Attached files

file filename
EX-10.69 - SENIOR SECURED TERM LOAN AGREEMENT, DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1069seniorsecuredte.htm
EX-32.2 - CERTIFICATION BY THE CEO AND CFO FOR WASHINGTON PRIME GROUP L.P. - WASHINGTON PRIME GROUP INC.exhibit322washprimelpfor10.htm
EX-32.1 - CERTIFICATION BY THE CEO AND CFO FOR WP GLIMCHER INC. - WASHINGTON PRIME GROUP INC.exhibit321wpglimcherfor10-.htm
EX-31.4 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER FOR WASHINGTON PRIME GROUP, L.P. - WASHINGTON PRIME GROUP INC.exhibit314washprimelpfor10.htm
EX-31.3 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER FOR WASHINGTON PRIME GROUP, L.P. - WASHINGTON PRIME GROUP INC.exhibit313washprimelpfor10.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-10.74 - COLLATERAL ASSIGN OF MEMBERSHIP INT AGRMNT, DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1074collateralassig.htm
EX-10.73 - ENVIRONMENTAL INDEMNITY AGREEMENT, DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1073environmentalin.htm
EX-10.72 - TERM LOAN PROMISSORY NOTE (PNC BANK), DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1072promissorynotep.htm
EX-10.71 - TERM LOAN PROMISSORY NOTE (US BANK), DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1071promissorynoteu.htm
EX-10.70 - TERM LOAN PROMISSORY NOTE (HUNTINGTON BNK), DATED JUNE 8, 2016 (WEBERSTOWN MALL) - WASHINGTON PRIME GROUP INC.exhibit1070promissorynoteh.htm
EX-10.68 - AMEND NO. 1 TO TRANSITION AND CONSULTING AGRMNT WITH ORDAN, DATED JUNE 20, 2016 - WASHINGTON PRIME GROUP INC.exhibit1068amendmentno1tot.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 June 30, 2016

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.)
180 East Broad Street
Columbus, Ohio 43215
(Address of principal executive offices)
46-4323686 (WP Glimcher Inc.)
46-4674640 (Washington Prime Group, L.P.)
(I.R.S. Employer Identification No.)
(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  x  Accelerated filer ¨
 
 
Non-accelerated filer ¨  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 August 3, 2016, WP Glimcher Inc. had 185,346,647 shares of common stock outstanding.
* The registrant intends to change its name to Washington Prime Group Inc. and is seeking shareholder approval at its 2016 Annual Meeting of Shareholders to amend WP Glimcher Inc.'s Amended and Restated Articles of Incorporation to effectuate the name change.

1



EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2016 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., WPG L.P., and entities in which WPG Inc. or WPG L.P. (or an affiliate) has a material interest on a consolidated basis, 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 84.1% of the partnership interests (“OP units”) at June 30, 2016. 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 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. Moreover, the interests in WPG L.P. held by third parties are classified differently by the two entities (i.e., noncontrolling interests for WPG Inc. and partners' equity for WPG L.P.). In the consolidated financial statements, these differences are 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 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.
WPG L.P. is a voluntary filer. We are evaluating whether or not WPG L.P. will continue to voluntarily file reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

2



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

INDEX
PART I:
FINANCIAL INFORMATION
PAGE
 
 
 
Item 1.
Consolidated Financial Statements (unaudited)
 
 
 
 
 
Financial Statements for WP Glimcher Inc.:
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statement of Equity for the six months ended June 30, 2016
 
 
 
 
Financial Statements for Washington Prime Group, L.P.:
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015
 
 
 
 
Consolidated Statement of Equity for the six months ended June 30, 2016
 
 
 
 
Condensed Notes to Consolidated 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
 
 
 
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

3



PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

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

 
 
June 30, 2016
 
December 31, 2015
ASSETS:
 
 
 
 
Investment properties at cost
 
$
6,583,541

 
$
6,656,200

Less: accumulated depreciation
 
2,270,747

 
2,225,750


 
4,312,794

 
4,430,450

Cash and cash equivalents
 
63,445

 
116,253

Tenant receivables and accrued revenue, net
 
83,207

 
91,603

Real estate assets held-for-sale
 

 
30,000

Investment in and advances to unconsolidated entities, at equity
 
468,798

 
488,071

Deferred costs and other assets
 
288,622

 
303,232

Total assets
 
$
5,216,866

 
$
5,459,609

LIABILITIES:
 
 
 
 
Mortgage notes payable
 
$
1,672,915

 
$
1,793,439

Notes payable
 
247,274

 
246,728

Unsecured term loans
 
1,333,920

 
1,332,812

Revolving credit facility
 
256,267

 
275,622

Accounts payable, accrued expenses, intangibles, and deferred revenues
 
361,252

 
379,112

Distributions payable
 
2,992

 
2,992

Cash distributions and losses in partnerships and joint ventures, at equity
 
15,389

 
15,399

Total liabilities
 
3,890,009

 
4,046,104

Redeemable noncontrolling interests
 
5,765

 
6,132

EQUITY:
 
 
 
 
Stockholders' Equity:
 
 
 
 
Series H Cumulative Redeemable Preferred Stock, $0.0001 par value, 4,000,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
104,251

 
104,251

Series I Cumulative Redeemable Preferred Stock, $0.0001 par value, 3,800,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
98,325

 
98,325

Common stock, $0.0001 par value, 300,000,000 shares authorized,
185,337,376 and 185,304,555 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
19

 
19

Capital in excess of par value
 
1,234,277

 
1,225,926

Accumulated deficit
 
(280,623
)
 
(214,243
)
Accumulated other comprehensive (loss) income
 
(14,295
)
 
1,716

Total stockholders' equity
 
1,141,954

 
1,215,994

Noncontrolling interests
 
179,138

 
191,379

Total equity
 
1,321,092

 
1,407,373

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,216,866

 
$
5,459,609


The accompanying notes are an integral part of these statements.

4



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

 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
REVENUE:
 
 
 
 
 
 
 
Minimum rent
$
141,257

 
$
161,695

 
$
284,362

 
$
322,601

Overage rent
1,911

 
2,291

 
5,368

 
5,555

Tenant reimbursements
59,410

 
67,437

 
117,366

 
136,682

Other income
3,160

 
6,105

 
8,673

 
10,408

Total revenues
205,738

 
237,528

 
415,769

 
475,246

EXPENSES:

 

 
 
 
 
Property operating
39,525

 
51,140

 
83,459

 
102,249

Depreciation and amortization
69,232

 
91,453

 
140,635

 
183,637

Real estate taxes
26,397

 
27,737

 
50,888

 
58,262

Advertising and promotion
2,597

 
2,646

 
4,829

 
5,321

Provision for credit losses
1,763

 
883

 
2,495

 
1,581

General and administrative
9,432

 
11,889

 
20,236

 
21,478

Merger, restructuring and transaction costs
29,914

 
4,903

 
29,914

 
25,713

Ground rent
1,043

 
2,071

 
2,100

 
4,444

Total operating expenses
179,903

 
192,722

 
334,556

 
402,685

OPERATING INCOME
25,835

 
44,806

 
81,213

 
72,561

Interest expense, net
(34,466
)
 
(38,778
)
 
(71,814
)
 
(75,892
)
Gain on extinguishment of debt, net
34,078

 

 
34,078

 

Income and other taxes
(114
)
 
(528
)
 
(1,093
)
 
(973
)
Loss from unconsolidated entities
(508
)
 
(1,703
)
 
(1,669
)
 
