans
 
$
1,806,668

 
$
1,435,114


A roll forward of mortgage indebtedness from December 31, 2014 to September 30, 2015 is summarized as follows:
Balance, December 31, 2014
$
1,435,114

Debt assumptions at fair value
1,364,503

Repayment of debt
(558,063
)
Debt issuances
390,000

Debt amortization payments
(15,184
)
Debt transferred to unconsolidated entities
(795,711
)
Amortization of fair value and other adjustments
(13,991
)
Balance, September 30, 2015
$
1,806,668

On January 13, 2015, resulting from our acquisition of Canyon View Marketplace (see Note 4 - "Real Estate Acquisitions and Dispositions"), we assumed an additional mortgage with a fair value of $6.4 million.

On January 15, 2015, resulting from the Merger (see Note 1 - "Organization"), we assumed additional mortgages with a fair value of approximately $1.4 billion on 14 properties.

On March 27, 2015, the Company repaid the $18.8 million mortgage on West Town Corners and the $13.9 million mortgage on Gaitway Plaza with cash on hand.


26

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


On May 21, 2015, we refinanced Pearlridge Center’s existing $171.0 million mortgage maturing in 2015 with a new $225.0 million non-recourse, interest-only loan with a 10-year term and a fixed interest rate of 3.53%. We also refinanced existing debt totaling $195.0 million on Scottsdale Quarter® maturing in 2015 with a new $165.0 million non-recourse, interest-only loan with a 10-year term and a fixed interest rate of 3.53%. We used $21.2 million of the net proceeds from the refinancings to repay a portion of the outstanding balance on the Bridge Loan (defined below).

On June 1, 2015, we deconsolidated the O'Connor Properties, thereby transferring $795.7 million of mortgages to unconsolidated entities.

On June 30, 2015, we repaid the $20.0 million mezzanine loan on WestShore Plaza through a borrowing on the Revolver (defined below).

On July 31, 2015, the Company repaid the $115.0 million mortgage on Clay Terrace and, on August 3, 2015, the Company repaid the $24.5 million mortgage on Bloomingdale Court. The repayments were funded with an additional borrowing on the Revolver (defined below).

Unsecured Debt

The Facility

On May 15, 2014, we closed on a senior unsecured revolving credit facility, or Revolver, and a senior unsecured term loan, or Term Loan (collectively referred to as the "Facility"). The Revolver provides borrowings on a revolving basis up to $900.0 million, bears interest at one-month LIBOR plus 1.05%, and will initially mature on May 30, 2018, subject to two, 6-month extensions available at our option subject to compliance with the terms of the Facility and payment of a customary extension fee. The Term Loan provides borrowings in an aggregate principal amount up to $500.0 million, bears interest at one-month LIBOR plus 1.15%, and will initially mature on May 30, 2016, subject to three, 12-month extensions available at our option subject to compliance with the terms of the Facility and payment of a customary extension fee. The interest rate on the Facility may vary based on the Company's credit rating.

At September 30, 2015, borrowings under the Facility consisted of $588.8 million outstanding under the Revolver and $500.0 million outstanding under the Term Loan. On September 30, 2015, we had an aggregate available borrowing capacity of $310.9 million under the Facility, net of $0.3 million reserved for outstanding letters of credit. At September 30, 2015, the applicable interest rate on the Revolver was one-month LIBOR plus 1.05%, or 1.24%, and the applicable interest rate on the Term Loan was one-month LIBOR plus 1.15%, or 1.34%. Subsequent to September 30, 2015, S&P and Moody's lowered the Company’s credit rating by one grade to BBB-, or Baa3, with a stable outlook. As a result, the interest rate on the Revolver will increase to LIBOR plus 1.25% and the interest rate on the Term Loan will increase to LIBOR plus 1.45%.

New Term Loan

On June 4, 2015, the Company borrowed $500.0 million under a new unsecured term loan (the "New Term Loan"), pursuant to a commitment received from bank lenders. The New Term Loan bears interest at one-month LIBOR plus 1.15% (1.34% at September 30, 2015) and will mature in March 2020. The interest rate on the New Term Loan may vary based on the Company's credit rating. Subsequent to September 30, 2015, S&P and Moody's lowered the Company’s credit rating by one grade to BBB-, or Baa3, with a stable outlook, as mentioned above. As a result, the interest rate on the New Term Loan will increase to LIBOR plus 1.45%. On June 19, 2015, the Company executed interest rate swap agreements totaling $500.0 million, with an effective date of July 6, 2015, which effectively fixed the interest rate on the New Term Loan at 2.26% (or 2.56% after including the impact of the credit rating decrease) through June 2018. The Company used the proceeds on the New Term Loan to repay the remaining outstanding balance on the Bridge Loan (defined below).


