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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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

Commission file number 001-36252 (Washington Prime Group Inc.)

333-205859 (Washington Prime Group, L.P.)

WASHINGTON PRIME GROUP INC.

Washington Prime Group, L.P.

(Exact name of Registrant as specified in its charter)

Indiana (Both Registrants) 46-4323686 (Washington Prime Group Inc.)

(State of incorporation or organization) 46-4674640 (Washington Prime Group, L.P.)

(I.R.S. Employer Identification No.)


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

(614) 621-9000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Washington Prime Group Inc.:

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

WPG

New York Stock Exchange

7.5% Series H Cumulative Redeemable Preferred Stock, par value $0.0001 per share

WPGPRH

New York Stock Exchange

6.875% Series I Cumulative Redeemable Preferred Stock, par value $0.0001 per share

WPGPRI

New York Stock Exchange

Washington Prime Group, L.P.: None

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.

Washington Prime Group Inc. Yes x No o Washington Prime Group, L.P. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Washington Prime Group Inc. Yes x No o Washington Prime Group, L.P. Yes x No o

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

Washington Prime Group Inc.

Large accelerated filer

☐

Accelerated filer

☒

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☒

Washington Prime Group, L.P.

Large accelerated filer

☐

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☒

Smaller reporting company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Washington Prime Group Inc. o Washington Prime Group, L.P. o

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

Washington Prime Group Inc. Yes ☐ No x Washington Prime Group, L.P. Yes ☐ No x

As of August 6, 2021, Washington Prime Group Inc. had 24,459,645 shares of common stock outstanding. Washington Prime Group, L.P. has no publicly traded equity and no common stock outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2021 of Washington Prime Group® Inc. and Washington Prime Group®, L.P. Unless stated otherwise or the context requires otherwise, references to "WPG Inc." mean Washington Prime Group® 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 "WPG," the "Company," "we," "us," and "our" to refer to WPG Inc., WPG L.P., and entities in which WPG Inc. or WPG L.P. (or any affiliate) has a material interest on a consolidated basis, unless the context indicates otherwise.

As previously disclosed in the Current Report on Form 8-K filed on June 14, 2021, WPG Inc., together with WPG L.P., and certain of their direct and indirect subsidiaries (collectively, the "Company Parties"), entered into a Restructuring Support Agreement (the "Restructuring Support Agreement") on June 11, 2021 with certain creditors (the "Consenting Stakeholders"). Under the Restructuring Support Agreement, the Consenting Stakeholders have agreed, subject to certain terms and conditions, to support a financial restructuring (the "Restructuring") of the existing corporate debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the chapter 11 plan of reorganization (the "Plan"), which chapter 11 cases (the "Chapter 11 Cases") commenced on June 13, 2021 by the filing of voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Company Parties have filed a series of motions with the Bankruptcy Court that, as granted, enable the Company Parties to maintain their operations in the ordinary course of business.

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 held approximately 98.7% of the partnership interests ("OP units") at June 30, 2021. 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. are also 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.

WASHINGTON PRIME GROUP INC. AND WASHINGTON PRIME GROUP, L.P.

(DEBTORS-IN-POSSESSION)

FORM 10-Q

INDEX


PART I:	FINANCIAL INFORMATION	PAGE

Item 1.	Consolidated Financial Statements (unaudited)

	Financial Statements for Washington Prime Group Inc. (Debtors-In-Possession):

	Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	4

	Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	6

	Consolidated Statements of Equity for the three and six months ended June 30, 2021 and 2020	7

	Financial Statements for Washington Prime Group, L.P. (Debtors-In-Possession):

	Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	9

	Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020	10

	Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	11

	Consolidated Statements of Equity for the three and six months ended June 30, 2021 and 2020	12

	Condensed Notes to Consolidated Financial Statements	14

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	63

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	70

SIGNATURES		71

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

Washington Prime Group Inc.

(Debtors-In-Possession)

Unaudited Consolidated Balance Sheets

(dollars in thousands, except share and par value amounts)


	June 30, 2021		December 31, 2020
ASSETS:
Investment properties at cost	$	5,920,108	$	5,873,801
Less: accumulated depreciation	2,623,765		2,539,745
Net investment in real estate	3,296,343		3,334,056
Cash and cash equivalents	91,318		92,618
Tenant receivables and accrued revenue, net	97,430		132,610
Investment in and advances to unconsolidated entities, at equity	414,665		416,339
Deferred costs and other assets	131,737		129,724
Total assets	$	4,031,493	$	4,105,347
LIABILITIES:
Mortgage notes payable	$	1,029,308	$	1,101,653
Notes payable	—		710,476
Term loans	—		681,563
Revolving credit facility	—		639,976
Debtor in possession financing	50,000		—
Other indebtedness	91,406		87,807
Accounts payable, accrued expenses, intangibles, and deferred revenues	145,875		276,086
Distributions payable	—		3,323
Total liabilities not subject to compromise	1,316,589		3,500,884

Total liabilities subject to compromise	2,259,109		—
Total liabilities	3,575,698		3,500,884
Redeemable noncontrolling interests	3,385		3,265
EQUITY:
Stockholders' Equity:
Series H Cumulative Redeemable Preferred Stock, $0.0001 par value, 4,000,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020	108,001		104,251
Series I Cumulative Redeemable Preferred Stock, $0.0001 par value, 3,800,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020	101,591		98,325
Common stock, $0.0001 par value, 350,000,000 shares authorized; 24,459,645 and 20,999,596 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	2		2
Capital in excess of par value	1,310,353		1,262,524
Accumulated deficit	(1,071,600)		(913,128)
Accumulated other comprehensive loss	—		(12,124)
Total stockholders' equity	448,347		539,850
Noncontrolling interests	4,063		61,348
Total equity	452,410		601,198
Total liabilities, redeemable noncontrolling interests and equity	$	4,031,493	$	4,105,347

The accompanying notes are an integral part of these statements.

Washington Prime Group Inc.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(dollars in thousands, except per share amounts)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
REVENUE:
Rental income	$	134,134	$	96,757	$	261,925	$	244,168


Other income	4,263		2,007		8,405		7,196
Total revenues	138,397		98,764		270,330		251,364
EXPENSES:
Property operating	36,567		28,109		76,017		65,389
Depreciation and amortization	55,059		55,380		107,314		115,084
Real estate taxes	18,885		18,437		37,702		38,689
Advertising and promotion	1,747		1,300		3,396		3,104

General and administrative	12,954		11,350		26,878		23,614
Prepetition charges	38,078		—		52,529		—
Ground rent	204		209		410		331
Impairment loss	—		23,800		—		25,119
Total operating expenses	163,494		138,585		304,246		271,330

Interest expense, net	(52,503)		(37,445)		(104,054)		(76,080)
Impairment on note receivable	—		(11,237)		—		(11,237)
Reorganization items	(24,389)		—		(24,389)		—
Gain on disposition of interests in properties, net	—		437		2,462		27,192

Income and other taxes	(544)		(593)		(263)		24
Loss from unconsolidated entities, net	(873)		(4,754)		(3,080)		(5,786)
NET LOSS	(103,406)		(93,413)		(163,240)		(85,853)
Net loss attributable to noncontrolling interests	(1,396)		(14,871)		(11,784)		(14,194)
NET LOSS ATTRIBUTABLE TO THE COMPANY	(102,010)		(78,542)		(151,456)		(71,659)
Less: Preferred share dividends declared	—		(3,508)		—		(7,016)
Less: Preferred share dividends undeclared	(3,508)		—		(7,016)		—
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(105,518)	$	(82,050)	$	(158,472)	$	(78,675)

LOSS PER COMMON SHARE, BASIC & DILUTED	$	(4.26)	$	(3.88)	$	(6.77)	$	(3.73)



COMPREHENSIVE LOSS:
Net loss	$	(103,406)	$	(93,413)	$	(163,240)	$	(85,853)
Unrealized income (loss) on interest rate derivative instruments, net	—		920		—		(14,526)
Comprehensive loss	(103,406)		(92,493)		(163,240)		(100,379)
Comprehensive loss attributable to noncontrolling interests	(1,396)		(14,730)		(11,784)		(16,436)
Comprehensive loss attributable to common shareholders	$	(102,010)	$	(77,763)	$	(151,456)	$	(83,943)

The accompanying notes are an integral part of these statements.

Washington Prime Group Inc.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Cash Flows

(dollars in thousands)


	For the Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(163,240)	$	(85,853)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation	110,123		116,827

Reorganization items (non-cash)	22,400		—
Impairment on note receivable	—		11,237
Reclassification of accumulated other comprehensive loss upon discontinuation of hedge accounting	12,124		—
Gain on disposition of interests in properties and outparcels, net	(2,462)		(27,192)
Impairment loss	—		25,119
Change in estimate of collectibility of rental income	8,681		26,745
Loss from unconsolidated entities, net	3,080		5,786
Distributions of income from unconsolidated entities	59		1,087
Changes in assets and liabilities:
Tenant receivables and accrued revenue, net	29,364		(67,926)
Deferred costs and other assets	(10,989)		(1,027)
Accounts payable, accrued expenses, deferred revenues and other liabilities	17,293		(6,887)
Net cash provided by (used in) operating activities	26,433		(2,084)
CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures, net	(68,744)		(99,807)
Net proceeds from disposition of interests in properties and outparcels	4,525		17,987
Investments in unconsolidated entities	(3,910)		(6,744)
Distributions of capital from unconsolidated entities	2,432		1,764
Net cash used in investing activities	(65,697)		(86,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to noncontrolling interest holders in properties	(47)		(51)
Redemption of limited partner units	—		(543)


Distributions on common and preferred shares/units	(3,568)		(35,196)
Proceeds from issuance of debt, net of financing costs	48,783		500,849
Repayments of debt	(6,734)		(287,999)

Net cash provided by financing activities	38,434		177,060
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(830)		88,176
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period	130,232		75,475
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	129,402	$	163,651

The accompanying notes are an integral part of these statements.

Washington Prime Group Inc.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Equity

(dollars in thousands, except per share/unit amounts)


	For the Three Months Ended June 30, 2021
	Preferred Series H		Preferred Series I		Common Stock		Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, March 31, 2021	$	106,126	$	99,958	$	2	$	1,310,220	$	(968,505)	$	—	$	547,801	$	6,882	$	554,683	$	3,325


Exchange of limited partner units	—		—		—		707		—		—		707		(707)		—		—


Equity-based compensation	—		—		—		1,193		—		—		1,193		—		1,193		—
Adjustments to limited partners' interest from change in ownership in the Operating Partnership	—		—		—		(1,767)		2,423		—		656		(656)		—		—

Undeclared cumulative preferred distributions	1,875		1,633		—		—		(3,508)		—		—		—		—		60

Net loss, excluding $60 of undeclared distributions to preferred unitholders	—		—		—		—		(102,010)		—		(102,010)		(1,456)		(103,466)		—
Balance, June 30, 2021	$	108,001	$	101,591	$	2	$	1,310,353	$	(1,071,600)	$	—	$	448,347	$	4,063	$	452,410	$	3,385




	For the Six Months Ended June 30, 2021
	Preferred Series H		Preferred Series I		Common Stock		Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, December 31, 2020	$	104,251	$	98,325	$	2	$	1,262,524	$	(913,128)	$	(12,124)	$	539,850	$	61,348	$	601,198	$	3,265


Exchange of limited partner units	—		—		—		54,289		—		—		54,289		(54,289)		—		—
Other	—		—		—		(9)		—		—		(9)		—		(9)		—

Equity-based compensation	—		—		—		2,504		—		—		2,504		—		2,504		—
Adjustments to limited partners' interest from change in ownership in the Operating Partnership	—		—		—		(8,955)		—		—		(8,955)		8,955		—		—
Distributions to noncontrolling interests	—		—		—		—		—		—		—		(47)		(47)		—

Undeclared cumulative preferred distributions	3,750		3,266		—		—		(7,016)		—		—		—		—		120
Reclassification of accumulated other comprehensive loss upon discontinuation of hedge accounting	—		—		—		—		—		12,124		12,124		—		12,124		—
Net loss, excluding $120 of undeclared distributions to preferred unitholders	—		—		—		—		(151,456)		—		(151,456)		(11,904)		(163,360)		—
Balance, June 30, 2021	$	108,001	$	101,591	$	2	$	1,310,353	$	(1,071,600)	$	—	$	448,347	$	4,063	$	452,410	$	3,385

The accompanying notes are an integral part of this statement.

Washington Prime Group Inc.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Equity (Continued)

(dollars in thousands, except per share/unit amounts)


	For the Three Months Ended June 30, 2020
	Preferred Series H		Preferred Series I		Common Stock		Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, March 31, 2020	$	104,251	$	98,325	$	2	$	1,257,057	$	(675,935)	$	(18,588)	$	765,112	$	103,163	$	868,275	$	3,265

Redemption of limited partner units	—		—		—		—		—		—		—		(22)		(22)		—
Other	—		—		—		(9)		—		—		(9)		—		(9)		—

Equity-based compensation	—		—		—		1,898		—		—		1,898		—		1,898		—
Adjustments to limited partners' interest from change in ownership in the Operating Partnership	—		—		—		201		—		—		201		(201)		—		—

Distributions declared on preferred shares	—		—		—		—		(3,508)		—		(3,508)		—		(3,508)		—
Other comprehensive income	—		—		—		—		—		779		779		141		920		—
Net loss, excluding $60 of distributions to preferred unitholders	—		—		—		—		(78,542)		—		(78,542)		(14,931)		(93,473)		—
Balance, June 30, 2020	$	104,251	$	98,325	$	2	$	1,259,147	$	(757,985)	$	(17,809)	$	685,931	$	88,150	$	774,081	$	3,265






	For the Six Months Ended June 30, 2020
	Preferred Series H		Preferred Series I		Common Stock		Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, December 31, 2019	$	104,251	$	98,325	$	2	$	1,254,788	$	(655,492)	$	(5,525)	$	796,349	$	110,226	$	906,575	$	3,265

Redemption of limited partner units	—		—		—		—		—		—		—		(543)		(543)		—
Other	—		—		—		(18)		—		—		(18)		—		(18)		—

Equity-based compensation	—		—		—		3,764		—		—		3,764		—		3,764		—
Adjustments to limited partners' interest from change in ownership in the Operating Partnership	—		—		—		613		—		—		613		(613)		—		—
Distributions on common shares/units ($1.125 per common share/unit)	—		—		—		—		(23,818)		—		(23,818)		(4,364)		(28,182)		—
Distributions declared on preferred shares	—		—		—		—		(7,016)		—		(7,016)		—		(7,016)		—
Other comprehensive loss	—		—		—		—		—		(12,284)		(12,284)		(2,242)		(14,526)		—
Net loss, excluding $120 of distributions to preferred unitholders	—		—		—		—		(71,659)		—		(71,659)		(14,314)		(85,973)		—
Balance, June 30, 2020	$	104,251	$	98,325	$	2	$	1,259,147	$	(757,985)	$	(17,809)	$	685,931	$	88,150	$	774,081	$	3,265

The accompanying notes are an integral part of this statement.

Washington Prime Group, L.P.

