FO R M 1 0 - K
2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Washington Prime Group Inc.
Washington Prime Group, L.P.
(Exact name of Registrant as specified in its charter)
Indiana (Both Registrants)
(State or other jurisdiction of incorporation or organization)
001-36252 (Washington Prime Group Inc.)
333-205859 (Washington Prime Group, L.P.)
(Commission File No.)
46-4323686 (Washington Prime Group Inc.)
46-4674640 (Washington Prime Group, L.P.)
(I.R.S. Employer Identification No.)
180 East Broad Street
Columbus, Ohio 43215
(Address of principal executive offices)
(614) 621-9000
(Registrants' telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Washington Prime Group Inc.:
Title of each class
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
7.5% Series H Cumulative Redeemable Preferred Stock, par value $0.0001 per share
6.875% Series I Cumulative Redeemable Preferred Stock, par value $0.0001 per share
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Washington Prime Group, L.P.: None
Securities registered pursuant to Section 12(g) of the Act:
Washington Prime Group Inc.: None
Washington Prime Group, L.P.: Units of limited partnership interest (34,760,026 units outstanding as of February 21, 2018)
Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).
Washington Prime Group Inc. Yes
Washington Prime Group, L.P. Yes
No
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Washington Prime Group Inc. Yes
Washington Prime Group, L.P. Yes
No
No
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.
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Washington Prime Group Inc. Yes
No
Washington Prime Group, L.P. Yes
No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files).
Washington Prime Group Inc. Yes
No
Washington Prime Group, L.P. Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Washington Prime Group Inc.
Washington Prime Group, L.P.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check One):
Washington Prime Group, L.P. (Check One):
Large accelerated filer
Non-accelerated filer
N
(Do not check if a smaller reporting company)
Large accelerated filer
Non-accelerated filer
N
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Accelerated filer
Smaller reporting company
Emerging growth company
Emerging growth 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
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financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Washington Prime Group Inc.
Washington Prime Group, L.P.
Indicate by check mark whether Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Washington Prime Group, L.P. Yes
Washington Prime Group Inc. Yes
No
No
The aggregate market value of shares of common stock held by non-affiliates of Washington Prime Group Inc. was approximately $1.6 billion based on the closing
sale price on the New York Stock Exchange for such stock on June 30, 2017.
As of February 21, 2018, Washington Prime Group Inc. had 185,791,421 shares of common stock outstanding. Washington Prime Group, L.P. has no publicly traded
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equity and no common stock outstanding.
Portions of Washington Prime Group Inc.'s Proxy Statement in connection with its 2018 Annual Meeting of Stockholders are incorporated by reference in Part III.
Documents Incorporated By Reference
1
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2017 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.
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
84.3% of the partnership interests (“OP units”) at December 31, 2017. The remaining OP units are owned by various limited
partners. As the sole general partner of WPG L.P., WPG Inc. has the exclusive and complete responsibility for WPG L.P.’s day-
to-day management and control. Management operates WPG Inc. and WPG L.P. as one enterprise. The management of WPG Inc.
consists of the same persons who direct the management of WPG L.P. As general partner with control of WPG L.P., WPG Inc.
consolidates WPG L.P. for financial reporting purposes, and WPG Inc. does not have significant assets other than its investment
in WPG L.P. Therefore, the assets and liabilities of WPG Inc. and WPG L.P. are substantially the same on their respective
consolidated financial statements and the disclosures of WPG Inc. and WPG L.P. also are substantially similar.
The Company believes, therefore, that the combination into a single report of the annual reports on Form 10-K 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.
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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 Annual Report on Form 10-K for WPG Inc. and WPG L.P. includes, for each entity, separate 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-K, they would be discussed
separately herein.
WPG L.P. is a voluntary filer. We are evaluating whether or not WPG L.P. will continue to voluntarily file reports under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
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WASHINGTON PRIME GROUP INC. AND WASHINGTON PRIME GROUP, L.P.
Annual Report on Form 10-K
December 31, 2017
TABLE OF CONTENTS
Item No.
Part I
1.
1A.