27

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


Bridge Loan

On September 16, 2014, in connection with the execution of the Merger Agreement, WPG entered into a debt commitment letter, which was amended and restated on September 23, 2014 pursuant to which parties agreed to provide up to $1.25 billion in a senior unsecured bridge loan facility (the “Bridge Loan”). The Bridge Loan had a maturity date of January 14, 2016, the date that is 364 days following the closing date of the Merger.

On January 15, 2015, the Company borrowed $1.19 billion under the Bridge Loan in connection with the closing of the Merger. On March 24, 2015, the Company repaid $248.4 million of the outstanding borrowings using proceeds from the issuance of the Notes Payable (see below). On May 21, 2015, we repaid $21.2 million of the outstanding borrowings using excess proceeds from the refinancing of the mortgage on Pearlridge Center. On June 2, 2015, we repaid $431.8 million of outstanding borrowings using proceeds from the O'Connor Joint Venture transaction. On June 4, 2015, we repaid the remaining $488.6 million of borrowings using proceeds from the New Term Loan.

The Company incurred $10.4 million of Bridge Loan commitment, structuring and funding fees, of which $3.8 million incurred during 2014 were included in deferred costs and other assets in the accompanying consolidated balance sheet as of December 31, 2014. Upon the full repayment of the Bridge Loan, the Company accelerated amortization of the deferred loan costs, resulting in total amortization of $10.4 million included in interest expense in the accompanying consolidated and combined statements of operations and comprehensive income for the nine months ended September 30, 2015.

Notes Payable

On March 24, 2015, WPG L.P. closed on a private placement of $250.0 million of 3.850% senior unsecured notes (the "Notes Payable") at a 0.028% discount due April 1, 2020. WPG L.P. received net proceeds from the offering of $248.4 million, which it used to repay a portion of outstanding borrowings under the Bridge Loan. The Notes Payable contain certain customary covenants and events of default which, if any such event of default occurs, would permit or require the principal, premium, if any, and accrued and unpaid interest on all of the then-outstanding Notes Payable to be declared immediately due and payable (subject in certain cases to customary grace and cure periods).

On October 21, 2015, WPG L.P. completed an offer to exchange (the "Exchange Offer") up to $250.0 million aggregate principal amount of the Notes Payable for a like principal amount of its 3.850% senior unsecured notes that have been registered under the Securities Act of 1933, as amended (the "Exchange Notes").  On October 21, 2015, $250.0 million of Exchange Notes were issued in exchange for $250.0 million aggregate principal amount of the Notes Payable that were tendered in the Exchange Offer.

Covenants

Our unsecured 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. As of September 30, 2015, management believes the Company is in compliance with all covenants of its unsecured debt.

At September 30, 2015, certain of our consolidated subsidiaries were the borrowers under 34 non-recourse loans and one partial-recourse loan secured by mortgages encumbering 39 properties, including two separate pools of cross-defaulted and cross-collateralized mortgages encumbering a total of six properties. The total balance of mortgages was approximately $1.8 billion as of September 30, 2015. 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. 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. If the borrower fails to comply with these covenants, the lender could accelerate the debt and enforce its right against their collateral.


28

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


On October 8, 2015, we received a notice of default letter, dated October 5, 2015, from the special servicer to the borrower of the $52.9 million mortgage loan secured by Merritt Square Mall, located in Merritt Island, Florida.  The letter was sent because the borrower, a consolidated subsidiary of the Company, did not repay the loan in full by its September 1, 2015 maturity date.  The borrower has initiated discussions with the special servicer regarding this non-recourse loan and is considering various options including restructuring, extending and other options.

On October 30, 2015, we received a notice of default letter, dated October 30, 2015, from the special servicer to the borrower concerning the $63.0 million mortgage loan that matures on February 1, 2017 and is secured by Chesapeake Square, located in Chesapeake, Virginia. The default resulted from an operating cash flow shortfall at the property in October 2015 that the borrower, a consolidated subsidiary of the Company, did not cure.  The borrower has initiated discussions with the special servicer regarding this non-recourse CMBS loan and is considering various options.

At September 30, 2015, management believes the applicable borrowers under our other non-recourse mortgage loans were in compliance with all covenants where non-compliance could individually, or giving effect to applicable cross-default provisions in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.

Fair Value of Debt

The carrying values of our variable-rate loans approximate their fair values. We estimate the fair values of fixed-rate mortgages using cash flows discounted at current borrowing rates. The book value of our fixed-rate mortgages was $1.6 billion and $1.4 billion as of September 30, 2015 and December 31, 2014, respectively. The fair values of these financial instruments and the related discount rate assumptions as of September 30, 2015 and December 31, 2014 are summarized as follows:

 
 
September 30,
2015
 
December 31,
2014
Fair value of fixed-rate mortgages
 
$1,698,149
 
$1,503,944
Weighted average discount rates assumed in calculation
of fair value for fixed-rate mortgages
 
3.28
%
 
3.36
%

7.
Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash payments related to the Company's borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives the Company primarily uses interest rate swaps or caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.