(Debtors-In-Possession)

Unaudited Consolidated Balance Sheets

(dollars in thousands, except unit amounts)


	June 30, 2021		December 31, 2020
ASSETS:
Investment properties at cost	$	5,920,108	$	5,873,801
Less: accumulated depreciation	2,623,765		2,539,745
Net investment in real estate	3,296,343		3,334,056
Cash and cash equivalents	91,318		92,618
Tenant receivables and accrued revenue, net	97,430		132,610
Investment in and advances to unconsolidated entities, at equity	414,665		416,339
Deferred costs and other assets	131,737		129,724
Total assets	$	4,031,493	$	4,105,347
LIABILITIES:
Mortgage notes payable	$	1,029,308	$	1,101,653
Notes payable	—		710,476
Term loans	—		681,563
Revolving credit facility	—		639,976
Debtor in possession financing	50,000		—
Other indebtedness	91,406		87,807
Accounts payable, accrued expenses, intangibles, and deferred revenues	145,875		276,086
Distributions payable	—		3,323
Total liabilities not subject to compromise	1,316,589		3,500,884

Total liabilities subject to compromise	2,259,109		—
Total liabilities	3,575,698		3,500,884
Redeemable noncontrolling interests	3,385		3,265
EQUITY:
Partners' Equity:
General partner
Preferred equity, 7,800,000 units issued and outstanding as of June 30, 2021 and December 31, 2020	209,592		202,576
Common equity, 24,459,645 and 20,999,596 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	238,755		337,274
Total general partners' equity	448,347		539,850
Limited partners, 310,991 and 3,739,106 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	3,113		60,351
Total partners' equity	451,460		600,201
Noncontrolling interests	950		997
Total equity	452,410		601,198
Total liabilities, redeemable noncontrolling interests and equity	$	4,031,493	$	4,105,347

The accompanying notes are an integral part of these statements.

Washington Prime Group, L.P.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(dollars in thousands, except per unit amounts)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
REVENUE:
Rental income	$	134,134	$	96,757	$	261,925	$	244,168


Other income	4,263		2,007		8,405		7,196
Total revenues	138,397		98,764		270,330		251,364
EXPENSES:
Property operating	36,567		28,109		76,017		65,389
Depreciation and amortization	55,059		55,380		107,314		115,084
Real estate taxes	18,885		18,437		37,702		38,689
Advertising and promotion	1,747		1,300		3,396		3,104

General and administrative	12,954		11,350		26,878		23,614
Prepetition charges	38,078		—		52,529		—
Ground rent	204		209		410		331
Impairment loss	—		23,800		—		25,119
Total operating expenses	163,494		138,585		304,246		271,330

Interest expense, net	(52,503)		(37,445)		(104,054)		(76,080)
Impairment on note receivable	—		(11,237)		—		(11,237)
Reorganization items	(24,389)		—		(24,389)		—
Gain on disposition of interests in properties, net	—		437		2,462		27,192

Income and other taxes	(544)		(593)		(263)		24
Loss from unconsolidated entities, net	(873)		(4,754)		(3,080)		(5,786)
NET LOSS ATTRIBUTABLE TO UNITHOLDERS	(103,406)		(93,413)		(163,240)		(85,853)
Less: Preferred unit distributions declared	—		(3,568)		—		(7,136)
Less: Preferred unit distributions undeclared	(3,568)		—		(7,136)		—
NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS	$	(106,974)	$	(96,981)	$	(170,376)	$	(92,989)

NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS:
General partner	$	(105,518)	$	(82,050)	$	(158,472)	$	(78,675)
Limited partners	(1,456)		(14,931)		(11,904)		(14,314)
Net loss attributable to common unitholders	$	(106,974)	$	(96,981)	$	(170,376)	$	(92,989)

LOSS PER COMMON UNIT, BASIC & DILUTED	$	(4.26)	$	(3.88)	$	(6.77)	$	(3.73)

COMPREHENSIVE LOSS:
Net loss	$	(103,406)	$	(93,413)	$	(163,240)	$	(85,853)
Unrealized income (loss) on interest rate derivative instruments, net	—		920		—		(14,526)
Comprehensive loss	$	(103,406)	$	(92,493)	$	(163,240)	$	(100,379)

The accompanying notes are an integral part of these statements.

Washington Prime Group, L.P.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Cash Flows

(dollars in thousands)


	For the Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(163,240)	$	(85,853)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation	110,123		116,827

Reorganization items (non-cash)	22,400		—
Impairment on note receivable	—		11,237
Reclassification of accumulated other comprehensive loss upon discontinuation of hedge accounting	12,124		—
Gain on disposition of interests in properties and outparcels, net	(2,462)		(27,192)
Impairment loss	—		25,119
Change in estimate of collectibility of rental income	8,681		26,745
Loss from unconsolidated entities, net	3,080		5,786
Distributions of income from unconsolidated entities	59		1,087
Changes in assets and liabilities:
Tenant receivables and accrued revenue, net	29,364		(67,926)
Deferred costs and other assets	(10,989)		(1,027)
Accounts payable, accrued expenses, deferred revenues and other liabilities	17,293		(6,887)
Net cash provided by (used in) operating activities	26,433		(2,084)
CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures, net	(68,744)		(99,807)
Net proceeds from disposition of interests in properties and outparcels	4,525		17,987
Investments in unconsolidated entities	(3,910)		(6,744)
Distributions of capital from unconsolidated entities	2,432		1,764
Net cash used in investing activities	(65,697)		(86,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to noncontrolling interest holders in properties	(47)		(51)
Redemption of limited partner units	—		(543)


Distributions to unitholders	(3,568)		(35,196)
Proceeds from issuance of debt, net of financing costs	48,783		500,849
Repayments of debt	(6,734)		(287,999)

Net cash provided by financing activities	38,434		177,060
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(830)		88,176
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period	130,232		75,475
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	129,402	$	163,651

The accompanying notes are an integral part of these statements.

Washington Prime Group, L.P.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Equity

(dollars in thousands, except per unit amounts)


	For the Three Months Ended June 30, 2021
	General Partner
	Preferred		Common		Total		Limited Partners		Total Partners' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, March 31, 2021	$	206,084	$	341,717	$	547,801	$	5,932	$	553,733	$	950	$	554,683	$	3,325


Exchange of limited partner units	—		707		707		(707)		—		—		—		—


Equity-based compensation	—		1,193		1,193		—		1,193		—		1,193		—
Adjustments to limited partners' interests from change in ownership in the Operating Partnership	—		656		656		(656)		—		—		—		—

Undeclared cumulative preferred distributions	3,508		(3,508)		—		—		—		—		—		60

Net loss	—		(102,010)		(102,010)		(1,456)		(103,466)		—		(103,466)		—
Balance, June 30, 2021	$	209,592	$	238,755	$	448,347	$	3,113	$	451,460	$	950	$	452,410	$	3,385

	For the Six Months Ended June 30, 2021
	General Partner
	Preferred		Common		Total		Limited Partners		Total Partners' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, December 31, 2020	$	202,576	$	337,274	$	539,850	$	60,351	$	600,201	$	997	$	601,198	$	3,265


Exchange of limited partner units	—		54,289		54,289		(54,289)		—		—		—		—
Other	—		(9)		(9)		—		(9)		—		(9)		—

Equity-based compensation	—		2,504		2,504		—		2,504		—		2,504		—
Adjustments to limited partners' interests from change in ownership in the Operating Partnership	—		(8,955)		(8,955)		8,955		—		—		—		—
Distributions to noncontrolling interests	—		—		—		—		—		(47)		(47)		—

Undeclared cumulative preferred distributions	7,016		(7,016)		—		—		—		—		—		120
Reclassification of accumulated other comprehensive loss upon discontinuation of hedge accounting	—		12,124		12,124		—		12,124		—		12,124		—
Net loss	—		(151,456)		(151,456)		(11,904)		(163,360)		—		(163,360)		—
Balance, June 30, 2021	$	209,592	$	238,755	$	448,347	$	3,113	$	451,460	$	950	$	452,410	$	3,385

The accompanying notes are an integral part of this statement.

Washington Prime Group, L.P.

(Debtors-In-Possession)

Unaudited Consolidated Statements of Equity (Continued)

(dollars in thousands, except per unit amounts)


	For the Three Months Ended June 30, 2020
	General Partner
	Preferred		Common		Total		Limited Partners		Total Partners' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, March 31, 2020	$	202,576	$	562,536	$	765,112	$	102,181	$	867,293	$	982	$	868,275	$	3,265

Redemption of limited partner units	—		—		—		(22)		(22)		—		(22)		—
Other	—		(9)		(9)		—		(9)		—		(9)		—
Equity-based compensation	—		1,898		1,898		—		1,898		—		1,898		—

Adjustments to limited partners' interests from change in ownership in the Operating Partnership	—		201		201		(201)		—		—		—		—

Distributions declared on preferred units	(3,508)		—		(3,508)		—		(3,508)		—		(3,508)		(60)
Other comprehensive income	—		779		779		141		920		—		920		—
Net income (loss)	3,508		(82,050)		(78,542)		(14,931)		(93,473)		—		(93,473)		60
Balance, June 30, 2020	$	202,576	$	483,355	$	685,931	$	87,168	$	773,099	$	982	$	774,081	$	3,265

	For the Six Months Ended June 30, 2020
	General Partner
	Preferred		Common		Total		Limited Partners		Total Partners' Equity		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
Balance, December 31, 2019	$	202,576	$	593,773	$	796,349	$	109,193	$	905,542	$	1,033	$	906,575	$	3,265

Redemption of limited partner units	—		—		—		(543)		(543)		—		(543)		—
Other	—		(18)		(18)		—		(18)		—		(18)		—

Equity-based compensation	—		3,764		3,764		—		3,764		—		3,764		—
Adjustments to limited partners' interests from change in ownership in the Operating Partnership	—		613		613		(613)		—		—		—		—
Distributions on common units ($1.125 per common unit)	—		(23,818)		(23,818)		(4,313)		(28,131)		(51)		(28,182)		—
Distributions declared on preferred units	(7,016)		—		(7,016)		—		(7,016)		—		(7,016)		(120)
Other comprehensive loss	—		(12,284)		(12,284)		(2,242)		(14,526)		—		(14,526)		—
Net income (loss)	7,016		(78,675)		(71,659)		(14,314)		(85,973)		—		(85,973)		120
Balance, June 30, 2020	$	202,576	$	483,355	$	685,931	$	87,168	$	773,099	$	982	$	774,081	$	3,265

The accompanying notes are an integral part of this statement.

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

(Debtors-In-Possession)

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 and Basis of Presentation and Consolidation

Washington Prime Group Inc. ("WPG Inc.") is an Indiana corporation that operates as a fully integrated, self‑administered and self‑managed real estate investment trust, or REIT, under the U.S. Internal Revenue Code of 1986, as amended (the "Code"). WPG Inc. will generally qualify as a REIT for U.S. federal income tax purposes as long as it continues to distribute at least 90% of its REIT taxable income, exclusive of net capital gains, and satisfy certain other requirements. WPG Inc. will generally be allowed a deduction against its U.S. federal income tax liability for dividends paid by it to REIT shareholders, thereby reducing or eliminating any corporate level taxation to WPG Inc. Washington Prime Group, L.P. ("WPG L.P.") is WPG Inc.'s 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, 2021, our assets consisted of material interests in 101 shopping centers in the United States, consisting of open air properties and enclosed retail properties, comprised of approximately 51 million square feet of managed gross leasable area.

Unless the context otherwise requires, references to "WPG," the "Company," "we," "us" or "our" refer to WPG Inc., WPG L.P. and entities in which WPG Inc. or WPG L.P. (or any affiliate) has a material ownership or financial interest, on a consolidated basis.

We derive our revenues primarily from retail tenant leases, including fixed minimum rent leases, overage and percentage rent leases based on tenants’ sales volumes, rent payments pursuant to the terms of providing property operating services to our tenants and others, including energy, waste handling and facility services, and reimbursements from tenants for certain recoverable costs such as property operating, real estate taxes, repair and maintenance, and advertising and promotional expenses.

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.

Basis of Presentation and 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, 2021 and December 31, 2020 include the accounts of WPG Inc. and WPG L.P., as well as their majority owned and controlled subsidiaries. The 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, 2021 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 financial statements and related notes included in the combined 2020 Annual Report on Form 10-K for WPG Inc. and WPG L.P. (the "2020 Form 10-K").

These consolidated financial statements have been prepared as if the Company were a going concern in accordance with Financial Standards Accounting Board ("FASB") Accounting Standards Codification ("ASC") Topic 852 - "Reorganizations" ("Topic 852"). See Note 2 - "Chapter 11 Cases and Ability to Continue as a Going Concern" for details regarding the bankruptcy filing. As a result, the Company has segregated prepetition unsecured or under secured liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 Cases (as defined below) and have classified these items as "Liabilities subject to compromise" on the Company's accompanying consolidated balance sheets. Further, the Company has classified all expenses that were incurred prior to the Chapter 11 Cases but related to our restructuring efforts as prepetition charges in the Company's accompanying consolidated statements of operations and comprehensive loss. In addition, the Company has classified all expenses that were incurred as a result of the Chapter 11 Cases subsequent to the filing as reorganization items in the Company's accompanying consolidated statements of operations and comprehensive loss. Reorganization items can also include realized gains or losses on liabilities subject to compromise in addition to postpetition legal and professional fees.

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

(Debtors-In-Possession)

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)

Reverse-Stock Split

On December 17, 2020, WPG Inc.'s common shareholders approved an amendment to WPG Inc.'s Amended and Restated Articles of Incorporation that effectuated a reverse-stock split (see Note 9 - "Equity" for additional details). Unless otherwise noted, all common share/unit and per share/unit information contained herein has been restated to reflect the effect of the reverse stock split as if it had occurred as of the beginning of the earliest period presented.

COVID-19

The novel strain of coronavirus ("COVID-19") continues to have a negative impact on both the Company's operations and our tenants' revenues and businesses. While all of our shopping centers were open during the six months ended June 30, 2021, certain applicable operational limitations and restrictions remain in effect. In addition, during the six months ended June 30, 2021, we granted additional rent relief to certain of our tenants through a combination of approximately $3.3 million of rent abatements as well as rent deferrals to future periods which has impacted our fiscal year 2021 operating cash flows. A further worsening of the financial condition of our tenants may impact our continual assessment of future collectibility of rents, which could cause us to write-off additional straight-line rent that has not yet been billed. The situation continues to evolve as vaccine distribution continues to accelerate while certain geographic regions across the United States are experiencing a surge in new cases as a result of mutant strains of COVID-19, which could result in shoppers limiting their in-store purchases in exchange for curbside or on-line purchases. Additional impacts to the business and operations may arise of which the Company is not currently aware. The Company cannot predict whether, when or the manner in which the conditions surrounding COVID-19 will change, including the timing of potential additional closure requirements or the subsequent lifting of any said restrictions.

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, without the consent of any other unaffiliated partner or owner, to refinance debt or sell the property 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.

There have been no changes during the six months ended June 30, 2021 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. During the six months ended June 30, 2021, 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.

As of June 30, 2021, our assets consisted of material interests in 101 shopping centers. The consolidated financial statements as of that date reflect the consolidation of 85 wholly owned properties and four additional properties that are less than wholly owned, but which we control or for which we are the primary beneficiary. We account for our interests in the remaining 12 properties, or the joint venture properties, using the equity method of accounting. While we manage the day-to-day operations of the joint venture properties, we 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 (see Note 5 - "Investment in Unconsolidated Entities, at Equity" for further details).

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 loss attributable to noncontrolling interests. WPG Inc.'s weighted average ownership interest in WPG L.P. was 93.0% and 84.7% for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, and December 31, 2020, WPG Inc.'s ownership interest in WPG L.P. was 98.7% and 84.8%, respectively. We adjust the noncontrolling limited partners' interests at the end of each period to reflect their interest in WPG L.P.