1B.
2.
3.
4.
Part II
5.
6.
7.
7A.
8.
9.
9A.
9B.
Part III
10.
11.
12.
13.
14.
Part IV
15.
16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page No.
4
8
23
23
35
35
35
37
40
68
68
68
68
69
70
70
70
70
70
71
75
76
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Item 1. Business
Part I
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.
General
Washington Prime Group®Inc. ("WPG Inc.") is an Indiana corporation that operates as a self-administered and self-managed
real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the "Code"). WPG will generally
qualify as a REIT for U.S. federal income tax purposes as long as it continues to distribute not less than 90% of REIT taxable
income and satisfy certain other requirements. WPG 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.
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. On May 28, 2014, WPG separated from Simon Property Group Inc. ("SPG") through the distribution of 100% of
the outstanding units of WPG L.P. to the owners of Simon Property Group L.P. and 100% of the outstanding shares of WPG to
the SPG common shareholders in a tax-free distribution. Prior to the separation, WPG Inc. and WPG L.P. were wholly owned
subsidiaries of SPG and its subsidiaries ("SPG Businesses"). At the time of the separation, our assets consisted of interests in 98
shopping centers (the "WPG Legacy Properties"). On January 15, 2015, the Company acquired Glimcher Realty Trust ("GRT"),
pursuant to a definitive agreement and plan of merger with GRT and certain affiliated parties of each dated September 16, 2014
(the "Merger Agreement"), in a stock and cash transaction valued at approximately $4.2 billion, including the assumption of debt
(the "Merger"). Additionally, included in the consideration were operating partnership units held by limited partners and preferred
stock. In the Merger, we acquired material interests in 23 shopping centers (the "Merger Properties") comprised of approximately
15.8 million square feet of gross leasable area ("GLA") and assumed additional mortgages on 14 properties with a fair value of
approximately $1.4 billion. Prior to our separation from SPG, WPG Inc. entered into agreements with SPG under which SPG
provided various services to WPG Inc. relating primarily to the legacy SPG Businesses and WPG Legacy Properties, including
accounting, asset management, development, human resources, information technology, leasing, legal, marketing, public reporting
and tax. The charges for the services were based on an hourly or per transaction fee arrangement and pass-through of out-of-
pocket costs. These underlying agreements expired effective May 31, 2016.
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We own, develop and manage enclosed retail properties and open air properties. As of December 31, 2017, our assets
consisted of material interests in 108 shopping centers in the United States, comprised of approximately 59 million square feet of
GLA.
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Transactions
For a description of our operational strategies and developments in our business during 2017, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of this Form 10-K.
Segments
Our primary business is the ownership, development and management of retail real estate within the United States. 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 tenants and, in many cases,
the same tenants. For the year ended December 31, 2017, Signet Jewelers, Ltd. (based on common parent ownership of tenants
including, but not limited to, Body by Pagoda, Jared's, Kay Jewelers, Piercing Pagoda, Rogers Jewelers, and Zales Jewelers)
accounted for approximately 3.0% of base minimum rents. Further, Signet Jewelers, Ltd., L Brands, Inc. (based on common parent
ownership of tenants including Bath & Body Works, La Senza, Pink, Victoria's Secret, and White Barn Candle), Dick's Sporting
Goods (based on common parent ownership including Dick's Sporting Goods, Field & Stream, and Golf Galaxy) and Footlocker,
Inc. (based on common parent ownership including Champs Sports, Foot Action USA, Footlocker, Kids Footlocker, Lady
Footlocker, and World Footlocker), in aggregate, comprised approximately 9.7% of base minimum rents. See Item 2. "Properties"
for further information on tenant mix.
Other Policies
The following is a discussion of our investment policies, financing policies, conflicts of interest policies and policies with
respect to certain other activities. One or more of these policies may be amended or rescinded from time to time without a
stockholder vote.