(1,487
)
INCOME (LOSS) BEFORE (LOSS) GAIN ON DISPOSITION OF INTERESTS IN PROPERTIES, NET
24,825

 
3,797

 
40,715

 
(5,791
)
(Loss) gain on disposition of interests in properties, net
(88
)
 
5,147

 
(2,297
)
 
5,147

NET INCOME (LOSS)
24,737

 
8,944

 
38,418

 
(644
)
Net income (loss) attributable to noncontrolling interests
3,422

 
1,048

 
5,081

 
(1,248
)
NET INCOME ATTRIBUTABLE TO THE COMPANY
21,315

 
7,896

 
33,337

 
604

Less: Preferred share dividends
(3,508
)
 
(3,995
)
 
(7,016
)
 
(8,973
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
$
17,807

 
$
3,901

 
$
26,321

 
$
(8,369
)
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED
$
0.10

 
$
0.02

 
$
0.14

 
$
(0.05
)
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Net income (loss)
$
24,737

 
$
8,944

 
$
38,418

 
$
(644
)
Unrealized (loss) income on interest rate derivative instruments
(5,581
)
 
4,615

 
(19,047
)
 
4,211

Comprehensive income
19,156

 
13,559

 
19,371

 
3,567

Comprehensive income (loss) attributable to noncontrolling interests
2,532

 
1,783

 
2,045

 
(577
)
Comprehensive income attributable to common shareholders
$
16,624

 
$
11,776

 
$
17,326

 
$
4,144


The accompanying notes are an integral part of these statements.

5



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


 
For the Six Months Ended June 30,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
38,418

 
$
(644
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:


 

Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation
148,475

 
179,167

Gain on extinguishment of debt, net
(34,078
)
 

Loss (gain) on disposition of interests in properties, net
2,297

 
(5,147
)
Provision for credit losses
2,495

 
1,581

Loss from unconsolidated entities
1,669

 
1,487

Distributions of income from unconsolidated entities
126

 
70

Changes in assets and liabilities:


 

Tenant receivables and accrued revenue, net
5,894

 
(4,352
)
Deferred costs and other assets
(9,839
)
 
(12,728
)
Accounts payable, accrued expenses, deferred revenues and other liabilities
(24,516
)
 
(23,696
)
Net cash provided by operating activities
130,941

 
135,738

CASH FLOWS FROM INVESTING ACTIVITIES:


 

Acquisitions, net of cash acquired

 
(956,608
)
Capital expenditures, net
(70,975
)
 
(72,551
)
Restricted cash reserves for future capital expenditures, net
(888
)
 
(5,494
)
Net proceeds from disposition of properties
13,420

 
431,823

Investments in unconsolidated entities
(7,492
)
 
(4,065
)
Distributions of capital from unconsolidated entities
24,815

 
91

Net cash used in investing activities
(41,120
)
 
(606,804
)
CASH FLOWS FROM FINANCING ACTIVITIES:


 

Distributions to noncontrolling interest holders in properties

 
(8
)
Redemption of limited partner units/preferred shares
(5
)
 
(117,384
)
Change in lender-required restricted cash reserves on mortgage loans
(1,863
)
 

Net proceeds from issuance of common shares, including common stock plans
24

 
1,878

Distributions on common and preferred shares/units
(117,471
)
 
(113,695
)
Proceeds from issuance of debt, net of transaction costs
119,591

 
2,331,669

Repayments of debt
(142,905
)
 
(1,619,372
)
Net cash (used in) provided by financing activities
(142,629
)
 
483,088

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(52,808
)
 
12,022

CASH AND CASH EQUIVALENTS, beginning of period
116,253

 
108,768

CASH AND CASH EQUIVALENTS, end of period
$
63,445

 
$
120,790


The accompanying notes are an integral part of these statements.

6



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

 
 
Preferred Series H
 
Preferred Series I
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Stockholders'
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Redeemable Non-Controlling Interests
Balance, December 31, 2015
 
$
104,251

 
$
98,325

 
$
19

 
$
1,225,926

 
$
(214,243
)
 
$
1,716

 
$
1,215,994

 
$
191,379

 
$
1,407,373

 
$
6,132

Exercise of stock options
 

 

 

 
24

 

 

 
24

 

 
24

 

Redemption of limited partner units
 

 

 

 

 

 

 

 
(5
)
 
(5
)
 

Other
 

 

 

 
16

 

 

 
16

 

 
16

 
(353
)
Equity-based compensation
 

 

 

 
11,770

 

 

 
11,770

 

 
11,770

 

Adjustments to noncontrolling interests
 

 

 

 
(3,459
)
 

 

 
(3,459
)
 
3,459

 

 

Distributions on common shares/units ($0.50 per common share/unit)
 

 

 

 

 
(92,701
)
 

 
(92,701
)
 
(17,634
)
 
(110,335
)
 

Distributions declared on preferred shares
 

 

 

 

 
(7,016
)
 

 
(7,016
)
 

 
(7,016
)
 

Other comprehensive loss
 

 

 

 

 

 
(16,011
)
 
(16,011
)
 
(3,036
)
 
(19,047
)
 

Net income (loss), excluding $120 of distributions to preferred unitholders
 

 

 

 

 
33,337

 

 
33,337

 
4,975

 
38,312

 
(14
)
Balance, June 30, 2016
 
$
104,251

 
$
98,325

 
$
19

 
$
1,234,277

 
$
(280,623
)
 
$
(14,295
)
 
$
1,141,954

 
$
179,138

 
$
1,321,092

 
$
5,765


The accompanying notes are an integral part of this statement.

7



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

 
 
June 30, 2016
 
December 31, 2015
ASSETS:
 
 
 
 
Investment properties at cost
 
$
6,583,541

 
$
6,656,200

Less: accumulated depreciation
 
2,270,747

 
2,225,750


 
4,312,794

 
4,430,450

Cash and cash equivalents
 
63,445

 
116,253

Tenant receivables and accrued revenue, net
 
83,207

 
91,603

Real estate assets held-for-sale
 

 
30,000

Investment in and advances to unconsolidated entities, at equity
 
468,798

 
488,071

Deferred costs and other assets
 
288,622

 
303,232

Total assets
 
$
5,216,866

 
$
5,459,609

LIABILITIES:
 
 
 
 
Mortgage notes payable
 
$
1,672,915

 
$
1,793,439

Notes payable
 
247,274

 
246,728

Unsecured term loans
 
1,333,920

 
1,332,812

Revolving credit facility
 
256,267

 
275,622

Accounts payable, accrued expenses, intangibles, and deferred revenues
 
361,252

 
379,112

Distributions payable
 
2,992

 
2,992

Cash distributions and losses in partnerships and joint ventures, at equity
 
15,389

 
15,399

Total liabilities
 
3,890,009

 
4,046,104

Redeemable noncontrolling interests
 
5,765

 
6,132

EQUITY:
 
 
 
 
Partners' Equity:
 
 
 
 
General partner
 
 
 
 
Preferred equity, 7,800,000 units issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
202,576

 
202,576

Common equity, 185,337,376 and 185,304,555 units issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
939,378

 
1,013,418

Total general partners' equity
 
1,141,954

 
1,215,994

Limited partners, 35,129,921 and 34,807,051 units issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
178,056

 
190,297

Total partners' equity
 
1,320,010

 
1,406,291

Noncontrolling interests
 
1,082

 
1,082

Total equity
 
1,321,092

 
1,407,373

Total liabilities, redeemable noncontrolling interests and equity
 
$
5,216,866

 
$
5,459,609


The accompanying notes are an integral part of these statements.