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

(Debtors-In-Possession)

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)

2. Chapter 11 Cases and Ability to Continue as a Going Concern

Voluntary Reorganization Under Chapter 11

On June 11, 2021, WPG Inc., WPG L.P. and certain of their direct and indirect subsidiaries (collectively, the "Company Parties"), entered into a Restructuring Support Agreement (the "Restructuring Support Agreement" or "RSA") with certain creditors (the "Consenting Stakeholders"), which as of the Agreement Effective Date (as defined in the RSA), represented at least 74.5% of the $997.0 million aggregate principal amount of the Term Loan and Revolver (both as defined in Note 6 - "Indebtedness"), or the "2018 Credit Facility Claims," at least 62.0% of the $340.0 million aggregate principal amount of the December 2015 Term Loan (as defined in Note 6 - "Indebtedness"), or the "2015 Credit Facility Claims," 100.0% of the aggregate $65.0 million principal amount of the term loan secured by Weberstown Mall, located in Stockton, California (the "Weberstown Term Loan"), or the "Weberstown Term Loan Facility Claims," and at least 66.7% of the $720.9 million aggregate principal amount of the Senior Notes due 2024 (the "Senior Notes") or the "Unsecured Notes Claims."

Under the RSA, the Consenting Stakeholders have agreed, subject to certain terms and conditions, to support a financial restructuring (the "Restructuring") of the existing corporate debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the chapter 11 plan of reorganization (as may be amended, modified, or supplemented from time to time, the "Plan") that was filed on June 23, 2021 in the chapter 11 cases (the "Chapter 11 Cases") commenced by the Company Parties on June 13, 2021 (the "Petition Date") by filing voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Company Parties are authorized to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code. The Bankruptcy Court granted certain "first-day" relief requested by the Company Parties providing the authority, among other things, to pay employee wages and benefits and pay certain vendors and business partners for goods and services provided both before and after the Petition Date so that those designated vendors and business partners who continue to work with the Company Parties on existing terms will be paid in full and in the ordinary course of business. The Company Parties' Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Washington Prime Group Inc., et al., Case No. 21-31948 (MI).

The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the applicable credit agreements governing the December 2015 Term Loan, the Revolver, the Senior Notes, the Term Loan and the Weberstown Term Loan. The Company Parties believe that any efforts to enforce the financial obligations under the applicable credit agreements are stayed as a result of the filing of the Chapter 11 Cases in the Bankruptcy Court and the creditors' rights of enforcement in respect to the applicable credit agreements are subject to the applicable provisions of the Bankruptcy Code.

In connection with the Chapter 11 Cases, the Company obtained debtor-in-possession ("DIP") financing in the aggregate principal amount of up to $100.0 million under a non-amortizing multi-draw super-priority secured term loan credit facility (the "DIP Facility"), bearing interest at the greater of the London Inter-Bank Offered Rate ("LIBOR") and the Benchmark Replacement Adjustment (as defined in the DIP Facility) (which, in each case, is deemed to be 0.75%, if less than 0.75%) plus 4.25% and 3.25% per annum, respectively. The DIP Facility includes conditions precedent, representations and warranties, affirmative and negative covenants and events of default customary for financings of this type and size. The proceeds of all or a portion of the DIP Facility may be used for, among other things, general corporate purposes, including working capital, administrative costs, redevelopment costs, tenant obligations, expenses and fees of the transactions contemplated by the Chapter 11 Cases, for payment of court approved adequate protection obligations and other such purposes consistent with the DIP Facility. As of June 30, 2021, $50.0 million was outstanding under the DIP Facility, of which $1.5 million was used to pay applicable administrative agent fees and the interest rate for the initial borrowing was 5.0% per annum.

Pursuant to the RSA and the Plan, the Company Parties have a right to "toggle" from an equitization plan (the "Equitization Restructuring") or an alternative value-maximizing transaction that would repay, in full in cash, all of the Company's corporation-level debt. Whether an alternative transaction is available depends on the results of the Company's 60-day postpetition continuation of its prepetition marketing process. If elected, the Equitization Restructuring, tied to certain milestones in the RSA, provides for the treatment of each class of claims and interests as follows:

•2018 Credit Facility Claims and 2015 Credit Facility Claims: Each holder shall receive its pro rata share of (i) new term loan exit facility in an aggregate principal amount of approximately $1.2 billion plus, at the election of the Plan sponsor, certain prepetition and postpetition interest and (ii) $150.0 million cash plus cash in the amount of any accrued and unpaid (a) adequate protection payments and (b) prepetition and postpetition interest not added to the principal balance of the new term loan exit facility;

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

(Debtors-In-Possession)

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)

•Weberstown Term Loan Facility Claims: Each holder shall receive its pro rata share of (i) new term loan exit facility in the aggregate principal amount of $25.0 million plus, at the election of the Plan sponsor, certain prepetition and postpetition interest and (ii) $40.0 million cash plus cash in the amount of any accrued and unpaid (a) adequate protection payments and (b) prepetition and postpetition interest not added to the principal balance of the new term loan exit facility;

•Secured Property-Level Debt and Guarantee Claims: To the extent that any secured property-level debt and guarantee claims exist, such secured property-level mortgage claims shall be reinstated, unimpaired, or receive treatment reasonably acceptable to the Plan sponsor;

•Unsecured Notes Claims: Each holder shall receive its pro rata share of (i) 100% of the new common equity, less any new common equity distributed to holders of existing equity interests electing to receive new common equity, subject to dilution on account of the management incentive plan, and the equity rights offering and (ii) the right to purchase their pro rata share of 50% of the new common equity offered in the equity rights offering;

•General Unsecured Claims: Each holder shall, at the option of the applicable Company Party, (i) receive payment in full in cash or (ii) be reinstated;

•Existing Preferred Equity Interests: Subject to certain eligibility requirements and election rights set forth in the Plan, each holder shall receive: (i) if the class of existing preferred equity interests votes to accept the Plan, such holder’s pro rata share of the (A) preferred equity cash pool, which shall equal $20.0 million if the class of existing common equity interests votes to accept the Plan and $40.0 million otherwise or (B) the preferred equity pool, which shall equal 3.0625% if the class of existing common equity interests votes to accept the Plan and 6.1250% otherwise; or (ii) if the class of existing preferred equity interests votes to reject the Plan, each holder of existing preferred equity interests shall not receive any distribution on account of such existing preferred equity interests, which will be canceled, released, and extinguished as of the agreement effective date, and will be of no further force or effect; and

•Existing Common Equity Interests: Subject to certain eligibility requirements and election rights set forth in the Plan, each holder shall receive: (i) if the class of existing preferred equity interests and the class of common equity interests vote to accept the Plan, such holder’s pro rata share of (A) $20.0 million or (B) 3.0625% of new common equity; or (ii) if the class of existing preferred equity interests or existing common equity interests vote to reject the Plan, holders of existing common equity interests shall not receive any distribution on account of such interests, which will be canceled, released, and extinguished as of the agreement effective date, and will be of no further force or effect.

As part of the Equitization Restructuring, the Company Parties intend to conduct a backstopped equity rights offering to raise up to $325.0 million in cash from the offer and sale of new common equity. 50% of the equity rights are available to holders of the Senior Notes and 50% are available to certain of the Consenting Stakeholders, which have agreed to fully backstop the equity rights offering. The new common equity issued in the equity rights offering will dilute the new common equity distributed to holders of Unsecured Notes Claims, as explained above, on account of such claims, and any portion of the equity rights offering in excess of $260.0 million and new common equity issued on account of the management incentive plan will also dilute the new common equity distributed to holders of existing equity interests.

The Plan also contains a proposed debtor release provision and third-party release provision that releases certain claims belonging to holders of claims and equity interests that to do not opt out of such third-party release. The releases in the Plan are subject to the Bankruptcy Court’s approval.

The RSA contains various milestones, including the following: (a) no later than two calendar days after the Petition Date, the Company Parties shall have filed the Plan and disclosure statement; (b) no later than five calendar days after the Petition Date the Bankruptcy Court shall have entered the DIP interim order; (c) no later than 30 calendar days after the Petition Date, or such other date as agreed by the Plan sponsor and the Company Parties, the Bankruptcy Court shall have entered the backstop approval order; (d) no later than 45 calendar days after the Petition Date, the Bankruptcy Court shall have entered the DIP final order; (e) no later than 60 calendar days after the Petition Date, the Bankruptcy Court shall have entered the confirmation order; provided that such milestone may be extended to 74 calendar days in accordance with the procedures included in the RSA; and (f) no later than 15 calendar days after the entry of the confirmation order, the Plan effective date shall have occurred. The milestones can be waived with consent from the applicable parties to the RSA.

The Company cannot predict the ultimate outcome of its Chapter 11 Cases at this time or the satisfaction of any of the RSA milestones yet to come. For the duration of the Company’s Chapter 11 proceedings, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the Company’s operations, properties and liquidity and capital resources included in this quarterly report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process. See "Risk Factors" in Part II Item 1A of this form 10-Q for more information.

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

(Debtors-In-Possession)

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 particular, subject to certain exceptions, under the Bankruptcy Code, the Company Parties may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Company Parties of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Company Party’s estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Company Parties to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Company Parties in this quarterly report, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Company Parties is qualified by any overriding rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the assumption, assumption and assignment or rejection of any executory contract or unexpired lease and the Company Parties expressly preserve all of their rights with respect thereto.

Prepetition Charges

Expenses that were realized or incurred prior to the Petition Date in relation to the Company’s efforts to restructure its corporate-level debt are recorded in prepetition charges in the Company’s accompanying consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2021, the Company incurred prepetition charges of approximately $38.1 million and $52.5 million, respectively, which consisted of legal, professional and transaction success fees. The Company expects to continue to incur ongoing legal and professional fees as the Chapter 11 Cases proceed. In addition, the Company's arrangements with certain providers of legal and professional services include transaction success fees totaling approximately $11.7 million that are payable upon approval of the Plan by the Bankruptcy Court and achievement of certain other milestones. No such costs were incurred in 2020.

Reorganization Items

Any expenses, gains and losses that are realized or incurred as of or subsequent to the Petition Date, and as a direct result of the Chapter 11 Cases, are recorded in reorganization items in the Company’s accompanying consolidated statements of operations and comprehensive loss. The following table presents the reorganization items incurred for the three and six months ended June 30, 2021:



	For the Three and Six Months Ended June 30, 2021
Write off of debt issuance costs, including debt discount (non-cash)	$	21,331
Legal and professional fees	3,058

Reorganization items	$	24,389

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

(Debtors-In-Possession)

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)

Liabilities Subject to Compromise

As of June 30, 2021, the Company has reclassified certain liabilities to liabilities subject to compromise in the Company's accompanying consolidated balance sheets. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may ultimately be settled for less. The following table presents the Company's liabilities subject to compromise as of June 30, 2021:


	June 30, 2021
Senior Notes	$	720,900
Revolver	647,000
Term Loan	350,000
December 2015 Term Loan	340,000
Weberstown Term Loan	65,000
Unpaid accrued interest	50,311

Prepetition unsecured or undersecured claims	85,898
	$	2,259,109

The classification of liabilities "not subject to compromise" versus liabilities "subject to compromise" is based on currently available information, analysis, and accruals as of June 30, 2021. As the Chapter 11 Cases proceed and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification of amounts may change and such changes may be significant.

Condensed Combined Financial Statements - Company Parties (Debtors-In-Possession)

The condensed combined financial statements of the Company Parties has been prepared to include the accounts of the Company Parties and excludes equity interests in and, the results of, certain subsidiaries that are not party to the Chapter 11 Cases. Intercompany transactions among the Company Parties have been eliminated in consolidation and intercompany transactions with subsidiaries that are not party to the Chapter 11 Cases have not been eliminated.

The following table presents the condensed combined statement of operations of the Company Parties for the six months ended June 30, 2021:


	For the Six Months Ended June 30, 2021
Total revenues	$	189,450
Depreciation and amortization	(74,844)
Expenses	(158,349)
Interest expense	(79,023)
Reorganization items	(24,389)
Gain on disposition of interests in properties, net	2,462
Income and other taxes	129
Net loss	$	(144,564)

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

(Debtors-In-Possession)

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 following table presents the condensed combined balance sheet of the Company Parties as of June 30, 2021:


	June 30, 2021
ASSETS:
Investment properties at cost	$	4,266,172
Less: accumulated depreciation	(1,754,162)
Net investment in real estate	2,512,010
Cash and cash equivalents	60,671
Restricted cash	1,410
Intercompany due from non-debtor entities	67,321
Tenant receivables and accrued revenue, net	62,024
Deferred costs and other assets	74,041
Total assets	$	2,777,477
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY:
Accounts payable, accrued expenses, intangibles, and deferred revenues	$	76,262
Debtor in possession financing	50,000
Intercompany due to non-debtor entities	34,397
Other indebtedness	91,406
Total liabilities not subject to compromise	252,065

Total liabilities subject to compromise	2,259,109
Total liabilities	2,511,174
Redeemable noncontrolling interests	3,385
Stockholders' equity	261,968
Noncontrolling interests	950
Total liabilities, redeemable noncontrolling interests and equity	$	2,777,477

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

(Debtors-In-Possession)

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 following table presents the condensed combined statement of cash flows of the Company Parties for the six months ended June 30, 2021:


	For the Six Months Ended June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(144,564)
Adjustments to reconcile net loss to net cash used in by operating activities:
Depreciation and amortization, including fair value rent, fair value debt, deferred financing costs and equity-based compensation	78,439
Reorganization items (non-cash)	22,400
Changes in other assets and liabilities, net	38,232
Net cash used in operating activities	(5,493)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net	(45,743)
Net cash used in investing activities	(45,743)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to noncontrolling interest holders in properties, preferred unit holders and non-debtor entities, net	(4,789)
Proceeds from issuance of debt, net of financing costs	49,573

Net cash provided by financing activities	44,784
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(6,452)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period	68,533
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period	$	62,081
Reconciliation from condensed combined statement of cash flows to condensed combined balance sheet
Cash and cash equivalents	$	60,671
Restricted cash	1,410
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period	$	62,081

SUPPLEMENTAL INFORMATION:
Cash paid for reorganization items	$	1,989

Going Concern Considerations

In accordance with Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period. In evaluating the Company’s ability to continue as a going concern, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued on August 9, 2021.

The accompanying consolidated financial statements have been prepared in conformity with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern.

The filing of the Chapter 11 Cases by the Company Parties constituted an event of default that resulted in the automatic acceleration of certain monetary obligations to be immediately due and payable with respect to the December 2015 Term Loan, the Revolver, the Senior Notes, the Term Loan and the Weberstown Term Loan. The filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the WPG L.P.'s subsidiaries, which may result in the acceleration of the outstanding principal and other sums due.

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

(Debtors-In-Possession)

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)

Given the acceleration of the aforementioned obligations, as well as the inherent risks, unknown results and inherent uncertainties associated with the bankruptcy process and the direct correlation between these matters and the Company's ability to satisfy its financial obligations that may arise, the Company believes that there is substantial doubt that it will continue to operate as a going concern within one year after the date the financial statements are issued on August 9, 2021. The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that the Company will confirm and consummate the Plan as set forth in the RSA or complete another plan of reorganization with respect to the Chapter 11 Cases. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

3. Summary of Significant Accounting Policies

Fair Value Measurements

The Company measures and discloses its fair value measurements in accordance with ASC Topic 820 - “Fair Value Measurement” (“Topic 820”). 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.

The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under Topic 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions.

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 open air properties, 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.