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Investment Policies
We are in the business of owning, managing and operating enclosed retail properties and open air properties across the
United States and while we emphasize these real estate investments, we may also invest in equity or debt securities of other entities
engaged in real estate activities or securities of other issuers. However, any of these investments would be subject to the percentage
ownership limitations and gross income tests necessary for REIT qualification of WPG Inc. under federal tax laws as well as our
own internal policies concerning conflicts of interest and related party transactions. These REIT limitations mean that we cannot
make an investment that would cause our real estate assets to be less than 75% of our total assets. We must also derive at least
75% of our gross income directly or indirectly from investments relating to real property or mortgages on real property, including
"rents from real property," dividends from other REITs and, in certain circumstances, interest from certain types of temporary
investments. In addition, we must also derive at least 95% of our gross income from such real property investments, and from
dividends, interest and gains from the sale or dispositions of stock or securities or from other combinations of the foregoing.
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Subject to REIT limitations, we may invest in the securities of other issuers in connection with acquisitions of indirect
interests in real estate. Such an investment would normally be in the form of general or limited partnership or membership interests
in special purpose partnerships and limited liability companies that own one or more properties. We may, in the future, acquire
all or substantially all of the securities or assets of other REITs, management companies or similar entities where such investments
would be consistent with our investment policies.
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Financing Policies
Because WPG Inc.'s REIT qualification requires it to distribute at least 90% of its taxable income, we regularly access the
capital markets to raise the funds necessary to finance operations, acquisitions, strategic investments, development and
redevelopment opportunities, and to refinance maturing debt. We must comply with customary covenants contained in our financing
agreements that limit our ratio of debt to total assets or market value, as defined in such agreements. For example, WPG L.P.'s
current line of credit and term loans contain covenants that restrict the total amount of debt of WPG L.P. to 60% of total assets,
as defined under the related agreements, and secured debt to 40% of total assets, with slight easing of restrictions during the four
trailing quarters following a portfolio acquisition. In addition, these agreements contain other covenants requiring compliance
with financial ratios. Furthermore, the amount of debt that we may incur is limited as a practical matter by our desire to maintain
acceptable ratings for our equity securities and debt securities of WPG L.P. We strive to maintain investment grade ratings at all
times, but we cannot assure you that we will be able to do so in the future.
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If WPG Inc.'s Board of Directors determines to seek additional capital, we may raise such capital by offering equity or debt
securities, creating joint ventures with existing ownership interests in properties, entering into joint venture arrangements for new
development projects, or a combination of these methods. If the Board of Directors determines to raise equity capital, it may,
without shareholder approval, issue additional shares of common stock or other capital stock. The Board of Directors may issue
a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it
deems appropriate. Such securities may be senior to the outstanding classes of common stock. Such securities also may include
additional classes of preferred stock, which may be convertible into common stock. Existing shareholders have no preemptive
right to purchase shares in any subsequent offering of WPG Inc.'s securities. Any such offering could dilute a shareholder's
investment in WPG Inc.
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We expect most future borrowings would be made through WPG L.P. or its subsidiaries. Borrowings may be in the form
of bank borrowings, publicly and privately placed debt instruments, or purchase money obligations to the sellers of properties.
Any such indebtedness may be secured or unsecured. Any such indebtedness may also have full or limited recourse to the borrower
or be cross-collateralized with other debt, or may be fully or partially guaranteed by WPG L.P. Although we may borrow to fund
the payment of dividends, we currently have no expectation that we will regularly do so. See "Financing and Debt" within Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Form 10-K for a discussion
of our debt arrangements as of December 31, 2017.
We could potentially issue additional debt securities through WPG L.P., and we may issue such debt securities which may
be convertible into capital stock or be accompanied by warrants to purchase capital stock. We also may sell or securitize our lease
receivables.
We may also finance acquisitions through the issuance of common shares or preferred shares, the issuance of additional
units of partnership interest in WPG L.P., the issuance of preferred units of WPG L.P., the issuance of other securities including
unsecured notes and mortgage debt, draws on our credit facilities or sale or exchange of ownership interests in properties, including
through the formation of joint venture agreements.
WPG L.P. may also issue units to transferors of properties or other partnership interests which may permit the transferor to
defer gain recognition for tax purposes.