8



Washington Prime Group, L.P.
Unaudited Consolidated Statements of Operations and Comprehensive Income
(dollars in thousands, except per unit amounts)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
REVENUE:
 
 
 
 
 
 
 
Minimum rent
$
141,257

 
$
161,695

 
$
284,362

 
$
322,601

Overage rent
1,911

 
2,291

 
5,368

 
5,555

Tenant reimbursements
59,410

 
67,437

 
117,366

 
136,682

Other income
3,160

 
6,105

 
8,673

 
10,408

Total revenues
205,738

 
237,528

 
415,769

 
475,246

EXPENSES:

 

 
 
 
 
Property operating
39,525

 
51,140

 
83,459

 
102,249

Depreciation and amortization
69,232

 
91,453

 
140,635

 
183,637

Real estate taxes
26,397

 
27,737

 
50,888

 
58,262

Advertising and promotion
2,597

 
2,646

 
4,829

 
5,321

Provision for credit losses
1,763

 
883

 
2,495

 
1,581

General and administrative
9,432

 
11,889

 
20,236

 
21,478

Merger, restructuring and transaction costs
29,914

 
4,903

 
29,914

 
25,713

Ground rent
1,043

 
2,071

 
2,100

 
4,444

Total operating expenses
179,903

 
192,722

 
334,556

 
402,685

OPERATING INCOME
25,835

 
44,806

 
81,213

 
72,561

Interest expense, net
(34,466
)
 
(38,778
)
 
(71,814
)
 
(75,892
)
Gain on extinguishment of debt, net
34,078

 

 
34,078

 

Income and other taxes
(114
)
 
(528
)
 
(1,093
)
 
(973
)
Loss from unconsolidated entities
(508
)
 
(1,703
)
 
(1,669
)
 
(1,487
)
INCOME (LOSS) BEFORE (LOSS) GAIN ON DISPOSITION OF INTERESTS IN PROPERTIES, NET
24,825

 
3,797

 
40,715

 
(5,791
)
(Loss) gain on disposition of interests in properties, net
(88
)
 
5,147

 
(2,297
)
 
5,147

NET INCOME (LOSS)
24,737

 
8,944

 
38,418

 
(644
)
Net (loss) income attributable to noncontrolling interests
(8
)
 
3

 
(14
)
 

NET INCOME (LOSS) ATTRIBUTABLE TO UNITHOLDERS
24,745

 
8,941

 
38,432

 
(644
)
Less: Preferred unit distributions
(3,568
)
 
(4,055
)
 
(7,136
)
 
(9,083
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS
$
21,177

 
$
4,886

 
$
31,296

 
$
(9,727
)
 
 
 
 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS:
 
 
 
 
 
 
 
General partner
$
17,807

 
$
3,901

 
$
26,321

 
$
(8,369
)
Limited partners
3,370

 
985

 
4,975

 
(1,358
)
Net income (loss) attributable to common unitholders
$
21,177

 
$
4,886

 
$
31,296

 
$
(9,727
)
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON UNIT, BASIC AND DILUTED
$
0.10

 
$
0.02

 
$
0.14

 
$
(0.05
)
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Net income (loss)
$
24,737

 
$
8,944

 
$
38,418

 
$
(644
)
Unrealized (loss) income on interest rate derivative instruments
(5,581
)
 
4,615

 
(19,047
)
 
4,211

Comprehensive income
19,156

 
13,559

 
19,371

 
3,567

Comprehensive (loss) income attributable to noncontrolling interests
(8
)
 
3

 
(14
)
 

Comprehensive income attributable to unitholders
$
19,164

 
$
13,556

 
$
19,385

 
$
3,567


The accompanying notes are an integral part of these statements.

9



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


 
For the Six Months Ended June 30,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
38,418

 
$
(644
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:


 

Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation
148,475

 
179,167

Gain on extinguishment of debt, net
(34,078
)
 

Loss (gain) on disposition of interests in properties, net
2,297

 
(5,147
)
Provision for credit losses
2,495

 
1,581

Loss from unconsolidated entities
1,669

 
1,487

Distributions of income from unconsolidated entities
126

 
70

Changes in assets and liabilities:


 

Tenant receivables and accrued revenue, net
5,894

 
(4,352
)
Deferred costs and other assets
(9,839
)
 
(12,728
)
Accounts payable, accrued expenses, deferred revenues and other liabilities
(24,516
)
 
(23,696
)
Net cash provided by operating activities
130,941

 
135,738

CASH FLOWS FROM INVESTING ACTIVITIES:


 

Acquisitions, net of cash acquired

 
(956,608
)
Capital expenditures, net
(70,975
)
 
(72,551
)
Restricted cash reserves for future capital expenditures, net
(888
)
 
(5,494
)
Net proceeds from disposition of properties
13,420

 
431,823

Investments in unconsolidated entities
(7,492
)
 
(4,065
)
Distributions of capital from unconsolidated entities
24,815

 
91

Net cash used in investing activities
(41,120
)
 
(606,804
)
CASH FLOWS FROM FINANCING ACTIVITIES:


 

Distributions to unitholders, net
(117,471
)
 
(113,695
)
Distributions to noncontrolling interest holders in properties

 
(8
)
Redemption of limited partner/preferred units
(5
)
 
(117,384
)
Change in lender-required restricted cash reserves on mortgage loans
(1,863
)
 

Net proceeds from issuance of common units, including equity-based compensation plans
24

 
1,878

Proceeds from issuance of debt, net of transaction costs
119,591

 
2,331,669

Repayments of debt
(142,905
)
 
(1,619,372
)
Net cash (used in) provided by financing activities
(142,629
)
 
483,088

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(52,808
)
 
12,022

CASH AND CASH EQUIVALENTS, beginning of period
116,253

 
108,768

CASH AND CASH EQUIVALENTS, end of period
$
63,445

 
$
120,790


The accompanying notes are an integral part of these statements.

10



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

 
 
General Partner
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Total
 
Limited Partners
 
Total
Partners'
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Redeemable Non-Controlling Interests
Balance, December 31, 2015
 
$
202,576

 
$
1,013,418

 
$
1,215,994

 
$
190,297

 
$
1,406,291

 
$
1,082

 
$
1,407,373

 
$
6,132

Exercise of stock options
 

 
24

 
24

 

 
24

 

 
24

 

Redemption of limited partner units
 

 

 

 
(5
)
 
(5
)
 

 
(5
)
 

Other
 

 
16

 
16

 

 
16

 

 
16

 
(353
)
Equity-based compensation
 

 
11,770

 
11,770

 

 
11,770

 

 
11,770

 

Adjustments to limited partners' interests
 

 
(3,459
)
 
(3,459
)
 
3,459

 

 

 

 

Distributions on common units ($0.50 per common unit)
 

 
(92,701
)
 
(92,701
)
 
(17,634
)
 
(110,335
)
 

 
(110,335
)
 

Distributions declared on preferred units
 
(7,016
)
 

 
(7,016
)
 

 
(7,016
)
 

 
(7,016
)
 
(120
)
Other comprehensive loss
 

 
(16,011
)
 
(16,011
)
 
(3,036
)
 
(19,047
)
 

 
(19,047
)
 

Net income
 
7,016

 
26,321

 
33,337

 
4,975

 
38,312

 

 
38,312

 
106

Balance, June 30, 2016
 
$
202,576

 
$
939,378

 
$
1,141,954

 
$
178,056

 
$
1,320,010

 
$
1,082

 
$
1,321,092

 
$
5,765


The accompanying notes are an integral part of this statement.