Reclassifications

For the six months ended June 30, 2021, provision for bad debt related to certain ancillary income of $246 was reclassified from rental to other income and for three and six months ended June 30, 2020, provision for bad debt related to certain ancillary income of $707 and $885, respectively, was reclassified from rental income to other income, respectively, to conform with the 2021 presentation.

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

(Debtors-In-Possession)

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)

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR"). Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. If elected, an entity would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities electing relief would need to apply it consistently for all eligible modified contracts accounted for under a particular codification topic or industry subtopic. Additionally, entities can elect various optional expedients that would allow them to continue to apply hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Entities electing relief related to hedging relationships can generally elect to apply the optional expedients on a hedge-by-hedge basis.

The guidance is effective upon issuance and can be applied to modifications of existing contracts made after January 1, 2020 and can be applied to eligible hedging relationships existing as of or entered into after the same date. The relief is temporary and cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. As of June 30, 2021, we had approximately $100.3 million of our aggregate consolidated indebtedness currently indexed to LIBOR and approximately $1.4 billion of our aggregate consolidated indebtedness that was previously indexed to LIBOR but is currently indexed to U.S. Prime (see Note 6 - "Indebtedness" for additional discussion). In addition, as of June 30, 2021, we have certain derivative contracts that are indexed to LIBOR (see Note 7 – “Derivative Financial Instruments” for details) that previously hedged certain variable rate debt instruments. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

The following is a summary of our beginning and ending cash, cash equivalents and restricted cash totals as presented in our statements of cash flows for the six months ended June 30, 2021 and 2020:


	Balance at June 30,				Balance at December 31,
	2021		2020		2020		2019
Cash and cash equivalents	$	91,318	$	127,019	$	92,618	$	41,421
Restricted cash	38,084		36,632		37,614		34,054
Total cash, cash equivalents and restricted cash	$	129,402	$	163,651	$	130,232	$	75,475

Restricted cash primarily relates to cash held in escrow for payment of real estate taxes and property reserves for maintenance, expansion or leasehold improvements as required by our mortgage loans. Restricted cash is included in "Deferred costs and other assets" in the accompanying balance sheets as of June 30, 2021 and December 31, 2020.

4. Investment in Real Estate

2021 Dispositions

We are party to a purchase and sale agreement to sell certain outparcels to FCPT Acquisitions, LLC ("Four Corners"). The following table summarizes the key terms of each of the closings that occurred during the three and six months ended June 30, 2021:


Sales Date	Parcels Sold	Purchase Price		Sales Proceeds
January 27, 2021	1	$	2,121	$	2,109

Based upon the closings above and amendments executed as of June 30, 2021, the Company has approximately $15.6 million of gross proceeds remaining to close, subject to due diligence and closing conditions. Additionally, during the six months ended June 30, 2021, the Company sold certain developed outparcels for an aggregate purchase price of approximately $2.6 million, receiving net proceeds of approximately $2.4 million. The net proceeds from the disposition activities were generally used to fund ongoing redevelopment efforts and for general corporate purposes. In connection with the 2021 disposition activities, the Company recorded a net gain of $2.5 million for the six months ended June 30, 2021, which is included in gain on disposition of interests in properties, net in the accompanying consolidated statements of operations and comprehensive loss.

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

(Debtors-In-Possession)

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)

2020 Dispositions

On March 13, 2020, Seminole Towne Center, located in Sanford, Florida, was transitioned to the lender pursuant to the terms within a deed-in-lieu of foreclosure agreement. This property was held in an unconsolidated joint venture and all operational involvement between us and the related property ceased in connection with this transition (see Note 5 - "Investment in Unconsolidated Entities, at Equity" for additional details).

On January 31, 2020, we completed the sale of Dekalb Plaza, located in King of Prussia, Pennsylvania, to an unaffiliated private real estate investor for a purchase price of $13.6 million. The net proceeds of $13.4 million was used to fund ongoing redevelopment efforts and general corporate purposes.

On January 14, 2020, we completed the sale of Matteson Plaza, located in Matteson, Illinois, to an unaffiliated private real estate investor for a purchase price of $1.1 million. The net proceeds of $0.4 million was used for general corporate purposes.

The following table summarizes the key terms of each of the closings with Four Corners that occurred during the three and six months ended June 30, 2020:


Sales Date	Parcels Sold	Purchase Price		Sales Proceeds
February 13, 2020	2	$	1,961	$	1,945

Additionally, during the six months ended June 30, 2020, the Company sold certain undeveloped land parcels and developed outparcels for an aggregate purchase price of approximately $2.4 million, receiving net proceeds of approximately $2.2 million. The net proceeds from the disposition activities were generally used to fund ongoing redevelopment efforts and for general corporate purposes. In connection with the 2020 disposition activities, the Company recorded net gains of $0.4 million and $27.2 million for the three and six months ended June 30, 2020, which is included in gain on disposition of interests in properties, net in the accompanying consolidated statements of operations and comprehensive loss.

Impairment

During the quarter ended June 30, 2020, we recorded an impairment charge of approximately $23.8 million related to two enclosed retail properties based on the total estimated fair value of $12.6 million and the related carrying value. The impairment charge was attributed to declines in the estimated undiscounted cash flows which resulted in the carrying value not being recoverable. The fair value of each property was based on the respective discounted future cash flows of each property, using a discount rate range of 18.8% to 19.3% and a terminal capitalization rate range of 16.8% to 17.3%, which were determined using management's assessment of the property operating performance and general market conditions (Level 3 inputs). We did not have any impairment losses during the quarter ended June 30, 2021.

During the quarter ended March 31, 2020, we recorded an impairment charge of approximately $1.3 million related to vacant land at Georgesville Square, located in Columbus, Ohio and a single tenant outparcel located in Topeka, Kansas (the "Topeka Property"). The impairment charges in both instances were due to changes in facts and circumstances when we decided to hold the assets for a shorter period which resulted in the carrying value not being recoverable from the projected cash flows. In the case of the vacant land at Georgesville Square, which was sold during the second quarter of 2020, the fair value was based on the sales price (Level 1 input). In the case of the Topeka Property, the fair value was based on general market conditions (Level 3 inputs). We did not have any impairment losses during the quarter ended March 31, 2021.

5. Investment in Unconsolidated Entities, at Equity

The Company's investment activity in unconsolidated real estate entities during the six months ended June 30, 2021 and June 30, 2020 consisted of investments in the following material joint ventures:

•The O'Connor Joint Venture I

This investment consists of a 51% noncontrolling interest held by the Company in a portfolio of five enclosed retail properties and related outparcels, 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. We retain management, leasing, legal, construction, and development responsibilities for the O'Connor Joint Venture I.

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

(Debtors-In-Possession)

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 December 20, 2019, the O'Connor Joint Venture I closed on the extension of the mortgage loan secured by The Mall at Johnson City. The extension was effective May 6, 2020 and extended the maturity of the mortgage loan to May 6, 2023, with two additional one-year extension options available to the joint venture. The extension required a $5.0 million principal prepayment on May 6, 2020, in addition to funding certain reserve accounts of $10.0 million for future redevelopment and property improvements. On June 11, 2020, and in response to the COVID-19 pandemic, the O'Connor Joint Venture I executed a standstill agreement with the lender that extended the effective date of the extension to December 1, 2020 at which time the O'Connor Joint Venture I extended the maturity of the mortgage loan pursuant to the terms and payment requirements noted above.

•The O'Connor Joint Venture II

This investment consists of a 51% noncontrolling interest held by the Company in a portfolio of seven retail properties and certain related outparcels, consisting of the following: The Arboretum, located in Austin, Texas; Arbor Hills, located in Ann Arbor, Michigan; Classen Curve and The Triangle at Classen Curve, each located in Oklahoma City, Oklahoma and Nichols Hills Plaza, located in Nichols Hills, Oklahoma (the "Oklahoma City Properties"); Gateway Centers, located in Austin, Texas; Malibu Lumber Yard, located in Malibu, California; Palms Crossing I and II, located in McAllen, Texas; and The Shops at Arbor Walk, located in Austin, Texas (the "O'Connor Joint Venture II"). We retain management, leasing, legal, construction, and development responsibilities for the O'Connor Joint Venture II.

•The Seminole Joint Venture

This investment consisted of a 45% legal interest held by the Company in Seminole Towne Center, an approximate 1.1 million square foot enclosed regional retail property. The Company had no effective financial interest in this property due to preferences. On March 13, 2020, the property held through this venture was transitioned to the lender pursuant to the terms within a deed-in-lieu of foreclosure agreement and all involvement between us and the related property ceased in connection with this transition. We recorded a gain of $15.4 million related to our cash distributions and losses in the Seminole Joint Venture, which is included in gain on disposition of interests in properties, net in the accompanying consolidated statements of operations and comprehensive loss.

Individual agreements specify which services the Company is to provide to each joint venture. The Company, through its affiliates, provides management, leasing, legal, construction and development services for a fee to the joint ventures as noted above. We recorded fee income of $2.6 million and $5.0 million for the three and six months ended June 30, 2021, respectively, and $1.2 million and $3.4 million for the three and six months ended June 30, 2020, respectively, which are included in other income in the accompanying consolidated statements of operations and comprehensive loss. Advances to the joint ventures totaled $0.3 million as of June 30, 2021 and December 31, 2020, which are included in investment in and advances to unconsolidated entities, at equity in the accompanying consolidated balance sheets. Management deems this balance to be collectible and anticipates repayment within one year.

The following table presents the combined statements of operations for our joint ventures for the three and six months ended June 30, 2021 and 2020:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Total revenues	$	56,733	$	44,342	$	111,462	$	107,565
Operating expenses	25,037		20,869		49,750		47,769
Depreciation and amortization	20,284		20,916		41,350		46,305
Operating income	11,412		2,557		20,362		13,491
Gain on sale of interests in properties	—		2,039		—		2,039
Gain on extinguishment of debt	—		—		—		15,605
Interest expense, taxes, and other, net	(12,127)		(12,142)		(24,118)		(24,569)
Net (loss) income of the Company's unconsolidated real estate entities	$	(715)	$	(7,546)	$	(3,756)	$	6,566

Our share of loss from the Company's unconsolidated real estate entities	$	(873)	$	(4,754)	$	(3,080)	$	(5,786)

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

(Debtors-In-Possession)

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 following table presents the combined balance sheets of our joint ventures as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
Assets:
Investment properties at cost, net	$	1,831,075	$	1,829,481
Construction in progress	36,277		50,794
Cash and cash equivalents	53,219		41,273
Tenant receivables and accrued revenue, net	34,313		45,877
Deferred costs and other assets (1)	287,191		295,121
Total assets	$	2,242,075	$	2,262,546
Liabilities and Members’ Equity:
Mortgage notes payable	$	1,208,180	$	1,214,679
Accounts payable, accrued expenses, intangibles, and deferred revenues(2)	282,723		293,336
Total liabilities	1,490,903		1,508,015
Members’ equity	751,172		754,531
Total liabilities and members’ equity	$	2,242,075	$	2,262,546
Our share of members’ equity, net	$	394,219	$	396,370

Our share of members’ equity, net	$	394,219	$	396,370
Advances and excess investment	20,446		19,969
Net investment in and advances to unconsolidated entities, at equity	$	414,665	$	416,339

(1) Includes value of acquired in-place leases and acquired above-market leases with a net book value of $64,112 and $68,028 as of June 30, 2021 and December 31, 2020, respectively. Additionally, includes right-of-use assets of $173,445 and $173,304 related to ground leases for which our joint ventures are the lessees as of June 30, 2021 and December 31, 2020, respectively.

(2) Includes the net book value of below market leases of $32,876 and $35,882 as of June 30, 2021 and December 31, 2020, respectively. Additionally, includes lease liabilities of $173,445 and $173,304 related to ground leases for which our joint ventures are the lessees as of June 30, 2021 and December 31, 2020, respectively.

6. Indebtedness

Mortgage Debt

Total mortgage indebtedness at June 30, 2021 and December 31, 2020 was as follows:


	June 30, 2021		December 31, 2020
Face amount of mortgage loans	$	1,032,641	$	1,104,375
Fair value adjustments, net	1,059		1,685
Debt issuance cost, net	(4,392)		(4,407)
Carrying value of mortgage loans	$	1,029,308	$	1,101,653

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

(Debtors-In-Possession)

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, 2020 to June 30, 2021 is summarized as follows:


Balance at December 31, 2020	$	1,101,653

Write off of issuance costs associated with liabilities subject to compromise	19
Debt amortization payments	(6,734)
Reclass of Weberstown Term Loan to liabilities subject to compromise	(65,000)
Issuance costs incurred upon debt modifications	(790)
Amortization of fair value and other adjustments	(626)
Amortization of debt issuance costs	786
Balance at June 30, 2021	$	1,029,308

On June 8, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed an extension of the $50.3 million non-recourse mortgage loan secured by Town Center at Aurora, located in Aurora, Colorado. Under the terms of the extension, the maturity date was extended to April 1, 2024, with two additional one-year extension options available to the borrower. The extension requires monthly interest payments and a quarterly principal payment of $0.3 million and will bear interest at one-month LIBOR plus 300 basis points per annum.

On June 8, 2021, the $65.0 million Weberstown Term Loan matured (see Note 2 - "Chapter 11 Cases and Ability to Continue as a Going Concern" for additional details).

On April 22, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed a modification of the $35.4 million full-recourse mortgage loan secured by Southgate Mall, located in Missoula, Montana. The modification addressed a technical default resulting from a shortfall in the debt service coverage ratio, and extended the maturity of the mortgage note to September 27, 2023. Under the modified terms, the mortgage loan bears interest at U.S. Prime plus 150 basis points, with a floor of 4.75% per annum.

Corporate and Other Debt

On February 15, 2021, we deferred the approximately $23.2 million semi-annual interest payment on the Senior Notes and commenced a 30-day grace period under the terms of the indenture governing the Senior Notes. On June 13, 2021, or the Petition Date, the Company Parties commenced the Chapter 11 Cases in the Bankruptcy Court and filed the Plan and disclosure statement in connection with such cases. The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the applicable credit agreements governing the December 2015 Term Loan, the Revolver, the Senior Notes, the Term Loan and the Weberstown Term Loan. The Company Parties believe that any efforts to enforce the financial obligations under the applicable credit agreements are stayed as a result of the filing of the Chapter 11 Cases in the Bankruptcy Court and the creditors' rights of enforcement in respect to the applicable credit agreements are subject to the applicable provisions of the Bankruptcy Code.

On June 22, 2020, in order to accelerate repayment and bolster liquidity, the Company accepted the terms of a reduced payoff of the $55.0 million bridge financing provided in connection with the failed sale and leaseback noted below. In exchange for settling the bridge financing, the Company received $30.0 million in cash and the buyer/lessor reduced monthly payments that we owe under the leases totaling approximately $15.7 million over 27 months, commencing July 1, 2020. The present value of the reduced rent payments was reclassified from note receivable to other indebtedness, which is presented net of the accretion adjustment in the table below, and the Company recorded an impairment on the note receivable of approximately $11.2 million in connection with the extinguishment. The proceeds were used for general corporate purposes.

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

(Debtors-In-Possession)

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 following table identifies our total corporate debt outstanding at June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
Debtor-in-possession financing
Face amount(1)	$	50,000	$	—

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

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

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

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

(1) The DIP Facility provides for financing in the aggregate principal amount of $100.0 million under a non-amortizing multiple draw super-priority secured term loan facility and bears interest at the greater of LIBOR or 0.75% plus 4.25% per annum.