5
We do not have a policy limiting the number or amount of mortgages that may be placed on any particular property. Mortgage
financing instruments, however, usually limit additional indebtedness on such properties. Additionally, unsecured credit facilities,
unsecured note indentures and other contracts may limit our ability to borrow and contain limits on the amount of secured
indebtedness we may incur.
Typically, we will invest in or form special purpose entities to assist us in obtaining secured permanent financing at attractive
terms. Permanent financing may be structured as a mortgage loan on a single property, or on a group of properties, and will
generally require us to provide a mortgage lien on the property or properties in favor of an institutional third party, as a joint
venture with a third party, or as a securitized financing. For securitized financings, we may create special purpose entities to own
the properties. These special purpose entities, which are common in the real estate industry, are structured with the intention of
not being consolidated in a bankruptcy proceeding involving a parent company. We will decide upon the structure of the financing
based upon the best terms then available to us and whether the proposed financing is consistent with our other business objectives.
For accounting purposes, we will include the outstanding securitized debt of special purpose entities owning consolidated properties
as part of our consolidated indebtedness.
Conflicts of Interest Policies
We maintain policies and have entered into agreements designed to reduce or eliminate potential conflicts of interest. We
have adopted governance principles governing our affairs and those of the Board of Directors.
Under WPG Inc.’s Governance Principles, directors must disclose to the rest of the Board of Directors any potential conflict
of interest they may have with respect to any matter under discussion and, if appropriate, recuse themselves from Board of Director
discussions of, and/or refrain from voting on, such matter. Directors shall not have a duty to communicate or present any corporate
opportunity to WPG Inc. and WPG Inc. renounces any interest or expectancy in such opportunity and waives any claim against
a director arising from the fact that he or she does not present the opportunity to WPG Inc. or pursues or facilitates the pursuit of
the opportunity by others; provided, however, that the foregoing shall not apply in a case in which a director is presented with a
corporate opportunity in writing expressly in his or her capacity as a director or officer of WPG Inc.
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In addition, we have a Code of Business Conduct and Ethics, which applies to all of our officers, directors, and employees.
At least a majority of the members of WPG Inc.'s Board of Directors, Governance and Nominating Committee, Audit Committee
and Compensation Committee must qualify as independent under the listing standards for New York Stock Exchange listed
companies. Any transaction between us and any officer, WPG Inc. director or any family member of any of the foregoing persons,
or 5% shareholder of WPG Inc. must be approved pursuant to our related party transaction policy.
Policies With Respect To Certain Other Activities
We intend to make investments which are consistent with WPG Inc.'s qualification as a REIT, unless the Board of Directors
determines that it is no longer in WPG Inc.'s best interests to so qualify as a REIT. The Board of Directors may make such a
determination because of changing circumstances or changes in the REIT requirements. We have authority to offer shares of our
capital stock or other securities in exchange for property. We also have authority to repurchase or otherwise reacquire our shares
or any other securities. We may issue shares of our common stock, or cash at our option, to holders of units in future periods upon
exercise of such holders' rights under the Operating Partnership agreement. Our policy prohibits us from making any loans to our
directors or executive officers for any purpose. We may make loans to the joint ventures in which we participate. Additionally,
we may make or buy interests in loans for real estate properties owned by others.
Competition
Our direct competitors include other publicly-traded retail development and operating companies, retail real estate companies,
commercial property developers and other owners of retail real estate that engage in similar businesses. Within our property
portfolio, we compete for retail tenants and the nature and extent of the competition we face varies from property to property.
With respect to specific alternative retail property types, we have faced increased competition over the last several years from
both lifestyle centers and power centers, in addition to other open air properties and enclosed retail properties.
We believe the principal factors that retailers consider in making their leasing decisions include, but are not limited to, the
following:
• Consumer demographics;
• Quality, design and location of properties;
• Total number and geographic distribution of properties;
• Diversity of retailers and anchor tenants;
• Management and operational expertise; and
• Rental rates.