11


WP Glimcher Inc. and Washington Prime Group, L.P.
Condensed Notes to Unaudited Consolidated 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 June 30, 2016, our assets consisted of material interests in 117 shopping centers in the United States, consisting of community centers and enclosed retail properties.
WPG (defined below) was created to hold the community center business and smaller enclosed retail properties of Simon Property Group, Inc. (“SPG”) and its subsidiaries. On May 28, 2014 (the "Separation Date"), 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. 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, as determined by WPG Inc.
Prior to the separation, WPG entered into agreements with SPG under which SPG provided various services to us relating primarily to the legacy SPG Businesses, including accounting, asset management, development, human resources, information technology, leasing, legal, marketing, public reporting and tax. The charges for the services were based on an hourly or per transaction fee arrangement and pass‑through of out‑of‑pocket costs (see Note 10 - "Related Party Transactions").
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.
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

12

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


mixed‑use, open‑air and enclosed regional retail properties 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 New York Stock Exchange ("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 material interests in 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. in May 2015 upon receiving shareholder approval, is comprised of approximately 66 million square feet of gross leasable area (compared to approximately 53 million square feet for the Company prior to the Merger) and has a combined portfolio of material interests in 117 properties as of June 30, 2016.
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 L.P. 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 six months ended June 30, 2015, the Company incurred $4.9 million and $25.7 million of costs related to the Merger, respectively, which are included in merger, restructuring and transaction costs in the accompanying consolidated statements of operations and comprehensive income.
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 enclosed retail properties and certain related out-parcels acquired in the Merger (see Note 5 - "Investment in Unconsolidated Entities, at Equity").

Leadership Transition and Proposed Corporate Change of Name

2015 Activity
On June 1, 2015, the Company announced a management transition plan through which Mark S. Ordan, the then Executive Chairman of the Board, transitioned to serve as an active non-executive Chairman of the Board and provide consulting services to the Company under a transition and consulting agreement, effective as of January 1, 2016 (see "2016 Activity" below for subsequent matters related to Mr. Ordan).  Additionally, the Company reduced staff formerly located in its Bethesda, Maryland-based transition operations group led by C. Marc Richards, the Company’s then Executive Vice President and Chief Administrative Officer, who departed the Company on January 15, 2016. Other senior executives from the Bethesda office who departed the Company at the end of 2015 were Michael J. Gaffney, then Executive Vice President, Head of Capital Markets (who served as a consultant to the Company through March 31, 2016), and Farinaz S. Tehrani, then Executive Vice President, Legal and Compliance. During the second quarter of 2015, the Company incurred $4.2 million of related severance costs, which are included in the total merger, restructuring and transaction costs disclosed above.
2016 Activity
On June 20, 2016 (the “Executive Separation Date”), the Company announced the following leadership changes effective immediately: (1) the resignation of Mr. Michael P. Glimcher as the Company’s Chief Executive Officer and Vice Chairman of the Company’s Board of Directors (the “Board”); (2) the appointment of Mr. Louis G. Conforti, a current Board member, as Interim

13

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


Chief Executive Officer; (3) the resignation of Mr. Mark S. Ordan as non-executive Chairman of the Board; and (4) the resignation of Mr. Niles C. Overly from the Board. Messrs. Conforti and Ordan continue to serve on the Board. Additionally, on June 16, 2016, the Board appointed Mr. Robert P. Demchak as Executive Vice President, General Counsel, and Corporate Secretary of the Company. Also, on the Executive Separation Date, the Board appointed Mr. Robert J. Laikin, a current Board member, as non-executive Chairman of the Board and also appointed Mr. John F. Levy and Mr. John J. Dillon III as directors. The Board currently consists of five independent members: Messrs. Laikin, Dillon, Levy, Marvin L. White, and Ms. Jacqueline R. Soffer as well as Messrs. Conforti and Ordan who are not independent. Additionally, in July 2016, the Company made reductions to corporate staff as part of the leadership transition (see Note 12 - "Subsequent Events"). In connection with and as part of the aforementioned management changes, the Company took a charge in the second quarter of 2016 of $29.9 million, of which $25.8 million related to severance and restructuring-related costs, including $9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards, and $4.1 million related to fees and expenses incurred in connection with the Company's investigation of various strategic alternatives, which costs are included in merger, restructuring and transaction costs in the accompanying consolidated statements of operations and comprehensive income. Additionally, the Company will include a proposal to change its name to Washington Prime Group Inc. at its annual meeting of shareholders scheduled to be held on August 30, 2016.

Conveyance of Glimcher Domain Name and Naming Rights to Mr. Michael P. Glimcher

In connection with the resignation of Mr. Michael P. Glimcher as the Company’s Chief Executive Officer and Vice Chairman of the Board, the Company agreed, subject to shareholder approval of our proposed corporate name change from WP Glimcher Inc. to Washington Prime Group Inc., to assign to Mr. Glimcher our right, title and interest to the glimcher.com internet domain name, the Glimcher logo, and irrevocably consent to Mr. Glimcher’s use of the “Glimcher” name in any future trade name or business endeavor. Mr. Glimcher consented to the Company’s use of the “Glimcher” name and Glimcher logo with respect to our subsidiaries and properties for a period of 12 months following the Executive Separation Date.

2.    Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated balance sheets as of June 30, 2016 and December 31, 2015 include the accounts of WPG Inc. and WPG L.P., as well as their majority owned and controlled subsidiaries. The accompanying consolidated statements of operations include the consolidated accounts of the Company. All intercompany transactions have been eliminated in consolidation. Due to the seasonal nature of certain operational activities, the results for the interim period ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.

These consolidated 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 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 unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements and related notes included in the combined 2015 Annual Report on Form 10-K for WPG Inc. and WPG L.P., as amended (the "2015 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 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

14

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


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 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. Moreover, the interests in WPG L.P. held by third parties are classified differently by the two entities (i.e. noncontrolling interests for WPG Inc. and partners' equity for WPG L.P.). In the consolidated financial statements, these differences are 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 financial statements of WPG Inc. and WPG L.P. are nearly identical.

General

These consolidated 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.

We consolidate a variable interest entity ("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.

Effective January 1, 2016, we adopted Accounting Standards Update ("ASU") No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which changed the way reporting enterprises must evaluate the consolidation of limited partnerships, variable interests and similar entities. Among other things, the changes eliminate the presumption in the voting model that a general partner controls a limited partnership. However, a general partner may consolidate a limited partnership under the variable interest model, depending on the facts and circumstances. WPG Inc. reevaluated whether to consolidate WPG L.P., now considered a VIE, under the new guidance. Based on the facts and circumstances, WPG Inc. concluded that it may continue to consolidate WPG L.P. under the variable interest model as the primary beneficiary of the limited partnership. Ultimately, the new guidance did not impact any of our previous conclusions regarding consolidation.

Except as discussed above related to the classification of WPG L.P. as a VIE, there have been no changes during the six months ended June 30, 2016 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 six months ended June 30, 2016, 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 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 June 30, 2016, our assets consisted of interests in 117 shopping centers. The consolidated financial statements as of that date reflect the consolidation of 105 wholly owned properties and six additional properties that are less than wholly owned,

15

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


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% for the six months ended June 30, 2016 and 2015. As of June 30, 2016 and December 31, 2015, WPG Inc.'s ownership interest in WPG L.P. was 84.1% and 84.2%, 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 in institutions with high credit quality. However, at certain times, such cash and cash equivalents may be in excess of FDIC and SIPC insurance limits.