(2) The Senior Notes due 2024 were issued at a 1.533% discount and bear interest at 6.450% per annum. The Senior Notes due 2024 mature on August 15, 2024.

(3) The revolving credit facility, or "Revolver" and term loan, or "Term Loan" are collectively known as the "Facility."

(4) The Term Loan bears interest at U.S. Prime plus 3.60% or 6.85% per annum and will mature on December 30, 2022.

(5) The December 2015 Term Loan bears interest at U.S. Prime plus 3.60% or 6.85% per annum and will mature on January 10, 2023.

(6) The Revolver provides borrowings on a revolving basis up to $650.0 million, bears interest at U.S. Prime plus 3.25%, and will initially mature on December 30, 2021, subject to two six-month extensions available at our option subject to compliance with terms of the Facility and payment of a customary extension fee. At June 30, 2021, we had an aggregate available borrowing capacity of $3.0 million under the Revolver, however, we are unable to draw on the remaining capacity at this time. At June 30, 2021, the applicable interest rate on the Revolver was U.S. Prime plus 3.25%, or 6.50% per annum.

(7) The Weberstown Term Loan bears interest at the greater of LIBOR or 50 basis points, plus 5.30% or 5.80% and matured on June 1, 2021. In connection with the commencement of the Chapter 11 Cases, this term loan was reclassified from mortgage notes payable to liabilities subject to compromise as of June 30, 2021.

(8) Represents the financial liability associated with our failed sale and master ground leaseback of land at Edison Mall, located in Fort Myers, Florida; Great Lakes Mall, located in Mentor, Ohio; Irving Mall, located in Irving, Texas; and Jefferson Valley Mall, located in Yorktown Heights, New York (collectively, the "Properties"). The master ground lease has a 99-year term and includes fixed annual payments at an initial annualized rate of 7.4%, with annual rent escalators over the aforementioned term. The anticipated settlement amount represents the year 30 repurchase option price of $109.3 million to reacquire the fee interest in the land at the Properties, to which the carrying value of the financial liability is being accreted to, through interest expense, during the repurchase period. Expense is being recognized utilizing an effective interest rate of 8.52% per annum during the repurchase period.

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

(Debtors-In-Possession)

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)

(9) In connection with the commencement of the Chapter 11 Cases, the principal amount of the applicable corporate debt was reclassified to liabilities subject to compromise in the accompanying consolidated balance sheet as of June 30, 2021 and the applicable debt issuance costs and discounts were written off to reorganization items.

Covenants

Our corporate debt agreements contain financial and other covenants. If we were to fail to comply with these covenants, after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by the lender including adjustments to the applicable interest rate. On February 15, 2021, we deferred the semi-annual interest payment on the Senior Notes. On June 13, 2021 the Company Parties commenced the Chapter 11 Cases in the Bankruptcy Court. The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the applicable credit agreements governing the December 2015 Term Loan, the Revolver, the Senior Notes, the Term Loan and the Weberstown Term Loan. The Company Parties believe that any efforts to enforce the financial obligations under the applicable credit agreements are stayed as a result of the filing of the Chapter 11 Cases in the Bankruptcy Court and the creditors' rights of enforcement in respect to the applicable credit agreements are subject to the applicable provisions of the Bankruptcy Code.

The total balance of mortgages was approximately $1.0 billion as of June 30, 2021. At June 30, 2021, certain of our consolidated subsidiaries were the borrowers under 20 non-recourse loans and two full-recourse loans secured by mortgages encumbering 24 properties, including one separate pool of cross-defaulted and cross-collateralized mortgages encumbering a total of four properties. Under these cross-default provisions, a default under any mortgage included in the cross-defaulted pool may constitute a default under all mortgages within that pool and may lead to acceleration of the indebtedness due on each property within the pool. Certain of our secured debt instruments contain financial and other non-financial covenants which are specific to the properties which serve as collateral for that debt. If the borrower fails to comply with these covenants, the lender could accelerate the debt and enforce its right against their collateral. Our existing non-recourse mortgage loans generally prohibit our subsidiaries that are borrowers thereunder from incurring additional indebtedness, subject to certain customary and limited exceptions. In addition, certain of these instruments limit the ability of the applicable borrower's parent entity from incurring mezzanine indebtedness unless certain conditions are satisfied, including compliance with maximum loan to value ratio and minimum debt service coverage ratio tests. Further, under certain of these existing agreements, if certain cash flow levels in respect of the applicable mortgaged property (as described in the applicable agreement) are not maintained for at least two consecutive quarters, the lender could accelerate the debt and enforce its right against its collateral. The consolidated subsidiaries discussed below are not subject to the Chapter 11 Cases.

On June 30, 2021, we received a letter dated the same date, from the lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the $77.0 million mortgage loan secured by Dayton Mall, located in Dayton, Ohio, was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning in May 2021. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. The Company continues to own, manage and lease the property.

On June 30, 2021, we received a letter dated June 28, 2021, from the lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the $67.7 million mortgage loan secured by Brunswick Square Mall, located in East Brunswick, New York, was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning in May 2021. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. The Company continues to own, manage and lease the property.

On June 17, 2021, the $92.6 million mortgage loan secured by Cottonwood Mall, located in Albuquerque, New Mexico, was transferred to special servicing because the borrower, a consolidated subsidiary of WPG L.P., elected to not make monthly debt service payments beginning in May 2021. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. The Company continues to own, manage and lease the property.

During the first quarter of 2021, the borrower, a consolidated subsidiary of WPG L.P., on the $35.4 million full-recourse mortgage loan secured by Southgate Mall experienced a technical default as a result of the debt service coverage ratio being below the minimum allowable ratio. On April 22, 2021, as described above, the borrower executed a modification of the mortgage loan to cure the technical default.

On February 9, 2021, we received a notice of default letter, dated that same day, from the special servicer to the borrower, a consolidated subsidiary of WPG L.P., concerning the $47.3 million mortgage loan secured by Lincolnwood Town Center, located in Lincolnwood, Illinois. The notice was issued by the special servicer because the funds maintained in the cash management account were insufficient to pay the full January 2021 mortgage payment. On April 8, 2021, the Company received notification that a receiver had been appointed to manage and lease the property. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. An affiliate of WPG continues to hold title to the property.

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

(Debtors-In-Possession)

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 February 2, 2021, we received a notice of default letter, dated December 8, 2020, from the special servicer to the borrower, a consolidated subsidiary of WPG L.P., concerning the $16.6 million mortgage loan secured by Anderson Mall, located in Anderson, South Carolina. The notice was issued by the special servicer because the borrower elected to not make monthly debt service payments beginning in April 2020 in response to the COVID-19 pandemic. On March 8, 2021, the Company received notification that a receiver had been appointed to manage and lease the property. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. An affiliate of WPG continues to hold title to the property.

On May 26, 2020, we received a notice of default letter, dated May 14, 2020, from the special servicer to the borrower, a consolidated subsidiary of WPG L.P., concerning the $40.9 million mortgage loan secured by Port Charlotte Town Center, located in Port Charlotte, Florida. The notice was issued by the special servicer because the borrower elected to not pay the May 2020 mortgage payment due to disruption caused by the COVID-19 pandemic. On August 2, 2021, the Company received notification that a receiver had been appointed to manage and lease the property. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. An affiliate of WPG continues to hold title to the property.

On May 13, 2020, we received a letter dated that same date, from the lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the $36.1 million mortgage loan secured by Oak Court Mall & Offices, located in Memphis, Tennessee, was transferred to special servicing because the borrower elected to not make monthly debt service payments beginning in April 2020. On May 25, 2021, the Company received notification that a receiver had been appointed to manage and lease the property. The borrower continues to have discussions with the special servicer of the non-recourse loan. An affiliate of WPG continues to hold title to the property.

On February 21, 2020, we received a letter, dated that same date, from the lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the $33.1 million mortgage loan secured by Muncie Mall, located in Muncie, Indiana, was transferred to special servicing because the borrower notified the lender that future projected cash flows will be insufficient to ensure future compliance with the mortgage loan due to the loss of certain tenants. On April 14, 2020, the Company received notification that a receiver had been appointed to manage and lease the property. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. An affiliate of WPG continues to hold title to the property.

On November 5, 2019, we received a letter dated October 30, 2019, from the lender notifying the borrower, a consolidated subsidiary of WPG L.P., that the $45.1 million mortgage loan secured by Charlottesville Fashion Square, located in Charlottesville, Virginia, was transferred to special servicing because the borrower notified the lender that future projected cash flows will be insufficient to ensure future compliance with the mortgage loan due to the loss of certain tenants. On March 17, 2020, we received notification that a receiver had been appointed to manage, insure, and lease the property. The borrower continues to have discussions with the special servicer regarding this non-recourse loan. An affiliate of WPG still holds title to the property (see Note 12 - "Subsequent Events").

The Company has assessed each of the defaulted properties for impairment indicators and have concluded no impairment charges were warranted as of June 30, 2021.

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 and fixed-rate corporate debt (including variable-rate corporate debt swapped to fixed-rate and our other indebtedness, as discussed above) using cash flows discounted at current borrowing rates or Level 2 inputs. We estimate the fair values of consolidated fixed-rate unsecured notes payable using Level 1 quoted market prices, or, if no quoted market prices are available, we use quoted market prices for securities with similar terms and maturities or Level 2 inputs.

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

(Debtors-In-Possession)

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 book value and fair value of these financial instruments and the related discount rate assumptions as of June 30, 2021 and December 31, 2020 are summarized as follows:


	June 30, 2021		December 31, 2020
Book value of fixed-rate mortgages(1)	$982,391		$1,039,375
Fair value of fixed-rate mortgages	$987,693		$1,057,727
Weighted average discount rates assumed in calculation of fair value for fixed-rate mortgages	3.96	%	3.79	%

Book value of fixed-rate corporate debt(1)	$109,285		$1,420,185
Fair value of fixed-rate corporate and other debt	$158,287		$1,203,079
Weighted average discount rates assumed in calculation of fair value for fixed-rate corporate and other debt	12.40	%	10.22	%

(1) Excludes debt issuance costs and applicable debt discounts. Additionally, excludes any debt that is subject to compromise as part of the Chapter 11 Cases.

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.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative 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 income or loss ("AOCI" or "AOCL") during the term of the hedged debt transaction.

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.

Pursuant to the forbearance agreements executed prior to the Petition Date and the uncertainty surrounding the current and forecasted payment of LIBOR-indexed interest, we discontinued hedge accounting on all of our derivatives described below as of January 1, 2021. As a result, approximately $12.1 million was released from AOCL to interest expense as the Company is not able to assert that future interest payments are probable of occurring.

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

(Debtors-In-Possession)

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 of June 30, 2021, the Company had 11 outstanding interest rate derivatives with a current notional value of $640.3 million, of which 4 derivatives with a current notional amount of $250.0 million had matured and were subject to final settlement of accrued interest of approximately $1.1 million. 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, 2021 and December 31, 2020:


Derivatives designated as hedging instruments:		Balance Sheet Location	June 30, 2021		December 31, 2020
Interest rate products	Asset derivatives	Deferred costs and other assets	$	6	$	—
Interest rate products	Liability derivatives	Accounts payable, accrued expenses, intangibles, and deferred revenue	$	—	$	14,380
Interest rate products	Liability derivatives	Liabilities subject to compromise	$	7,987	$	—

The asset derivative instruments were reported at their fair value of $6 and $0 at June 30, 2021 and December 31, 2020, respectively. The liability derivative instruments were reported at their fair value of $8.0 million and $14.4 million at June 30, 2021 and December 31, 2020, respectively. Prior to January 1, 2021, cash flow hedge accounting was applied to these derivatives with a corresponding adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest allocation). Beginning January 1, 2021, all changes in value of the derivatives are recognized immediately in interest expense. For the six months ended June 30, 2021, a gain of approximately $0.1 million was recognized in interest expense based on the $6.4 million change in value of the derivatives, net of $6.3 million of interest expense related to the periodic interest settlement.

The table below presents the effect of the Company's derivative financial instruments qualifying for hedge accounting on the consolidated statements of comprehensive loss for the three and six months ended June 30, 2020:


Derivatives in Cash Flow Hedging Relationships (Interest rate products)	Location of Gain or Loss Recognized in Income on Derivatives	For the Three Months Ended June 30,		For the Six Months Ended June 30,
		2020		2020
Amount of Loss Recognized in OCL on Derivatives	Interest expense	$	(1,760)	$	(17,969)

Amount of Loss Reclassified from AOCL into Income	Interest expense	$	2,680	$	3,443

The table below presents the effect of the Company's derivative financial instruments qualifying for hedge accounting on the consolidated statements of operations for the three and six months ended June 30, 2020:


Effect of Cash Flow Hedges on Consolidated Statements of Operations	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2020		2020
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded	$	(37,445)	$	(76,080)

Amount of loss reclassified from accumulated other comprehensive loss into interest expense	$	2,680	$	3,443

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, 2021, the fair value of the derivatives in a net liability position, plus accrued interest but excluding any adjustment for nonperformance risk, related to these agreements was $9.1 million. As of June 30, 2021, the Company has not posted any collateral related to these agreements. Upon the filing of the Chapter 11 Cases, the Company was in default with the provisions as of June 30, 2021 and are required to settle its obligations under these agreements. The termination value of $9.1 million is included in liabilities subject to compromise in the accompanying consolidated balance sheet as of June 30, 2021.

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

(Debtors-In-Possession)

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 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, 2021 and December 31, 2020, 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 tables below present the Company’s net assets and (liabilities) measured at fair value as of June 30, 2021 and December 31, 2020 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, 2021
Derivative instruments, net	$	—	$	(7,981)	$	—	$	(7,981)


	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, 2020
Derivative instruments, net	$	—	$	(14,380)	$	—	$	(14,380)

8. Rental Income

We receive rental income from the leasing of retail and other space under operating leases, as we retain substantially all of the risks and benefits of ownership of the investment properties. The majority of these leases contain extension options, typically at the lessee's election, and/or early termination provisions. Further, our leases do not contain any provisions that would allow the lessee to purchase the underlying assets throughout the lease term. In most cases, consideration received typically includes either a fixed minimum rent or percentage rent component, reimbursement of a fixed portion of our property operating expenses, including utility, security, janitorial, landscaping, food court and other administrative expenses included in common area maintenance, or CAM, and reimbursement of lessor costs such as real estate taxes and insurance, computed based upon a formula in accordance with the lease terms. When not reimbursed by the fixed CAM component, CAM expense reimbursements and lessor costs are based on the tenant's proportionate share of the allocable operating expenses and CAM capital expenditures for the property. We accrue reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. We recognize differences between estimated recoveries and the final billed amounts in the subsequent year. Additionally, a large number of our tenants are also required to pay overage rents based on sales during the applicable lease year over a base amount stated in the lease agreement. We recognize overage rents only when each tenant's sales exceed the applicable sales threshold as defined in their lease. We also collect lease termination income from tenants to allow for the tenant to vacate their space prior to their scheduled lease termination date. We recognize lease termination income in the period when a termination agreement is signed, collectability is assured, and we are no longer obligated to provide space to the tenant. In the event that a tenant is in bankruptcy when the termination agreement is signed, termination fee income is deferred and recognized when, and if, it is received. We record an adjustment to rental income in the period there is a change in our assessment of whether the collectibility of operating lease payments is probable. In making this estimation, we evaluate information that includes the age of billed receivables, collection history, lease concessions granted by the Company and tenants' financial condition to assess the probability of collection.