6
In addition, because our revenue potential is linked to the success of our retailers, we indirectly share exposure to the same
competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These
dynamics include general competition from other retail properties, including outlet properties and other discount shopping
properties, as well as competition with discount shopping clubs, catalog companies, direct mail, home shopping networks, and
telemarketing. The changes in consumer shopping behavior to increase purchases on-line from their computers and mobile devices
provide retailers with distribution options other than brick and mortar retail stores and has resulted in competitive alternatives that
could have a material adverse effect on our ability to lease traditional commercial retail space and on the level of rents we can
obtain.
Seasonality
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of
sales during our fiscal fourth quarter due to the holiday season, which generally results in higher percentage rent income in the
fourth quarter. Additionally, enclosed shopping centers achieve a substantial portion of their specialty (temporary retailer) rents
during the holiday season. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each
year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course
of our fiscal year.
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Environmental Matters
See Item 1A. "Risk Factors" for information concerning the potential effects of environmental regulations on our operations.
Intellectual Property
WPG L.P., by and through its affiliates, holds service marks registered with the United States Patent and Trademark Office,
including the terms Washington Prime Group® (expiration date January 2028) and The Outlet Collection® (expiration date October
2023), as well as the names of certain of our properties such as Scottsdale Quarter® (expiration date November 2019) and Polaris
Fashion Place® (expiration date July 2022), and other marketing terms, phrases, and materials it uses to promote its business,
services, and properties. Additionally, WPG L.P. has filed a trademark application with the United States Patent and Trademark
Office for the name "Tangible" and its status is pending.
Employees
At December 31, 2017, we had 845 employees, of which 135 were part-time.
Headquarters
Our corporate headquarters are located at 180 East Broad Street, Columbus, Ohio 43215, and our telephone number is
(614) 621-9000. We have an additional corporate office located at 111 Monument Circle, Indianapolis, Indiana 46204.
Available Information
WPG Inc. and WPG L.P. file this Annual Report on Form 10-K and other periodic reports and statements electronically with
the Securities Exchange Commission ("SEC"). The SEC maintains an Internet site that contains reports, statements and proxy
and information statements, and other information provided by issuers at www.sec.gov. WPG Inc.'s and WPG L.P.'s reports and
statements, including amendments, are also available free of charge on its website, www.washingtonprime.com, as soon as
reasonably practicable after such documents are filed with the SEC. The information contained on our website is not incorporated
by reference into this report and such information should not be considered a part of this report. You may also read and copy any
materials we file with the SEC at the SEC's public reference room at 100 F Street, N.E., Washington, DC 20549. You may obtain
information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
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Item 1A. Risk Factors
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)
(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:3)(cid:86)(cid:76)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:17)(cid:3)(cid:3)(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:78)(cid:78)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:17)(cid:3)
(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)(cid:15)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
Risks Related to Our Business and Operations
We might not be able to renew leases or relet space at existing properties, or lease newly developed properties.
When leases for our existing properties expire, the premises might not be relet or the terms of reletting, including the cost
of tenant allowances and concessions and the size of the space, might be less favorable than the current lease terms, due to strong
competition or otherwise. Also, we might not be able to lease new properties to an appropriate mix of tenants or for rents that are
consistent with our projections. To the extent that our leasing plans are not achieved, our business, results of operations and
financial condition could be materially adversely affected and our operational and strategic objectives may not be achieved readily
or at all.
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Our lease agreements with our tenants typically provide a fixed rate for certain cost reimbursement charges; if our operating
expenses increase or we are otherwise unable to collect sufficient cost reimbursement payments from our tenants, our business,
results of operations and financial condition might be materially adversely affected.