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, estimated market values or our decision to dispose of a property before the end of its estimated useful life. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of changes in circumstances. 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 the carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as operating income, estimated capitalization rates, leasing prospects and local market information. We may decide to dispose of properties that are held for use and the consideration received from these property dispositions 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.


16

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


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 5 - "Investment in Unconsolidated Entities, at Equity"). We held material unconsolidated joint venture ownership interests in six properties as of June 30, 2016 and December 31, 2015.

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 ("ASC") 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:

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.

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

We record 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:


17

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


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.

The fair value of building is depreciated over the estimated remaining life of the acquired building or related improvements. We amortize 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 financial statements in accordance with GAAP. This 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.

Segment Disclosure

Our primary business is the ownership, development and management of retail real estate. We have aggregated our operations, including enclosed retail properties and community 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 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 April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This standard amended 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 was effective for annual reporting periods beginning after December 15, 2015, but early adoption was permitted. This new guidance reduced total assets and total long-term debt on our consolidated balance sheets by amounts ($16.8 million and $19.9 million as of June 30, 2016 and December 31, 2015, respectively) previously classified as deferred debt issuance costs (see Note 6 - "Indebtedness" for amounts), but this standard did not 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.


18

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


In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

Reclassifications

Reclassifications of certain amounts in the 2015 consolidated financial statements have been made in order to conform with 2016 presentation.

4.    Investment in Real Estate

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 accounting for the acquisition, which was finalized during the three months ended March 31, 2016 and did not result in any material changes from the estimated fair values disclosed in the 2015 Form 10-K:

Investment properties
$
3,091,410

Cash and cash equivalents (1)
547,294

Tenant accounts receivable
14,311

Investment in and advances to unconsolidated real estate entities
21,994

Deferred costs and other assets (including intangibles)
370,079

Accounts payable, accrued expenses, intangibles, and deferred revenue
(289,551
)
Distributions payable
(2,658
)
Redeemable noncontrolling interests, including preferred units
(5,795
)
Total assets acquired and liabilities assumed
3,747,084

Fair value of mortgage notes payable assumed
(1,356,389
)
Net assets acquired
2,390,695

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
$
958,469


(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 June 30, 2016 contains certain intangible assets associated with the Merger (excluding the amounts related to the O'Connor Properties, which were transferred to unconsolidated entities upon deconsolidation on June 1, 2015, per Note 5 - "Investment in Unconsolidated Entities, at Equity" and other dispositions). Intangibles of $86.9 million, which relate primarily to above-market leases and in-place lease values, are included in “Deferred costs and other assets” at June 30, 2016. Intangibles of $90.0 million, which are primarily related to below-market leases, are included in “Accounts payable, accrued expense, intangibles, and deferred revenue” at June 30, 2016.

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, as defined in Note 5 - "Investment in Unconsolidated Entities, at Equity") were $71.2 million and $9.1 million, respectively, for the three months ended June 30, 2015 and $140.0 million and $1.3 million, respectively, for the six months ended June 30, 2015, which are included in the accompanying consolidated statements of operations and comprehensive income.


19

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


2016 Dispositions

On June 9, 2016 and April 28, 2016, Merritt Square Mall and Chesapeake Square were transitioned to the lenders upon foreclosure, respectively (see Note 6 - "Indebtedness" for further discussion).

On January 29, 2016, the Company completed the sale of Forest Mall, located in Fond Du Lac, Wisconsin, and Northlake Mall, located in Atlanta, Georgia, to private real estate investors (the "Buyers") for an aggregate purchase price of $30.0 million, which was classified as real estate held for sale on the accompanying consolidated balance sheet as of December 31, 2015. The sales price consisted of $10.0 million paid to the Company at closing and the issuance of a promissory note for $20.0 million from the Company to the Buyers with an interest rate of 6% per annum. On June 29, 2016, the Buyers repaid $4.4 million of the promissory note balance. The remaining $15.6 million note balance is due on December 31, 2016 after the exercise of a six-month extension option by the Buyers. As of June 30, 2016, the Buyers are current on their interest payments. In connection with the sale, the Company recorded a $2.3 million loss, which is included in (loss) gain on disposition of interests in properties, net in the accompanying consolidated statements of operations and comprehensive income for the six months ended June 30, 2016. The net proceeds from the transactions were used to reduce the balance outstanding under the Revolver, as defined (see Note 6 - "Indebtedness").

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.

Intangible Assets and Liabilities Associated with Acquisitions

Intangible assets and liabilities as of June 30, 2016, 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 (excluding the amounts related to the O'Connor Properties and other dispositions).

The gross intangibles recorded as of their respective acquisition dates are comprised of an asset for acquired above-market leases of $61,213 in which the Company is the lessor, a liability for acquired below-market leases of $157,384 in which the Company is the lessor, a liability of $2,536 for an acquired above-market lease in which the Company is the lessee, and an asset for in-place leases of $152,430.

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, with amortization as a net increase to minimum rents in the amounts of $2.1 million and $6.4 million for the three months ended June 30, 2016 and 2015, respectively, and $4.0 million and $11.0 million for the six months ended June 30, 2016 and 2015, respectively. The above-market leases in which the Company is the lessee are amortized to ground rent expense over the life of the non-cancelable lease terms, with amortization as a net decrease to ground rent expense in the amounts of $20 and $52 for the three months ended June 30, 2016 and 2015, respectively, and $39 and $104 for the six months ended June 30, 2016 and 2015, respectively. In-place leases are amortized to depreciation and amortization expense over the life of the leases to which they pertain, with such amortization in the amounts of $6.0 million and $14.5 million for the three months ended June 30, 2016 and 2015, respectively, and $12.5 million and $29.3 million for the six months ended June 30, 2016 and 2015, respectively. The above activity reflects the deconsolidation of the properties transferred to the O'Connor Joint Venture on June 1, 2015 and other dispositions.


20

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


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 June 30, 2016 and December 31, 2015:

 
 
 
 
 
 
Balance as of
Intangible
Asset/Liability
 
Location on the
Consolidated Balance Sheets
 
Weighted Average Remaining Amortization
(in years)
 
June 30, 2016
 
December 31, 2015
Above-market leases - Company is lessor
 
Deferred costs and other assets
 
7.3
 
$
40,392

 
$
47,285

Below-market leases - Company is lessor
 
Accounts payable, accrued expenses, intangibles and deferred revenues
 
13.3
 
$
117,417

 
$
131,854

Above-market lease - Company is lessee
 
Accounts payable, accrued expenses, intangibles and deferred revenues
 
31.0
 
$
2,422

 
$
2,461

In-place leases
 
Deferred costs and other assets
 
9.5
 
$
84,642

 
$
99,836


Condensed Pro Forma Financial Information (Unaudited)

The results of operations of acquired properties are included in the consolidated 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, 2015. The unaudited condensed pro forma financial information assumes the O'Connor Joint Venture transaction completed on June 1, 2015 (see Note 5 - "Investment in Unconsolidated Entities, at Equity") also occurred as of January 1, 2015. Additionally, adjustments have been made to reflect the following transactions as if they occurred on January 1, 2015: 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"), the receipt of funds from the June 2015 Term Loan on June 4, 2015 (see Note 6 - "Indebtedness") and the receipt of funds from the December 2015 Term Loan on December 10, 2015 (see Note 6 - "Indebtedness"). Finally, no pro forma adjustments have been made for the January 13, 2015 acquisition of Canyon View Marketplace, the January 29, 2016 sale of Forest Mall and Northlake Mall, the April 28, 2016 foreclosure of Chesapeake Square or the June 9, 2016 foreclosure of Merritt Square Mall because they 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, 2015, 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 six months ended June 30, 2015 is as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2015
Total revenues
$
213,627