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

(Debtors-In-Possession)

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)

We have elected the practical expedient in ASU 2016-02 to not separate non-lease components from lease components as our underlying leases qualify as operating leases and the timing and pattern of transfer of the lease and non-lease components are the same. We note that the predominant component of our leases is the lease component and thus account for the combined lease component and non-lease component (i.e. CAM) of the non-cancelable lease term on a straight-line basis in accordance with ASC 842.

Rental income also includes accretion related to above-market and below-market lease intangibles related to the acquisition of operating properties. We amortize any tenant inducements as a reduction of rental income utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.

The following table summarizes our rental income for the three and six months ended June 30, 2021 and 2020:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease payments, fixed	$	102,733	$	125,366	$	209,499	$	256,871
Operating lease payments, variable	30,177		12,897		59,589		32,001
Amortization of straight-line rent, inducements, and rent abatements	2,606		(21,586)		(517)		(20,777)
Net amortization/accretion of above and below-market leases	1,073		1,712		2,035		2,818
Change in estimate of collectibility of rental income	(2,455)		(21,632)		(8,681)		(26,745)
Total rental income	$	134,134	$	96,757	$	261,925	$	244,168

We recorded rent abatements of $3.3 million for the six months ended June 30, 2021 in response to the COVID-19 pandemic. We recorded rent abatements of $22.0 million and a change in our estimate of collectibility of rental income, including accrued (straight-line) rent, of $21.6 million, during the three and six months ended June 30, 2020 in response to the COVID-19 pandemic.

Future payments to be received under non-cancelable operating leases for each of the next five years and thereafter, excluding variable payments of tenant reimbursements, percentage or overage rents, and lease termination payments as of June 30, 2021 are as follows:


2021 (July - December)	$	212,001
2022	371,626
2023	309,551
2024	247,692
2025	194,469
Thereafter	600,862
	$	1,936,201

9. Equity

Reverse-Stock Split

On December 17, 2020, WPG Inc.'s common shareholders approved an amendment to WPG Inc.'s Amended and Restated Articles of Incorporation that effectuated a one-for-nine reverse-stock split of WPG Inc.’s common shares (the "Split"). As a result of the Split, the number of outstanding common shares of WPG Inc. was reduced from approximately 187.4 million to approximately 21.0 million upon the effective date of the Split. In addition, all outstanding WPG L.P. common operating units and all outstanding equity awards under the Company's equity plans were also adjusted by the same conversion ratio relating to the Split. The implementation of the Split increased the per share trading price of WPG Inc.’s common shares and satisfied the continued listing criteria set forth in Section 802.01C of the Listed Company Manual of the NYSE and cured the noncompliance notification received by WPG Inc. on April 28, 2020, for which we received notification from the NYSE on January 4, 2021 that the Company was no longer in violation.

Unless otherwise noted, all common share/unit and per share/unit information contained herein has been restated to reflect the Split as if it had occurred as of the beginning of the earliest period presented.

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

(Debtors-In-Possession)

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)

Exchange Rights

Subject to the terms of the limited partnership agreement of WPG L.P., limited partners in WPG L.P. have, at their option, the right to exchange all or any portion of their units for shares of WPG Inc. common stock on a 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 market value of WPG Inc.'s common stock as determined pursuant to the terms of the WPG L.P. Partnership Agreement. During the six months ended June 30, 2021, WPG Inc. issued 3,450,397 shares of common stock to certain limited partners of WPG L.P. in exchange for an equal number of units pursuant to the WPG L.P. Partnership Agreement in several separate redemption transactions. These transactions increased WPG Inc.'s ownership interest in WPG L.P. by approximately 13.9%. There were no similar transactions during the six months ended June 30, 2020.

At June 30, 2021, WPG Inc. had reserved 310,991 shares of common stock for possible issuance upon the exchange of units held by WPG L.P. limited partners.

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

The WPG Inc. Board of Directors (the "Board") has adopted the Washington Prime Group, L.P. 2014 Stock Incentive Plan (the "2014 Plan") and the Washington Prime Group, L.P. 2019 Stock Incentive Plan (the "2019 Plan"), which replaced the 2014 Plan with respect to the issuance of new awards, to grant awards to current and prospective directors, officers, employees and consultants of the Company or any affiliate. Under the 2014 Plan, an aggregate of 1,111,112 shares of common stock were reserved for issuance, with a maximum number of awards to be granted to a participant in any calendar year of 55,556 shares/units. Upon the adoption of the 2019 Plan, the annual threshold was removed. Under the 2019 Plan, an aggregate of 810,000 shares of common stock are reserved for issuance, excluding carryover shares from the 2014 Plan. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs") or other stock-based awards in WPG Inc., long term incentive units ("LTIP units" or "LTIPs") or performance units ("Performance LTIP Units") in WPG L.P. The 2019 Plan terminates, per its terms, on May 16, 2029.

The following is a summary by type of the awards that the Company issued during the six months ended June 30, 2021 and June 30, 2020 under the 2014 Plan and 2019 Plan.

Annual Long-Term Incentive Awards

During the six months ended June 30, 2020, the Company approved the terms and conditions of the 2020 annual awards (the "2020 Annual Long-Term Incentive Awards") for certain executive officers and employees of the Company. Under the terms of the awards program, each participant is provided the opportunity to receive (i) time-based RSUs and (ii) performance-based stock units ("PSUs"). RSUs represent a contingent right to receive one WPG Inc. common share for each vested RSU. RSUs will vest in one-third installments on each annual anniversary of the respective Grant Date (as referenced below), subject to the participant's continued employment with the Company through each vesting date and the participant's continued compliance with certain applicable covenants. During the service period, dividend equivalents will be paid in cash accruals or under some circumstances, common shares, with respect to the RSUs corresponding to the amount of any cash dividends paid by the Company to WPG Inc.'s common shareholders for the applicable dividend payment dates. Compensation expense is recognized on a straight-line basis over the three year vesting term. Actual PSUs earned may range from 0% to 150% of the PSUs allocated to the award recipient, based on WPG Inc.'s total shareholder return ("TSR") compared to a peer group based on companies with similar assets and revenue over a three-year performance period that commenced on the respective Grant Date (as referenced below). During the performance period, dividend equivalents corresponding to the amount of any regular cash dividends paid by the Company to WPG Inc.’s common shareholders for the applicable dividend payment dates will accrue and be deemed reinvested in additional PSUs, which will be settled in common shares at the same time and only to the extent that the underlying PSU is earned and settled in common shares. Payout of the PSUs is also subject to the participant’s continued employment with the Company through the end of the performance period. The PSUs were valued through the use of a Monte Carlo model and the related compensation expense is recognized over the three-year performance period. No comparable awards were issued during the six months ended June 30, 2021.

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

(Debtors-In-Possession)

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 following table summarizes the issuance of the 2020 Annual Long-Term Incentive Awards:

2020 Annual Long-Term Incentive Awards

Grant Date

February 25, 2020

RSUs issued

152,610

Grant Date fair value per unit

$21.69

PSUs issued

152,610

Grant Date fair value per unit

$15.66

During the six months ended June 30, 2021, the performance period related to PSUs awarded in conjunction with the 2018 annual awards ended. There was no payout as the Company's TSR performance during the applicable performance period did not exceed the minimum required threshold for payout and 52,753 PSUs were forfeited.

WPG Restricted Stock Units

During the six months ended June 30, 2020, the Company awarded 136,805 RSUs, with a grant date fair value of $0.8 million, to certain employees and non-employee members of the Board. The RSUs are service-based awards and the related fair value is expensed over the applicable service periods, except in instances that result in accelerated vesting due to severance arrangements or retirement of Board members. There were no comparable awards issued during the six months ended June 30, 2021.

Stock Options

During the six months ended June 30, 2021, no stock options were granted to employees, no stock options were exercised by employees and 5,626 stock options were canceled, forfeited or expired. As of June 30, 2021, there were 57,817 stock options outstanding. During the six months ended June 30, 2020, no stock options were granted to employees, no stock options were exercised by employees and 3,493 stock options were canceled, forfeited or expired.

Share Award Related Compensation Expense

During the three and six months ended June 30, 2021, the Company recorded compensation expense pertaining to the awards granted of $1.2 million and $2.5 million, respectively, in general and administrative and property operating expense within the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2020, the Company recorded compensation expense pertaining to the awards granted of $1.9 million and $3.8 million, respectively, in general and administrative and property operating expense within the consolidated statements of operations and comprehensive loss. In certain instances, employment agreements and stock compensation programs provide for accelerated vesting when executives are terminated without cause. Additionally, the Committee may, in its discretion, accelerate the vesting for retiring Board members.

Distributions

For the three and six months ended June 30, 2021, no common share/unit dividends were declared by the Board. For the six months ended June 30, 2020, the Board declared common share/unit dividends of $1.125.

Additionally, for the three and six months ended June 30, 2021, no dividends were declared by the Board on the Series H Cumulative Redeemable Preferred Stock, Series I Cumulative Redeemable Preferred Stock or the Series I-1 Preferred Units. The $3.6 million distributions paid during the six months ended June 30, 2021 related to the fourth quarter 2020 preferred dividend declaration. The undeclared preferred dividends are cumulative and are credited to the applicable preferred equity accounts until they are declared by the Board, at which time they are reclassified to distributions payable until settled.

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

(Debtors-In-Possession)

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)

10. Commitments and Contingencies

Litigation

We are involved from time-to-time in various legal proceedings that arise in the ordinary course of our business, including, but not limited to commercial disputes, environmental matters, and litigation in connection with transactions including acquisitions and divestitures. We believe that such litigation, claims and administrative proceedings will not have a material adverse impact on our financial position or our results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated. In addition to those legal proceedings arising in the ordinary course of business, the Company is also a party to certain legal proceedings described below.

Chapter 11 Bankruptcy Proceedings

On June 13, 2021, the Company Parties filed the Chapter 11 Cases in the Bankruptcy Court (see Note 2 - "Chapter 11 Cases and Ability to Continue as a Going Concern" for additional details).

Securities Litigation

WPG and certain of its executive officers were named as defendants in two putative class action lawsuits alleging violations of the federal securities laws (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Southern District of Ohio (Eastern Division), on behalf of all persons who purchased or otherwise acquired WPG common share securities during a specified period of time stated in the respective complaints. The plaintiff in one of the Securities Class Action Litigation cases is identified as Randy Slipher and the case is captioned: Randy Slipher, Individually and On Behalf of All Others Similarly Situated, v. Washington Prime Group Inc. et al., Case: 2:21-cv-02757-JGL-KAJ. The second lawsuit was commenced by an individual identified as Jean-Marie Cousinou and the case is captioned: Jean-Marie Cousinou , Individually and On Behalf of All Others Similarly Situated, v. Washington Prime Group Inc. et al., Case: 2:21-cv-03431-SDM-EPD. The Slipher case was filed on May 24, 2021 and the Cousinou case was filed on June 9, 2021. On June 15, 2021, Plaintiff in the Slipher case voluntarily dismissed WPG from the action, but is maintaining his claims against the individual defendants. WPG remains a defendant in the Cousinou case.

Each of the complaints filed in the Securities Class Action Litigation allege violations of the federal securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding WPG’s unsecured indebtedness, liquidity, business, operations, and prospects during the periods of time specified in each suit as the class period. The plaintiff in each case seeks compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the exact amount of damages sought. The outcome of the legal proceedings that comprise the Securities Class Action Litigation cannot be predicted with certainty at this time. WPG’s insurance carriers have been placed on notice of these matters. WPG believes that the Chapter 11 Cases filed by WPG and certain of its affiliated companies, may impact the Securities Class Action Litigation, including the imposition of the automatic stay. Pursuant to the Private Securities Litigation Reform Act, it is likely that the Court will consolidate the Slipher and Cousinou case and will appoint a lead plaintiff and lead counsel. As of the date of this 10-Q, that has not occurred, although two motions to consolidate and for the appointment of lead plaintiff and lead counsel are currently pending in the Slipher case. The court in neither the Slipher case nor the Cousinou case have yet to consider or rule on class certification.

Concentration of Credit Risk

All operations are within the United States and no customer or tenant accounts for 5% or more of our consolidated revenues.

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

(Debtors-In-Possession)

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)

Lease Commitments

As of June 30, 2021, a total of four consolidated properties are subject to ground leases. The termination dates of these ground leases occur between the years of 2026 to 2076. These ground leases generally require us to make fixed annual rental payments, or a fixed annual rental plus a percentage rent component based upon the revenues or total sales of the property. Some of these leases also include escalation clauses and renewal options. For the three and six months ended June 30, 2021, we incurred ground lease expense of $204 and $410, respectively, of which $13 and $20 related to straight-line rent expense, which is included in ground rent in the accompanying consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2020, we incurred ground lease expense of $209 and $331, respectively, of which $5 and $10, respectively, related to straight-line rent expense. Additionally, the Company has two material office leases and one material garage lease. The termination dates of these leases occur between the years of 2023 to 2026. These leases generally require us to make fixed annual rental payments, plus our share of CAM expense and real estate taxes and insurance. For the three and six months ended June 30, 2021, we incurred lease expense of $615 and $1,243, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2020, we incurred lease expense of $612 and $1,261, respectively.

Future minimum lease payments due under these leases for each of the next five years and thereafter, excluding applicable extension options, as of June 30, 2021 are as follows:


2021 (July - December)	$	1,037
2022	2,099
2023	1,427
2024	999
2025	1,008
Thereafter	19,370
Total lease payments	25,940
Less: Discount	15,629
Present value of lease liabilities	$	10,311

The weighted average remaining lease term for our consolidated operating leases was 21.6 years and the weighted average discount rate for determining the lease liabilities was 8.9% at June 30, 2021. The discount rates utilized in calculating the lease liabilities represents our estimate of the Company's incremental borrowing rate over the terms that correspond to the leases. We had no financing leases as of June 30, 2021.

11. Loss Per Common Share/Unit

WPG Inc. Loss Per Common Share

We determine WPG Inc.'s basic loss per common share based on the weighted average number of shares of common stock outstanding during the period and we consider any participating securities for purposes of applying the two-class method. We determine WPG Inc.'s diluted loss per share based on the weighted average number of shares of common stock outstanding combined with the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common shares at the earliest date possible.

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

(Debtors-In-Possession)

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 following table sets forth the computation of WPG Inc.'s basic and diluted loss per common share:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Loss Per Common Share, Basic:
Net loss attributable to common shareholders - basic	$	(105,518)	$	(82,050)	$	(158,472)	$	(78,675)
Weighted average shares outstanding - basic	24,778,868		21,171,230		23,402,736		21,093,577
Loss per common share, basic	$	(4.26)	$	(3.88)	$	(6.77)	$	(3.73)

Loss Per Common Share, Diluted:
Net loss attributable to common shareholders - basic	$	(105,518)	$	(82,050)	$	(158,472)	$	(78,675)
Net loss attributable to limited partner unitholders	(1,456)		(14,931)		(11,904)		(14,314)
Net loss attributable to common shareholders - diluted	$	(106,974)	$	(96,981)	$	(170,376)	$	(92,989)
Weighted average common shares outstanding - basic	24,778,868		21,171,230		23,402,736		21,093,577
Weighted average operating partnership units outstanding	341,960		3,831,728		1,757,974		3,837,747

Weighted average common shares outstanding - diluted	25,120,828		25,002,958		25,160,710		24,931,324
Loss per common share, diluted	$	(4.26)	$	(3.88)	$	(6.77)	$	(3.73)

For the three and six months ended June 30, 2021 and 2020, additional potentially dilutive securities include contingently-issuable outstanding stock options, RSUs, and performance based components of annual or special arrangement awards. For the three and six months ended June 30, 2021, the potential dilutive effect of 57,817 contingently-issuable outstanding stock options, 66,857 RSUs and 262,919 performance based components of annual or special arrangement awards were excluded as their inclusion would be anti-dilutive. For the three and six months ended June 30, 2020, the potential dilutive effect of 63,317 contingently-issuable outstanding stock options, 66,857 RSUs and 318,669 performance based components of annual or special arrangement awards were excluded as their inclusion would be anti-dilutive.