Energy costs, repairs, maintenance and capital improvements to common areas of our properties, janitorial services,
administrative, property and liability insurance costs and security costs are typically allocable to our properties' tenants. Our lease
agreements typically provide that the tenant is liable for a portion of such common area maintenance charges (which we refer to
as "CAM") and other operating expenses. The majority of our current leases require the tenant to pay a fixed periodic amount to
reimburse a portion of our CAM and other operating expenses. In these cases, a tenant will pay either (a) a specified rent amount
that includes the fixed CAM and operating expense reimbursement amount, or (b) a fixed expense reimbursement amount separate
from the rent payment. Generally, both types of CAM and operating expense reimbursement payments are subject to annual
increases regardless of the actual amount of CAM and other operating expenses. As a result, any adjustments in tenant payments
do not depend on whether operating expenses increase or decrease, causing us to be responsible for any excess amounts. In the
event that our operating expenses increase, CAM and tenant reimbursements that we receive might not allow us to recover a
substantial portion of these operating costs.
Additionally, the computation of cost reimbursements from tenants for CAM, insurance and real estate taxes is complex and
involves numerous judgments, including interpretation of lease terms and other tenant lease provisions, including those in leases
that we assume in connection with property acquisitions. Unforeseen or underestimated expenses might cause us to collect less
than our actual expenses. The amounts we calculate and bill could also be disputed by tenants or become the subject of a tenant nn
audit or even litigation. There can be no assurance that we will collect all or substantially all of this amount.
Some of our properties depend on anchor stores or major tenants to attract shoppers and could be materially adversely affected
by the loss of, or a store closure by, one or more of these anchor stores or major tenants.
Our open air properties and enclosed retail properties are typically anchored by department stores and other large nationally
or regionally recognized tenants. The value of some of our properties could be materially adversely affected if these department
stores or major tenants fail to comply with their contractual obligations, seek concessions in order to continue operations, or cease
their operations.
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For example, among department stores and other large stores, corporate merger or consolidation activity typically results in
the closure of duplicate or geographically overlapping store locations. Resulting adverse pressure on the businesses of our
department stores and major tenants could have an adverse impact upon our own results. Certain department stores and other
national retailers have experienced, and might continue to experience, depending on consumer confidence levels or overall economic
conditions, considerable decreases in customer traffic in their retail stores, increased competition from alternative retail options,
such as those accessible via the Internet and other mediums, and other forms of pressure on their business models. Pressure on
these department stores and national retailers could impact their ability to maintain their stores, meet their obligations both to us
and to their external lenders and suppliers, withstand takeover attempts by investors or rivals or avoid bankruptcy and/or liquidation,
all of which could result in impairment or closures of their stores. Other of our tenants might be entitled to modify the economic
or other terms of their existing leases in the event of such closures (through co-tenancy clauses), which could decrease rents and/
or operating expense reimbursements. The leases of some anchors might permit the anchor to transfer its lease, including any
attendant approval rights, to another retailer. The transfer to a new anchor could cause customer traffic in the property to decrease
or to be composed of different types of customers, which could reduce the income generated by that property and adversely impact
development or re-development prospects for such property. A transfer of a lease to a new anchor also could allow other tenants
to make reduced rental payments or to terminate their leases at the property, which could adversely affect our results of operations.
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Additionally, department store or major tenant closures might result in decreased customer traffic, which could lead to
decreased sales at our properties and adversely impact our ability to successfully execute our leasing strategy and objectives. If
the sales of stores operating in our properties decline significantly due to the closing of anchor stores or other national retailers,
adverse economic conditions, or other reasons, tenants might be unable to pay their minimum rents or expense recovery charges,
which would likely negatively impact our financial results. In the event of any default by a tenant, whether a department store,
national or regional retailer or otherwise, we might not be able to fully recover, and/or experience delays and costs in enforcing
our rights as landlord to recover, amounts due to us under the terms of our agreements with such parties.
We face risks associated with the acquisition, development, re-development and expansion of properties, including risks of
higher than projected costs, inability to obtain financing, inability to obtain required consents or approvals and inability to
attract tenants at anticipated rates.