29

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income ("OCI") or other comprehensive loss (“OCL”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings continue to be included in accumulated other comprehensive loss ("AOCL") during the term of the hedged debt transaction. Any ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company recognized $193 of hedge ineffectiveness as an increase to earnings during the three and nine months ended September 30, 2015. There was no hedge ineffectiveness in earnings during the three and nine months ended September 30, 2014.

Amounts reported in AOCL relate to derivatives that will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCL are recognized as an adjustment to income over the term of the hedged debt transaction. During the next twelve months, the Company estimates that an additional $3.5 million will be reclassified as an increase to interest expense.

During the nine months ended September 30, 2015, the Company entered into five three-year swaps, two five-year forward starting swaps and two ten-year forward starting swaps. The two five-year forward starting swaps were terminated upon the private placement of the Notes Payable during the nine months ended September 30, 2015. The two ten-year forward starting swaps were terminated on September 9, 2015. As of September 30, 2015, the Company had five outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk with a notional value of $500,000.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2015:

Derivatives designated as hedging instruments:
Balance Sheet
Location
 
As of September 30, 2015
Interest rate products
Liability Derivatives
Accounts payable, accrued expenses, intangibles and deferred revenues
 
$
4,049


The liability derivative instruments were reported at their fair value of $4,049 in accounts payable, accrued expenses, intangibles, and deferred revenues at September 30, 2015 with a corresponding adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest allocation). There were no outstanding derivatives as of December 31, 2014. Over time, the unrealized gains and losses held in AOCI will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged interest payments in earnings.

During the three months ended September 30, 2015, the Company amortized $30 of OCI into interest expense related to the five-year swaps associated with the Notes Payable.  The Company recognized OCL of $3.8 million related to the two ten-year forward starting swaps that were terminated on September 9, 2015. The Company recognized additional OCL of $3.9 million, net of $1.1 million of reclassifications to interest expense, for the five remaining three-year swaps associated with the New Term Loan to adjust the carrying amount of the interest rate swaps to their fair values at September 30, 2015.  There was no derivative activity during 2014.

During the nine months ended September 30, 2015, the Company recognized OCI of $593, of which $62 has been amortized into interest expense, related to the five-year swaps associated with the Notes Payable.  The Company recognized OCI of $37 related to the two remaining ten-year forward starting swaps that were terminated on September 9, 2015. The Company recognized OCL of $5.2 million, of which $1.1 million has been amortized into interest expense, related to the five remaining three-year swaps associated with the New Term Loan.  There was no derivative activity during 2014.


30

WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated and Combined Financial Statements (Continued)
(dollars in thousands, except share, unit and per share amounts and where indicated as in millions or billions)


The tables below present the effect of the Company's derivative financial instruments on the consolidated and combined statements of operations and comprehensive income for the three and nine months ended September 30, 2015:

Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss) Recognized in OCL on Derivative (Effective Portion)
Location of Gain or (Loss) Reclassified from AOCL into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCL into Income (Effective Portion)
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
 
Three Months Ending
 
 
 
Three Months Ending
 
 
 
Three Months Ending
 
 
September 30,
 
 
 
September 30,
 
 
 
September 30,
 
 
2015
 
 
 
2015
 
 
 
2015
Interest rate products
 
$
(8,771
)
 
Interest expense
 
$
1,080

 
Interest expense
 
$
193



Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss) Recognized in OCL on Derivative (Effective Portion)
Location of Gain or (Loss) Reclassified from AOCL into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCL into Income (Effective Portion)
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
 
Nine Months Ending
 
 
 
Nine Months Ending
 
 
 
Nine Months Ending
 
 
September 30,
 
 
 
September 30,
 
 
 
September 30,
 
 
2015
 
 
 
2015
 
 
 
2015
Interest rate products
 
$
(4,528
)
 
Interest expense
 
$
1,048

 
Interest expense
 
$
193


Non-Designated Hedges

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of September 30, 2015, the Company has two interest rate derivatives with a combined notional amount of $122,500 that are not designated as cash flow hedges. These non-designated hedges consist of two interest rate caps that were assumed in the Merger. The fair value of these hedges as of September 30, 2015 is zero and there has been no change in fair value for the three and nine months ended September 30, 2015.

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision that if the Company either defaults or is capable of being declared in default on any of its consolidated indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company has agreements with its derivative counterparties that incorporate the loan covenant provisions of the Company's indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.


31

WP Glimcher Inc. and Washington Prime Group, L.P.