WPG L.P. Loss Per Common Unit

We determine WPG L.P.'s basic loss earnings per common unit based on the weighted average number of common units outstanding during the period and we consider any participating securities for purposes of applying the two-class method. We determine WPG L.P.'s diluted loss per unit based on the weighted average number of common units outstanding combined with the incremental weighted average units that would have been outstanding assuming all potentially dilutive securities were converted into common units at the earliest date possible.

The following table sets forth the computation of WPG L.P.'s basic and diluted loss per common unit:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Loss Per Common Unit, Basic & Diluted:
Net loss attributable to common unitholders - basic and diluted	$	(106,974)	$	(96,981)	$	(170,376)	$	(92,989)
Weighted average common units outstanding - basic & diluted	25,120,828		25,002,958		25,160,710		24,931,324


Loss per common unit, basic & diluted	$	(4.26)	$	(3.88)	$	(6.77)	$	(3.73)

For the three and six months ended June 30, 2021 and 2020, additional potentially dilutive securities include contingently-issuable units related to WPG Inc.'s outstanding stock options, RSUs, and WPG Inc.'s performance based components of annual or special arrangement awards. For the three and six months ended June 30, 2021, the potential dilutive effect of 57,817 contingently-issuable outstanding stock options, 66,857 RSUs and 262,919 performance based components of annual or special arrangement awards were excluded as their inclusion would be anti-dilutive. For the three and six months ended June 30, 2020, the potential dilutive effect of 63,317 contingently-issuable outstanding stock options, 66,857 RSUs and 318,669 performance based components of annual or special arrangement awards were excluded as their inclusion would be anti-dilutive.

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

(Debtors-In-Possession)

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)

12. Subsequent Events

On July 9, 2021, the borrower, a consolidated subsidiary of WPG L.P., executed an extension of the $37.4 million non-recourse mortgage loan secured by Grand Central Mall, located in Parkersburg, West Virginia. Under the terms of the extension, the maturity date was extended to July 6, 2023, with two additional one-year extension options available to the borrower.

On July 16, 2021, the trustee, on behalf of the mortgage lender, conducted a non-judicial foreclosure sale of Charlottesville Fashion Square. The mortgage lender was the successful bidder at the sale and ownership is expected to transfer in the third quarter of 2021. The Company will record a gain between $30.0 million and $35.0 million related to the extinguishment of the $45.1 million mortgage loan during the third quarter of 2021.

On July 23, 2021, we received a notice of default letter dated July 21, 2021, from the special servicer to the borrower, a consolidated subsidiary of WPG L.P., concerning the $34.6 million mortgage loan secured by Ashland Town Center, located in Ashland, Kentucky. The notice was issued by the special servicer because the borrower did not repay the loan in full by its July 6, 2021 maturity date. The borrower has commenced discussions with the special servicer regarding extending this non-recourse loan. The Company continues to own, manage and lease the property.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report.

Overview - Basis of Presentation

Unless the context otherwise requires, references to "WPG," the "Company," "we," "us" and "our" refer to WPG Inc., WPG L.P. and entities in which WPG Inc. or WPG L.P. (or any affiliate) has a material ownership or financial interest, on a consolidated basis.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated balance sheets as of June 30, 2021 and December 31, 2020 include the accounts of WPG Inc. and WPG L.P., as well as their majority owned and controlled subsidiaries. The consolidated statements of operations include the consolidated accounts of the Company. All intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. The Company believes that the disclosures made are adequate to prevent the information presented from being misleading.

Voluntary Reorganization Under Chapter 11

On June 11, 2021, WPG Inc., WPG L.P. and certain of their direct and indirect subsidiaries (collectively, the "Company Parties"), entered into a Restructuring Support Agreement (the "Restructuring Support Agreement" or "RSA") with certain creditors (the "Consenting Stakeholders"), which as of the Agreement Effective Date (as defined in the RSA), represented at least 74.5% of the $997.0 million aggregate principal amount of the Term Loan and Revolver (both as defined in Note 6 - "Indebtedness"), or the "2018 Credit Facility Claims," at least 62.0% of the $340.0 million aggregate principal amount of the December 2015 Term Loan (as defined in Note 6 - "Indebtedness"), or the "2015 Credit Facility Claims," 100.0% of the aggregate $65.0 million principal amount of the term loan secured by Weberstown Mall, located in Stockton, California (the "Weberstown Term Loan"), or the "Weberstown Term Loan Facility Claims," and at least 66.7% of the $720.9 million aggregate principal amount of the Senior Notes due 2024 ( the "Senior Notes") or the "Unsecured Notes Claims."

Under the RSA, the Consenting Stakeholders have agreed, subject to certain terms and conditions, to support a financial restructuring (the "Restructuring") of the existing corporate debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the chapter 11 plan of reorganization (as may be amended, modified, or supplemented from time to time, the "Plan") that was filed on June 23, 2021 in the chapter 11 cases cases (the "Chapter 11 Cases") commenced by the Company Parties on June 13, 2021 (the "Petition Date") by filing voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Company Parties are authorized to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code. The Bankruptcy Court granted certain "first-day" relief requested by the Company Parties providing the authority, among other things, to pay employee wages and benefits and pay certain vendors and business partners for goods and services provided both before and after the Petition Date so that those designated vendors and business partners who continue to work with the Company Parties on existing terms will be paid in full and in the ordinary course of business. The Company Parties' Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Washington Prime Group Inc., et al., Case No. 21-31948 (MI).

•General Unsecured Claims: Each holder shall, at the option of the applicable Company Party, (i) receive payment in full in cash or (ii) be reinstated;

In connection with the Restructuring but prior to the Petition Date, the Company incurred prepetition charges of approximately $52.5 million in 2021, which consisted of legal, professional and transaction success fees. The Company expects to continue to incur ongoing legal and professional fees as the Chapter 11 Cases proceed. In addition, the Company's arrangements with certain providers of legal and professional services include transaction success fees totaling approximately $11.7 million that are payable upon approval of the Plan by the Bankruptcy Court and achievement of certain other milestones. Additionally, the Company incurred approximately $24.4 million of reorganization fees, which primarily relate to non-cash write offs of capitalized debt issuance cost and debt discounts associated with certain debt obligations that are subject to compromise under the Chapter 11 Cases.

COVID-19

The novel strain of coronavirus ("COVID-19") continues to have a negative impact on both the Company's operations and our tenants' revenues and businesses. While all of our shopping centers were open during the six months ended June 30, 2021, certain applicable operational limitations and restrictions remain in effect. In addition, during the six months ended June 30, 2021, we granted additional rent relief to certain of our tenants through a combination of approximately $3.3 million of rent abatements as well as rent deferrals to future periods which has impacted our fiscal year 2021 operating cash flows. A further worsening of the financial condition of our tenants may impact our continual assessment of future collectibility of rents, which could cause us to write-off additional straight-line rent that has not yet been billed. The situation continues to evolve as vaccine distribution continues to accelerate while certain geographic regions across the United States are experiencing a surge in new cases as a result of mutant strains of COVID-19, which could result in shoppers limiting their in-store purchases in exchange for curbside or on-line purchases. Additional impacts to the business and operations may arise that we are not aware of currently. We cannot predict whether, when or the manner in which the conditions surrounding COVID-19 will change, including the timing of potential additional closure requirements or the subsequent lifting of any said restrictions.

Impairment

During the quarter ended June 30, 2020, we recorded an impairment charge of approximately $23.8 million related to two enclosed retail properties based on the total estimated fair value of $12.6 million and the related carrying value. The impairment charge was attributed to declines in the estimated undiscounted cash flows which resulted in the carrying value not being recoverable. The fair value of each property was based on the respective discounted future cash flows of each property, using a discount rate range of 18.8% to 19.3% and a terminal capitalization rate range of 16.8% to 17.3%, which were determined using management's assessment of the property operating performance and general market conditions. We did not have any impairment losses during the quarter ended June 30, 2021.

During the quarter ended March 31, 2020, we recorded an impairment charge of approximately $1.3 million related to vacant land at Georgesville Square, located in Columbus, Ohio and a single tenant outparcel located in Topeka, Kansas (the "Topeka Property"). The impairment charges in both instances were due to changes in facts and circumstances when we decided to hold the assets for a shorter period which resulted in the carrying value not being recoverable from the projected cash flows. In the case of the vacant land at Georgesville Square, which was sold during the second quarter of 2020, the fair value was based on the sales price. In the case of the Topeka Property, the fair value was based on general market conditions. We did not have any impairment losses during the quarter ended March 31, 2021.

New Accounting Pronouncements

The guidance is effective upon issuance and can be applied to modifications of existing contracts made after January 1, 2020 and can be applied to eligible hedging relationships existing as of or entered into after the same date. The relief is temporary and cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. As of June 30, 2021, we had approximately $0.1 billion of our aggregate consolidated indebtedness currently indexed to LIBOR and approximately $1.4 billion of our aggregate consolidated indebtedness that was previously indexed to LIBOR but is currently indexed to U.S. Prime (see "Financing & Debt" for additional details). In addition, as of June 30, 2021, we have certain derivative contracts that are indexed to LIBOR (see Note 7 in Part 1 Item 1 for details) that previously hedged certain variable rate debt instruments. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Four Corners Outparcel Sales


Sales Date	Parcels Sold	Purchase Price		Sales Proceeds
January 27, 2021	1	$	2,121	$	2,109

The net proceeds were generally used to fund ongoing redevelopment efforts and for general corporate purposes. Based upon the closings above and amendments executed as of June 30, 2021, the Company has approximately $15.6 million remaining to close, subject to due diligence and closing conditions.

Business Opportunities

We derive our revenues primarily from retail tenant leases, including fixed minimum rent leases, percentage rent leases based on tenants' sales volumes and reimbursements from tenants for certain expenses. We seek to re-lease our spaces at higher rents and increase our occupancy rates, and to enhance the performance of our properties and increase our revenues by, among other things, adding or replacing anchors or big-box tenants, re-developing or renovating existing properties to increase the leasable square footage, and increasing the productivity of occupied locations through aesthetic upgrades, re-merchandising and/or changes to the retail use of the space. We seek growth in earnings, funds from operations ("FFO") and cash flows by enhancing the profitability and operation of our properties and investments.

Additionally, we feel there are opportunities to enhance our portfolio and balance sheet through active portfolio management. We believe that there are opportunities for us to acquire additional shopping centers that match our investment and strategic criteria. We invest in real estate properties to maximize total financial return which includes both operating cash flows and capital appreciation. We also seek to dispose of assets that no longer meet our strategic criteria. These dispositions will be a combination of asset sales and transitions of over-levered properties to lenders.

We consider FFO, net operating income, or NOI, and comparable NOI (NOI for properties owned and operating in both periods under comparison) to be key measures of operating performance that are not specifically defined by GAAP. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Reconciliations of these measures to the most comparable GAAP measure are included elsewhere in this report.

Portfolio Data

The portfolio data discussed in this overview includes key operating statistics for the Company including period ending occupancy, average base minimum rent per square foot and comparable NOI for the core properties owned and managed at June 30, 2021. The Company generates approximately 90% of the NOI from our Tier 1 and open air properties. As these properties are core to our future growth and receive the majority of our capital allocation, we disclose our operating metrics for this portion of our portfolio and exclude our noncore properties as well as our Tier 2 properties. Refer to "Enclosed Retail Property Tiers" below for our property listing as of June 30, 2021.

Ending occupancy for the Tier 1 and open air properties was 92.1% as of June 30, 2021, as compared to 92.4% as of June 30, 2020. Average base minimum rent per square foot for the core portfolio decreased 5.1% when comparing June 30, 2021 to June 30, 2020. Comparable NOI for the Tier 1 and open air properties increased 52.7% in the second quarter of 2021 when compared to the second quarter of 2020. The Tier 1 properties had an increase in comparable NOI of 69.5%, and the open air properties had an increase in comparable NOI of 29.5% in the second quarter of 2021 as compared to the same period in 2020. This year-over-year increase in NOI was primarily due to the number of temporary closures at our properties in addition to the significant rental relief provided in the 2020 period due the COVID-19 pandemic, which did not occur in the 2021 period. While the NOI growth is an encouraging sign towards stability, we are down 16.9% and 2.7%, respectively, in our Tier 1 and open air properties compared to the second quarter of 2019, and a combined decline for these core properties from the second quarter of 2019 of 12.4%.

The following table sets forth key operating statistics for the combined portfolio of the Tier 1 and open air properties:


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

(1) Ending occupancy is the percentage of managed gross leasable area, or GLA, which is leased as of the last day of the reporting period. We include all Company-owned space except for anchors, majors, freestanding office and outlots at our enclosed retail properties in the calculation of ending occupancy. Open air property GLA included in the calculation relates to all Company-owned space other than office space.

(2) Average base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy.

Current Leasing Activities

During the six months ended June 30, 2021, we signed new leases and renewal leases with terms in excess of a year (excluding enclosed retail property anchors, majors, offices, and in-line spaces in excess of 10,000 square feet) across the Tier 1 and open air portfolio, comprising approximately 1,268,300 square feet. The average annual initial base minimum rent for new leases was $23.22 per square foot ("psf") and for renewed leases was $19.78 psf. For these leases, the average for tenant allowances was $26.90 psf for new leases and $5.01 psf for renewals. During the six months ended June 30, 2020, we signed new leases and renewal leases with terms in excess of a year (excluding enclosed retail property anchors, majors, offices, and in-line spaces in excess of 10,000 square feet) across the Tier 1 and open air portfolio, comprising approximately 880,300 square feet. The average annual initial base minimum rent for new leases was $21.06 psf and for renewed leases was $17.21 psf. For these leases, the average for tenant allowances was $28.18 psf for new leases and $4.49 psf for renewals. The leasing activity for the first six months of 2021 compared to the same period in 2020, when including all leases, increased 46% to 3.1 million square feet.

Enclosed Retail Property Tiers

The following table categorizes the enclosed retail properties into their respective tiers as of June 30, 2021:

Tier 1

Tier 2/Noncore

Arbor Hills

Morgantown Mall

Tier 2

Arboretum, The

Northtown Mall

Boynton Beach Mall

Ashland Town Center

Northwoods Mall

Chautauqua Mall

Bowie Town Center

Oklahoma City Properties

Indian Mound Mall

Clay Terrace

Orange Park Mall

Lima Mall

Edison Mall

Paddock Mall

Maplewood Mall

Grand Central Mall

Pearlridge Center

New Towne Mall

Great Lakes Mall

Polaris Fashion Place

Rolling Oaks Mall

Irving Mall

Scottsdale Quarter

Sunland Park Mall

Jefferson Valley Mall

Southern Hills Mall

Westminster Mall

Lindale Mall

Southern Park Mall

Noncore

Longview Mall

Southgate Mall

Anderson Mall1

Malibu Lumber Yard

The Outlet Collection | Seattle

Brunswick Square1

Mall at Fairfield Commons, The

Town Center at Aurora

Charlottesville Fashion Square

Mall at Johnson City, The

Town Center Crossing & Plaza

Cottonwood Mall1

Markland Mall

Waterford Lakes Town Center

Dayton Mall1

Melbourne Square

Weberstown Mall

Lincolnwood Town Center1

Mesa Mall

WestShore Plaza

Muncie Mall

Oak Court Mall1

Port Charlotte Town Center1

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

Results of Operations

Activities Affecting Results

The COVID-19 pandemic had a material impact on our 2020 results and continues to have an impact on our 2021 results, which is discussed throughout this report. Additionally, the commencement of the Chapter 11 Cases and Restructuring has had a significant impact on our 2021 results and is discussed throughout this report. Finally, the following property related transactions affected our results in the comparative periods:

•During the 2021 fiscal year, we completed the sale of one outparcel to Four Corners (see further details in Note 4 of the Condensed Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1).