 
$
425,381

Net income attributable to the Company
$
9,243

 
$
15,256

Net income attributable to common shareholders
$
5,619

 
$
8,124

Earnings per common share-basic and diluted
$
0.03

 
$
0.04

Weighted average shares outstanding-basic (in thousands)
185,290

 
185,195

Weighted average shares outstanding-diluted (in thousands)
220,252

 
220,098


21

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


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 six months ended June 30, 2015 is as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2015
Total revenues
$
213,627

 
$
425,381

Net income attributable to unitholders
$
10,334

 
$
16,796

Net income attributable to common unitholders
$
6,650

 
$
9,554

Earnings per common unit-basic and diluted
$
0.03

 
$
0.04

Weighted average units outstanding-basic (in thousands)
219,686

 
219,585

Weighted average units outstanding-diluted (in thousands)
220,252

 
220,098


5.
Investment in Unconsolidated Entities, at Equity
The Company's investment activity in unconsolidated real estate entities during the six months ended June 30, 2016 and June 30, 2015 consisted of investments in the following joint ventures:
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 enclosed retail properties 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 in the O'Connor Joint Venture and sold the remaining 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 (loss) gain on disposition of interests in properties, net in the accompanying consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2015. We retained management and leasing responsibilities for the O'Connor Properties, though our partner's substantive participating rights over the decisions most important to the operations of the O'Connor Joint Venture preclude our control and consolidation of this venture. Further, 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 retail property located in the Orlando, Florida area. The Company's effective financial interest in this property (after preferences) is estimated to be approximately 22% for 2016.

22

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


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 six months ended June 30, 2016 and for the period from June 1, 2015 through June 30, 2015.
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 six months ended June 30, 2016 and for the period from January 15, 2015 through June 30, 2015.
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 six months ended June 30, 2016 and 2015:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Total revenues
$
47,494

 
$
21,168

 
$
93,806

 
$
29,956

Operating expenses
19,257

 
9,934

 
38,562

 
13,826

Depreciation and amortization
19,680

 
9,779

 
39,724

 
11,061

Operating income
8,557

 
1,455

 
15,520

 
5,069

Interest expense, net
(8,277
)
 
(3,329
)
 
(16,165
)
 
(4,427
)
Net income (loss) from the Company's unconsolidated real estate entities
280

 
(1,874
)
 
(645
)
 
642

Our share of loss from the Company's unconsolidated real estate entities
$
(508
)
 
$
(1,703
)
 
$
(1,669
)
 
$
(1,487
)

6.
Indebtedness

Mortgage Debt

Total mortgage indebtedness at June 30, 2016 and December 31, 2015 was as follows:

 
 
June 30,
2016
 
December 31,
2015
Face amount of mortgage loans
 
$
1,663,910

 
$
1,782,103

Fair value adjustments, net
 
14,607

 
17,683

Debt issuance cost, net
 
(5,602
)
 
(6,347
)
Carrying value of mortgage loans
 
$
1,672,915

 
$
1,793,439



23

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


A roll forward of mortgage indebtedness from December 31, 2015 to June 30, 2016 is summarized as follows:
Balance, December 31, 2015
$
1,793,439

Debt amortization payments
(7,905
)
Debt borrowings, net
4,591

Debt cancelled upon lender foreclosures, net of debt issuance costs
(114,967
)
Amortization of fair value and other adjustments
(3,076
)
Amortization of debt issuance costs
833

Balance, June 30, 2016
$
1,672,915

On June 8, 2016, the Company borrowed $65.0 million under a term loan secured by ownership interests in Weberstown Mall, located in Stockton, California (the "June 2016 Secured Term Loan"). The June 2016 Secured Term Loan bears interest at one-month LIBOR plus 1.75% and will initially mature on June 8, 2018, subject to three one-year extensions available at our option subject to compliance with the terms of the underlying loan agreement and payment of customary extension fees. The interest rate on the June 2016 Secured Term Loan may vary in the future based on the Company's credit rating. The Company used the proceeds from the June 2016 Secured Term Loan to repay the $60.0 million mortgage loan secured by Weberstown Mall and for other general corporate purposes. As of June 30, 2016, the balance was $64.6 million, net of $0.4 million of debt issuance costs, and the applicable interest rate was 2.2%.

The mortgage loans secured by Chesapeake Square and Merritt Square Mall were extinguished upon the properties transitioning to the lenders on April 28, 2016 and June 9, 2016, respectively (see below for further discussion).

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 1.25%, and will initially mature on May 30, 2018, subject to two six-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 1.45%, and will mature on May 30, 2017, subject to two, 12-month extensions available at our option subject to compliance with the terms of the Facility and payment of a customary extension fee. During July 2016, the Company fixed the interest on a portion of the Term Loan using swap agreements (see Note 12 - "Subsequent Events"). The interest rate on the Facility may vary in the future based on the Company's credit rating.

At June 30, 2016, borrowings under the Facility consisted of $258.8 million outstanding under the Revolver (before debt issuance costs, net of $2.5 million) and $500.0 million outstanding under the Term Loan. On June 30, 2016, we had an aggregate available borrowing capacity of $640.9 million under the Revolver, net of $0.3 million reserved for outstanding letters of credit. At June 30, 2016, the applicable interest rate on the Revolver was one-month LIBOR plus 1.25%, or 1.72%, and the applicable interest rate on the Term Loan was one-month LIBOR plus 1.45%, or 1.92%.

Term Loans

On December 10, 2015, the Company borrowed $340.0 million under a term loan (the "December 2015 Term Loan"), pursuant to a commitment received from bank lenders. The December 2015 Term Loan bears interest at one-month LIBOR plus 1.80% and will mature in January 2023. On December 11, 2015, the Company executed interest rate swap agreements totaling $340.0 million, which effectively fixed the interest rate on the December 2015 Term Loan at 3.51% through January 2023. The interest rate on the December 2015 Term Loan may vary in the future based on the Company's credit rating. The Company used the proceeds from the December 2015 Term Loan to repay outstanding amounts on the Revolver and for other general corporate purposes. As of June 30, 2016, the balance was $336.7 million, net of $3.3 million of debt issuance costs.

24

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


On June 4, 2015, the Company borrowed $500.0 million under a term loan (the "June 2015 Term Loan"), pursuant to a commitment received from bank lenders. The June 2015 Term Loan bears interest at one-month LIBOR plus 1.45% and will mature in March 2020. 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 June 2015 Term Loan at 2.56% through June 2018. The interest rate on the June 2015 Term Loan may vary in the future based on the Company's credit rating. The Company used the proceeds from the June 2015 Term Loan to repay the remaining outstanding balance on the Bridge Loan (defined below). As of June 30, 2016, the balance was $497.2 million, net of $2.8 million of debt issuance costs.

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, which balance was repaid in full during 2015.

The Company incurred $10.4 million of Bridge Loan commitment, structuring and funding fees. Upon the full repayment of the Bridge Loan, the Company accelerated amortization of the deferred loan costs, resulting in total amortization of $6.3 million and $10.4 million included in interest expense in the accompanying consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2015, respectively.

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 (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.

As of June 30, 2016, the balance outstanding under the Exchange Notes was $247.3 million, net of $2.7 million of debt discount and issuance costs.