•On January 31, 2020, we completed the sale of Dekalb Plaza, located in King of Prussia, Pennsylvania, to an unaffiliated private real estate investor.

•On January 14, 2020, we completed the sale of Matteson Plaza, located in Matteson, Illinois, to an unaffiliated private real estate investor.

•During the 2020 fiscal year, we completed the sale of six outparcels to Four Corners.

For the purposes of the following comparisons, the transactions listed above are referred to as the "Property Transactions," and "comparable properties" refers to the remaining properties we owned and operated throughout both of the periods under comparison.

Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020

Rental income increased $37.4 million due to the improving operating conditions as the 2020 period was significantly impacted by rental abatements and rent deferrals instituted in response to the COVID-19 pandemic as well as tenant specific bankruptcy activity throughout 2020. Other income increased $2.3 million which was primarily due to a $1.3 million increase related to fee income recognized in the current period and a $1.0 million increase in property ancillary income.

Property operating expenses increased $8.5 million, which was directly attributable to increased operating expenses as the properties were operating at full capacity during the 2021 period, whereas the 2020 period was impacted by mandatory closures and capacity limitations in response to the COVID-19 pandemic. General and administrative expenses increased $1.6 million, which was primarily attributable to a change in executive equity incentive and bonus compensation as a result of the Company's restructuring efforts. The $38.1 million of prepetition charges recognized in the 2021 period primarily relate to legal and professional fees incurred prior to the commencement of the Chapter 11 Cases, whereas the 2020 period had no such costs. The $23.8 million impairment charge recorded in the 2020 period related to the write down of the two Tier 2 enclosed retail properties. There was no impairment charge recognized in the 2021 period.

Interest expense, net, increased $15.1 million, which was primarily attributed to $9.2 million of default interest charges related to our corporate debt and certain mortgage notes payable, a $4.7 million increase due to the draw on the DIP Facility and a change in interest rates on our Revolver and Term Loans (see "Financing & Debt" for capitalized terms) and a $1.2 million increase due to higher amortization of capitalized debt issuance costs related to costs incurred during our third quarter 2020 credit facility modifications which were subsequently written off in connection with the Chapter 11 Cases, as noted below. The $11.2 million impairment on note receivable recorded in the 2020 period was attributed to the discounted payoff of the seller financing provided in conjunction with our other indebtedness (see "Financing and Debt" for further details). The $24.4 million of reorganization items incurred in the 2021 period primarily relate to the write off of debt issuance costs and debt discounts related to our debt obligations that are subject to compromise. No such costs were incurred in the 2020 period.

Loss from unconsolidated entities decreased $3.9 million which was primarily attributable to the improving operating conditions as the 2020 period results were materially impacted by the COVID-19 pandemic.

For WPG Inc., net loss attributable to noncontrolling interests primarily relates to the allocation of loss to third parties based on their respective weighted average ownership of limited partnership interest in WPG L.P. During the six months ended June 30, 2021, a significant portion of the outstanding WPG L.P. units were converted to WPG Inc. common stock, which resulted in WPG Inc.'s weighted average ownership percentage increasing from 84.7% for the three months ended June 30, 2020 to 98.6% for the three months ended June 30, 2021.

Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020

Rental income increased $17.8 million due to the improving operating conditions as the 2020 period was significantly impacted by rental abatements and rent deferrals instituted in response to the COVID-19 pandemic as well as tenant specific bankruptcy activity throughout 2020. Other income increased $1.2 million which was primarily due to an increase of $1.6 million related to fee income recognized in the current period offset by a $0.4 million decrease in property ancillary income recognized in the current period.

Property operating expenses increased $10.6 million, which was directly attributable to increased operating expenses as the properties were operating at full capacity during the 2021 period, whereas the 2020 period was impacted by mandatory closures and capacity limitations in response to the COVID-19 pandemic. Depreciation and amortization decreased $7.8 million, primarily due to the accelerated depreciation of certain tenant improvements, leasing commissions, and lease-in-place intangibles during 2020 as a result of increased lease terminations due to COVID-19 and related tenant bankruptcies, in addition to the lower depreciation as a result of the 2020 impairment write-downs of certain depreciable assets. Real estate taxes decreased $1.0 million, which was primarily attributable to successful tax appeals during the first quarter of 2021. General and administrative expenses increased $3.3 million, which was primarily attributable to a change in executive equity incentive and bonus compensation as a result of the Company's restructuring efforts. The $52.5 million of prepetition charges recognized in the 2021 period primarily relate to legal and professional fees incurred prior to the commencement of the Chapter 11 Cases, whereas the 2020 period had no such costs.

The $25.1 million impairment charge recorded in the 2020 period related to the write down of two Tier 2 enclosed retail properties, the Topeka Property and vacant land. There was no impairment charge recognized in the 2021 period.

Interest expense, net, increased $28.0 million, which was primarily attributed to a net $12.1 million adjustment due to the discontinuation of hedge accounting as a result of our capital restructuring efforts, $9.2 million of default interest charges related to our corporate debt and certain mortgage notes payable, a $4.3 million increase due to the DIP Facility and a change in interest rates on our Revolver and Terms Loans (see "Financing & Debt" for capitalized terms) and a $2.4 million increase due to higher amortization of capitalized debt issuance costs related to costs incurred during our third quarter 2020 credit facility modifications which were subsequently written off in connection with the Chapter 11 Cases, as noted below. The $11.2 million impairment on note receivable recorded in the 2020 period was attributed to the discounted payoff of the seller financing provided in conjunction with our other indebtedness (see "Financing and Debt" for further details). The $24.4 million of reorganization items incurred in the 2021 period primarily relate to the write off of debt issuance costs and debt discounts related to our debt obligations that are subject to compromise. No such costs were incurred in the 2020 period.

Gain on disposition of interests in properties, net decreased $24.7 million which is primarily attributable to gains recognized during the first quarter of 2020 related to the dispositions of Matteson Plaza, Dekalb Plaza, and an unconsolidated joint venture.

Loss from unconsolidated entities decreased $2.7 million which was primarily attributable to the improving operating conditions as the 2020 period results were materially impacted by the COVID-19 pandemic.

For WPG Inc., net loss attributable to noncontrolling interests primarily relates to the allocation of loss to third parties based on their respective weighted average ownership of limited partnership interest in WPG L.P. During the six months ended June 30, 2021, a significant portion of the outstanding WPG L.P. units were converted to WPG Inc. common stock, which resulted in WPG Inc.'s weighted average ownership percentage increasing from 84.7% for the six months ended June 30, 2020 to 93.0% for the six months ended June 30, 2021.

Liquidity and Capital Resources

See "Voluntary Reorganization Under Chapter 11" at the beginning of this Item 2.

Our primary uses of cash include payment of operating expenses, working capital, debt repayment, including principal and interest, reinvestment in properties, development and redevelopment of properties, and tenant allowances. Currently, our primary sources of cash are operating cash flow and the remaining capacity under our DIP Facility.

Annually, we derive most of our liquidity from leases that generate positive net cash flow from operations. Total cash flows from operations during the six months ended June 30, 2021 was $26.4 million as compared to cash flows used in operations of $(2.1) million during the six months ended June 30, 2020. The 2020 period was directly impacted by rent relief provided to our tenants and higher tenant receivable balances as a result of the COVID-19 pandemic while the 2021 period has been impacted by costs incurred to date related to the Restructuring. Due to the seasonal nature of certain operational activities as well as the ongoing impact of both the COVID-19 pandemic and Restructuring, the cash flows from operations for the six months ended June 30, 2021 are not necessarily indicative of the cash flows from operations expected for the rest of 2021.

Our balance of cash and cash equivalents decreased $1.3 million for the six months ended June 30, 2021 to $91.3 million as of June 30, 2021. The decrease was primarily due to the payment of capital expenditures in addition to costs incurred to date related to the Restructuring, offset by a $50.0 million draw on the DIP Facility. See "Cash Flows" below for more information.

Because we own primarily long-lived income-producing assets, our financing strategy has historically relied on a combination of long-term mortgage debt as well as secured and unsecured debt supported by a quality unencumbered asset pool, providing us with ample flexibility from a liquidity perspective. Our strategy is to have the majority of our debt fixed either through fixed rate mortgages or interest rate swaps that effectively fix the interest rate. At June 30, 2021, floating rate debt (excluding loans hedged to fixed interest and including debt subject to compromise under the Chapter 11 Case) comprised 45.6% of our total consolidated debt. We will continue to monitor our borrowing mix to limit market risk.

On June 30, 2021, we had an aggregate available borrowing capacity of $3.0 million under the Revolver, net of outstanding borrowings of $647.0 million, which is unchanged from the year ended December 31, 2020. However, we are unable to draw on the remaining capacity at this time. The weighted average interest rate on the Revolver, excluding accrued default interest, was 4.5% and 3.9% during the three and six months ended June 30, 2021, respectively. Additionally, we have $50.0 million of remaining capacity available on the DIP Facility as of June 30, 2021.

The consolidated indebtedness of our business, including debt instruments subject to compromise under the Chapter 11 Cases, was approximately $3.3 billion as of June 30, 2021, or an increase of approximately $72.1 million from December 31, 2020, which is attributed to the $50.0 million draw on the DIP Facility in addition to the accelerated amortization of bond discounts and capitalized debt issuance costs associated with those debt instruments that are subject to compromise under the Chapter 11 Cases.

Additionally, as part of the Equitization Restructuring, we expect to receive subscriptions pursuant to the equity rights offering contemplated under the Plan with respect to shares of our new common stock, including amounts fully backstopped by certain of the Consenting Stakeholders. It is contemplated that the equity rights offering of up to $325.0 million will be closed on the effective date of the Plan.

Outlook

Our business model and WPG Inc.'s status as a REIT require us to regularly access the debt markets to raise funds for acquisition, development and redevelopment activity, and to refinance maturing debt. We may also, from time to time, access the equity capital markets to accomplish our business objectives. See "Voluntary Reorganization Under Chapter 11" at the beginning of this Item 2 for additional details on our outlook for 2021.

Cash Flows

Our net cash flow from operating activities totaled $26.4 million during the six months ended June 30, 2021, as compared to $(2.1) million of cash flow used in operating activities during the six months ended June 30, 2020. This increase was directly attributable improving economic conditions in addition to improving collection rates of previously deferred rents, offset by costs incurred to date related to the Restructuring. During this period, we also:

•funded capital expenditures and redevelopment projects of $68.7 million;

•received net proceeds from the sale of interests in properties and outparcels of $4.5 million;

•funded investments in unconsolidated entities of $3.9 million;

•received distributions of capital from unconsolidated entities of $2.4 million;

•received net proceeds from debt financing, refinancing and repayment activities of $42.0 million; and

•funded distributions to preferred shareholders and unitholders of $3.6 million.

We anticipate that cash generated from operations and capacity available under the DIP Facility will be sufficient for the expected timeline of the Chapter 11 Cases until emergence to meet operating expenses, monthly debt service, recurring capital expenditures, committed redevelopment and cover the majority of distributions to shareholders necessary to maintain WPG Inc.'s status as a REIT.

Financing and Debt

Mortgage Debt

Total mortgage indebtedness at June 30, 2021 and December 31, 2020 was as follows (in thousands):


	June 30, 2021		December 31, 2020
Face amount of mortgage loans	$	1,032,641	$	1,104,375
Fair value adjustments, net	1,059		1,685
Debt issuance cost, net	(4,392)		(4,407)
Carrying value of mortgage loans	$	1,029,308	$	1,101,653

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


Balance at December 31, 2020	$	1,101,653

Write off of issuance costs associated with liabilities subject to compromise	19
Debt amortization payments	(6,734)
Reclass of Weberstown Term Loan to liabilities subject to compromise	(65,000)
Issuance costs incurred upon debt modifications	(790)
Amortization of fair value and other adjustments	(626)
Amortization of debt issuance costs	786
Balance at June 30, 2021	$	1,029,308

On June 8, 2021, the $65.0 million Weberstown Term Loan matured (see "Voluntary Reorganization Under Chapter 11" for additional details).

Highly-levered Assets

As of June 30, 2021, we have identified nine consolidated mortgage loans that have leverage levels in excess of our targeted leverage. These mortgage loans total $456.2 million and encumber Anderson Mall, located in Anderson, South Carolina; Brunswick Square Mall, located in East Brunswick, New York; Charlottesville Fashion Square, located in Charlottesville, Virginia; Cottonwood Mall, located in Albuquerque, New Mexico; Dayton Mall, located in Dayton, Ohio; Lincolnwood Town Center, located in Lincolnwood, Illinois; Muncie Mall, located in Muncie, Indiana; Oak Court Mall & Offices, located in Memphis, Tennessee; and Port Charlotte Town Center, located in Port Charlotte, Florida, all of which have been identified as noncore properties. We have commenced discussions with the special servicers on these non-recourse mortgages, and we expect to improve our leverage once all, or a portion of them, are transitioned to the lenders, with minimal impact to net cash flows. See "Covenants" below for further discussion on these highly-levered assets as of June 30, 2021.

Corporate and Other Debt

During the three months ended March 31, 2021, the stated interest rates, depending on total leverage levels, on our Revolver, Term Loan and December 2015 Term Loan (see below for capitalized terms) switched from a range of LIBOR plus 2.00% to 2.60%, with a LIBOR floor of 0.50% to a range of U.S. Prime plus 1.00% to 1.60% pursuant to the terms of the underlying debt agreements. As a result of the rate change, we expect an annualized increase of approximately $23.4 million in interest payments based on rates in place at June 30, 2021. Additionally, pursuant to forbearance agreements executed prior to the Petition Date and the uncertainty surrounding the current and forecasted payment of LIBOR-indexed interest, we discontinued hedge accounting on all of our derivatives as of January 1, 2021. As a result, approximately $12.1 million was released from accumulated other comprehensive loss to interest expense as the Company is not able to assert that future interest payments are probable of occurring. Further, due to the commencement of the Chapter 11 Cases, the December 2015 Term Loan, the Revolver and the Term Loan were assessed an additional 200 basis point default interest rate and the Weberstown Term Loan was assessed an additional 300 basis point default interest rate from March 15, 2021 through the Petition Date, which resulted in additional interest expense of approximately $7.1 million for the three and six months ended June 30, 2021. Stated rates in the table below include any default spreads but may not be indicative of future interest costs as the payment of postpetition default interest may not occur.

The following table identifies our total corporate debt outstanding at June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Debtor-in-possession financing
Face amount(1)	$	50,000	$	—

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

Term loans
Face amount - Term Loan(3)(4)(9)	$	350,000	$	350,000
Face amount - December 2015 Term Loan(5)(9)

WASHINGTON PRIME GROUP INC. 10-Q