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 June 30, 2016, management believes the Company is in compliance with all covenants of its unsecured debt.

The total balance of mortgages was approximately $1.7 billion as of June 30, 2016. At June 30, 2016, certain of our consolidated subsidiaries were the borrowers under 31 non-recourse loans, one full-recourse loan and one partial-recourse loan secured by mortgages encumbering 37 properties, including two separate pools of cross-defaulted and cross-collateralized mortgages encumbering a total of six properties. Under these cross-default provisions, a default under any mortgage included in the cross-defaulted pool may constitute a default under all mortgages within that pool and may lead to acceleration of the indebtedness due on each property within the pool. Certain of our secured debt instruments contain financial and other non-financial covenants which are specific to the properties which serve as collateral for that debt. 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

25

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


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.

On January 11, 2016, the $44.9 million mortgage loan secured by River Valley Mall, located in Lancaster, Ohio, matured.  The borrower, a consolidated subsidiary of the Company, did not repay the loan in full on the 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, including transitioning the property to the lender.

On October 30, 2015, we received a notice of default letter, dated that same date, from the special servicer to the borrower concerning the $62.4 million mortgage loan that was scheduled to mature on February 1, 2017 and was 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.  On April 21, 2016, the trustee on behalf of the mortgage lender conducted a non-judicial foreclosure sale of Chesapeake Square, in which the Company’s affiliate previously held a majority ownership interest. The mortgage lender was the successful bidder at the sale and ownership transferred on April 28, 2016.

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.  On May 25, 2016, the trustee on behalf of the mortgage lender conducted a non-judicial foreclosure sale of Merritt Square Mall, in which the Company’s affiliate previously held a 100% ownership interest. The mortgage lender was the successful bidder at the sale and ownership transferred on June 9, 2016. The Company continued to manage the property through and including July 31, 2016.

Upon the ownership transfers of Chesapeake Square and Merritt Square Mall, the Company recognized a net gain of $34.1 million including the cancellation of outstanding mortgage debt of $115.3 million, which is included in gain on extinguishment of debt, net in the accompanying consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2016.

On June 6, 2016, we received a notice of default letter, dated June 3, 2016, from the special servicer to the borrower of the $101.5 million mortgage loan secured by Southern Hills Mall, located in Sioux City, Iowa.  The letter was sent because the borrower, a consolidated subsidiary of the Company, did not repay the loan in full by its June 1, 2016 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, including transitioning the property to the lender.

On June 30, 2016, we received a notice, dated that same date, that the $87.3 million mortgage loan secured by Mesa Mall, located in Grand Junction, Colorado had been transferred to the special servicer due to the payment default that occurred when the borrower, a consolidated subsidiary of the Company, did not repay the loan in full by its June 1, 2016 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, including transitioning the property to the lender.

At June 30, 2016, 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. In addition, we have identified Valle Vista Mall, located in Harlingen, Texas, as over-levered. We expect to commence discussions with the special servicer on the loan encumbering this property prior to loan maturity.

26

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


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 $1.4 billion as of June 30, 2016 and $1.6 billion as of December 31, 2015. The fair values of these financial instruments and the related discount rate assumptions as of June 30, 2016 and December 31, 2015 are summarized as follows:

 
 
June 30, 2016
 
December 31, 2015
Fair value of fixed-rate mortgages
 
$1,515,491
 
$1,675,035
Weighted average discount rates assumed in calculation
of fair value for fixed-rate mortgages
 
3.05
%
 
3.42
%

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.

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 $0.6 million and $2.9 million of hedge ineffectiveness as a decrease to earnings during the three and six months ended June 30, 2016, respectively, primarily resulting from a mismatch in the terms of the December 2015 Term Loan and the corresponding derivative. The December 2015 Term Loan includes a 0% LIBOR floor while the corresponding derivative does not. There was no hedge ineffectiveness in earnings during the three and six months ended June 30, 2015.

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 $7.2 million will be reclassified as an increase to interest expense.

As of June 30, 2016, the Company had 12 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk with a notional value of $939,600.


27

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


The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2016 and December 31, 2015:

Derivatives designated as hedging instruments:
Balance Sheet
Location
 
June 30, 2016
 
December 31, 2015
Interest rate products
Asset derivatives
Deferred costs and other assets
 
$

 
$
1,658

Interest rate products
Liability derivatives
Accounts payable, accrued expenses, intangibles and deferred revenues
 
$
20,396

 
$
152


The asset derivative instruments were reported at their fair value of zero and $1,658 in deferred costs and other assets at June 30, 2016 and December 31, 2015, respectively, with a corresponding adjustment to OCI for the unrealized gains and losses (net of noncontrolling interest allocation). The liability derivative instruments were reported at their fair value of $20,396 and $152 in accounts payable, accrued expenses, intangibles, and deferred revenues at June 30, 2016 and December 31, 2015, respectively, with a corresponding adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest allocation). Over time, the unrealized gains and losses held in AOCL will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged interest payments in earnings.

The tables below present the effect of the Company's derivative financial instruments on the consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2016 and 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 Ended
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
June 30,
 
 
 
June 30,
 
 
June 30,
 
 
2016
 
2015
 
 
 
2016
 
2015
 
 
2016
 
2015
Interest rate products
 
$
(7,491
)
 
$
4,644

 
Interest expense
 
$
1,910

 
$
(29
)
Interest expense
 
$
(570
)
 
$


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)
 
 
Six Months Ended
 
 
 
Six Months Ended
 
 
Six Months Ended
 
 
June 30,
 
 
 
June 30,
 
 
June 30,
 
 
2016
 
2015
 
 
 
2016
 
2015
 
 
2016
 
2015
Interest rate products
 
$
(22,888
)
 
$
4,243

 
Interest expense
 
$
3,841

 
$
(32
)
Interest expense
 
$
(2,912
)
 
$


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 June 30, 2016, the Company has no derivatives that are not designated as cash flow hedges.


28

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


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.

As of June 30, 2016, the fair value of derivatives in a net liability position, plus accrued interest but excluding any adjustment for nonperformance risk, related to these agreements was $22,224. As of June 30, 2016, the Company has not posted any collateral related to these agreements. The Company is not in default with any of these provisions. If the Company had breached any of these provisions at June 30, 2016, it would have been required to settle its obligations under the agreements at their termination value of $22,224.

Fair Value Considerations

Currently, the Company uses interest rate swaps and caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. Based on these inputs the Company has determined that its interest rate swap and cap valuations are classified within Level 2 of the fair value hierarchy.

To comply with the provisions of Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2016 and December 31, 2015, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The Company values its net derivative instruments on a recurring basis using significant other observable inputs (Level 2).

The tables below presents the Company’s net assets and liabilities measured at fair value as of June 30, 2016 and December 31, 2015 aggregated by the level in the fair value hierarchy within which those measurements fall:

 
Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Balance at June 30, 2016
Derivative instruments, net
$

 
$
(20,396
)
 
$

 
$
(20,396
)
 
Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Balance at December 31, 2015
Derivative instruments, net
$

 
$
1,506

 
$

 
$
1,506



29

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


8.
Equity

The Merger

Related to the Merger completed on January 15, 2015, WPG Inc. issued 29,942,877 common shares, 4,700,000 shares of 8.125% Series G Cumulative Redeemable Preferred Stock (the "Series G Preferred Shares"), 4,000,000 shares of 7.5% Series H Cumulative Redeemable Preferred Stock (the "Series H Preferred Shares") and 3,800,000 shares of 6.875% Series I Cumulative Redeemable Preferred Stock (the "Series I Preferred Shares"), and WPG L.P. issued to WPG Inc. a like number of common and preferred units as consideration for the common and preferred shares issued. Additionally, WPG L.P. issued to limited partners 1,621,695 common units and 130,592 WPG L.P. 7.3% Series I‑1 Preferred Units. The preferred shares and units were issued as consideration for similarly-named preferred interests of Glimcher that were outstanding at the Merger date.

On April 15, 2015, WPG Inc. redeemed all of the 4,700,000 issued and outstanding Series G Preferred Shares, resulting in WPG L.P. redeeming a like number of preferred units under terms identical to those of the Series G Preferred Shares described below. The Series G Preferred Shares were redeemed at a redemption price of $25.00 per share, plus accumulated and unpaid distributions up to, but excluding, the redemption date, in an amount equal to $0.5868 per share, for a total payment of $25.5868 per share. This redemption amount included the first quarter dividend of $0.5078 per share that was declared on February 24, 2015 to holders of record of such Series G Preferred Shares on March 31, 2015. Because the redemption of the Series G Preferred Shares was a redemption in full, trading of the Series G Preferred Shares on the NYSE ceased after the redemption date. The aggregate amount paid to effect the redemptions of the Series G Preferred Shares was approximately $120.3 million, which was funded with cash on hand.

Exchange Rights
Subject to the terms of the limited partnership agreement of WPG L.P., limited partners in WPG L.P. have, at their option, the right to exchange all or any portion of their units for shares of common stock on a one‑for‑one basis or cash, as determined by WPG Inc. Therefore, the common units held by limited partners are considered by WPG Inc. to be share equivalents and classified as noncontrolling interests within permanent equity, and classified by WPG L.P. as permanent equity. The amount of cash to be paid if the exchange right is exercised and the cash option is selected will be based on the trading price of WPG Inc.'s common stock at that time. At June 30, 2016, WPG Inc. had reserved 35,129,921 shares of common stock for possible issuance upon the exchange of units held by limited partners.

The holders of the Series I-1 Preferred Units have, at their option, the right to have their units purchased by WPG L.P. subject to the satisfaction of certain conditions. Therefore, the Series I-1 Preferred Units are classified as redeemable noncontrolling interests outside of permanent equity.

Stock Based Compensation

On May 28, 2014, the Board adopted the Washington Prime Group, L.P. 2014 Stock Incentive Plan (the "Plan"), which permits the Company to grant awards to current and prospective directors, officers, employees and consultants of the Company or any affiliate. An aggregate of 10,000,000 shares of common stock has been reserved for issuance under the Plan. In addition, the maximum number of awards to be granted to a participant in any calendar year is 500,000 shares. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards in WPG Inc., or long term incentive units ("LTIP units" or "LTIPs") or performance units ("Performance LTIP Units") in WPG L.P. The Plan terminates on May 28, 2024.

Long Term Incentive Awards

The following is a summary by type of the awards that the Company issued during the six months ended June 30, 2016.

Time Vested LTIP Awards

The Company has issued time-vested LTIP units ("Inducement LTIP Units") to certain executive officers and employees under the Plan, pursuant to LTIP Unit Award Agreements between the Company and each of the grant recipients. These awards will vest and the related fair value will be expensed over a four-year vesting period. During the six months ended June 30, 2016, the Company did not grant any Inducement LTIP Units.


30

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


Performance Based Awards

The Company has allocated Performance LTIP units, subject to certain market conditions, under ASC 718 to certain executive officers and employees to be earned and the related fair value expensed over the applicable performance periods. During the six months ended June 30, 2016, the Company did not grant any Performance LTIP Units.

Annual Long-Term Incentive Awards

During 2015, the Company approved the performance criteria and maximum dollar amount of the 2015 annual LTIP unit awards (the "2015 Annual Long-Term Incentive Awards"), that generally range from 30%-300% of annual base salary, for certain executive officers and employees of the Company. The number of awards is determined by converting the cash value of the award to a number of LTIP units (the "Allocated Units") based on the closing price of WPG Inc.'s common shares for the final 15 days of 2015. Recipients are eligible to receive a percentage of the Allocated Units based on the Company's performance on its strategic goals detailed in the Company's 2015 cash bonus plan and the Company's relative total shareholder return ("TSR") compared to the MSCI REIT Index. Payout for 40% of the Allocated Units is based on the Company's performance on the strategic goals and the payout on the remaining 60% is based on the Company's TSR performance. The strategic goal component was achieved in 2015; however, the TSR was below threshold performance, resulting in a 40% payout for this annual LTIP award. During the six months ended June 30, 2016, the Company awarded 323,417 LTIP units related to the 2015 Annual Long-Term Incentive Awards and vest one-third on each of January 1, 2017, 2018 and 2019.
During the six months ended June 30, 2016, the Company approved the performance criteria and maximum dollar amount of the 2016 annual awards (the "2016 Annual Long-Term Incentive Awards"), that generally range from 30%-300% of annual base salary, for certain executive officers and employees of the Company. The number of awards is determined by converting the cash value of the award to a number of restricted stock units (the "Allocated RSUs") based on the closing price of WPG Inc.'s common shares for the final 15 days of 2016. Recipients are eligible to receive a percentage of the Allocated RSUs based on the Company's performance on its strategic goals detailed in the Company's 2016 cash bonus plan and the Company's relative TSR compared to a peer group based on companies with similar assets and revenue. Payout for 50% of the Allocated RSUs is based on the Company's performance on the strategic goals and the payout on the remaining 50% is based on the Company's TSR performance. Any 2016 Allocated RSUs earned will be granted in 2017 and vest one-third on each of January 1, 2018, 2019 and 2020. The fair value of the awards related to the Company's TSR performance will be expensed over the period from May 17, 2016 (when service began) through the end of the vesting period. If earned, the fair value of the portion of the awards based upon the Company's performance of the strategic goals will be recognized as expense over the period from the 2017 grant date through the end of the vesting period.
WPG Restricted Stock Unit Awards

The Company issues restricted stock units ("RSUs") to certain executive officers, employees, and independent members of the Board. The RSUs are service-based awards and the related fair value is expensed over the applicable service periods, except in instances that result in accelerated vesting due to severance arrangements. During the six months ended June 30, 2016, the Company issued 154,570 RSUs under the Plan with a fair value of $1.6 million.

WPG Restricted Common Share Awards

As part of the Merger, unvested restricted common shares held by certain Glimcher executive employees, which had an original vesting period of five years, were converted into 1,039,785 WPG restricted common shares (the “WPG Restricted Shares”). The WPG Restricted Shares will be amortized over the remaining life of the applicable vesting period, except for the portion of the awards applicable to pre-Merger service, which was included as equity consideration issued in the Merger.
LTIP/RSU/WPG Restricted Share Award Related Compensation Expense

The Company recorded compensation expense related to all LTIP, RSU and WPG Restricted Shares of approximately $11.0 million and $2.8 million for the three months ended June 30, 2016 and 2015, respectively, and approximately $11.7 million and $5.1 million for the six months ended June 30, 2016 and 2015, respectively. In certain instances, employment agreements and stock compensation programs provide for accelerated vesting when executives are terminated without cause. The expense associated with the accelerated vesting is recorded within the consolidated statements of operations and comprehensive income as "Merger, restructuring and transaction costs."

31

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


The LTIP, RSU and the WPG Restricted Shares expense were recorded in the accompanying consolidated statements of operations and comprehensive income as indicated below (amounts in millions):
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015