In the event we seek to acquire and develop new properties and expand and redevelop existing properties, we might not be
successful in identifying or pursuing acquisition, development or re-development/expansion opportunities. Additionally, newly
acquired properties, developed, re-developed or expanded properties might not perform as well as expected. Other related risks
we face include, without limitation, the following:
• Construction and other development costs of a project could be higher than projected, potentially making the project
unfeasible or unprofitable;
• We might not be able to obtain financing or to refinance loans on favorable terms, if at all;
• We might be unable to obtain zoning, occupancy or other governmental approvals, or the approvals obtained may not
be adequate;
• Occupancy rates and rents might not meet our projections and as a result the project could be unprofitable; and
•
In some cases, we might need the consent of third parties, such as anchor tenants, mortgage lenders and joint venture
partners to conduct acquisition, development, re-development or expansion activities, and those consents may be
withheld, take an unexpected amount of time to be obtained, or be subject to the satisfaction of certain conditions.
If a project is unsuccessful, either because it is not meeting our expectations when operational or was not completed according
to the project planning, we could lose our investment in the project or have to incur an impairment charge relating to the asset or
development which could then adversely impact our financial results. Furthermore, if we guarantee the property's financing, our uu
loss could exceed our investment in the project.
Our assets may be subject to impairment charges that may materially affect our financial results.
We evaluate our real estate assets and other assets for impairment indicators whenever events or changes in circumstances
indicate that recoverability of our investment in the asset is not reasonably assured. Furthermore, this evaluation is conducted no
less frequently than quarterly, irrespective of changes in circumstances. Our determination of whether a particular held-for-use
asset is impaired is based upon the undiscounted projected cash flows used for the impairment analysis and our determination of
the asset's estimated fair value, that in turn are based upon our plans for the respective asset and our views of market and economic
conditions. With respect to assets held-for-sale, our determination of whether such an asset is impaired is based upon market and
economic conditions. If we determine that an impairment has occurred, then we would be required under Generally Accepted
Accounting Principles in the United States ("GAAP") to make an adjustment to the net carrying value of the asset, which could
have a material adverse effect on our results of operations in the accounting period in which the adjustment is made. Furthermore,
changes in estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions could
result in the recognition of additional impairment losses for already impaired assets, which, under the applicable accounting
guidance, could be substantial. See the "Impairment" section within Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of recent impairments.
Our ability to change the composition of our real estate portfolio is limited because real estate investments are relatively illiquid.
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Our properties represent a substantial portion of our total consolidated assets, and these investments are relatively illiquid.
As a result, our ability to sell one or more of our properties or investments in real estate in response to any changes in economic
or other conditions is limited. If we want to sell a property, we cannot be certain that we will be able to dispose of it in the desired
time period or that the sale price of a property will exceed the cost of our investment in that property, which may then have ana
adverse impact on our financial results.
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Clauses in leases with certain tenants of our development or redevelopment properties frequently include inducements, such
as reduced rent and tenant allowance payments, which can reduce our rents and Funds From Operations ("FFO"). As a
result, these development or redevelopment properties are more likely to achieve lower returns during their stabilization periods
than our previous development or redevelopment properties.
The leases for a number of the tenants that have opened stores at properties we have developed or redeveloped have reduced
rent from co-tenancy clauses that allow those tenants to pay reduced rent until occupancy at the respective property reaches certain
thresholds and/or certain named co-tenants open stores at the respective property. Additionally, some tenants may have rent
abatement clauses that delay rent commencement for a prolonged period of time after initial occupancy. The effect of these clauses
reduces our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the
future to attract tenants to our development and redevelopment properties. As a result, our current and future development and
redevelopment properties are more likely to achieve lower returns during their stabilization periods than other projects of this
nature historically have, which may adversely impact our investment in such developments, as well as our financial condition and
results of operations.
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We face a wide range of competition that could affect our ability to operate profitably.
Our properties compete with other retail properties and other forms of retail, such as catalogs and e-commerce websites.
Competition could also come from open air properties, outlet centers, lifestyle centers, and enclosed retail properties, and both
existing and future development projects. The presence of competitive alternatives might adversely impact the success of our
existing properties, our ability to lease space and the rental rates we can obtain. We also compete with other retail property
developers to acquire prime development sites. Additionally, we compete with other retail property companies for tenants and
qualified management. If we are unable to successfully compete, our business, results of operations and financial condition could
be materially adversely affected.
The increase in and prevalence of digital and mobile technology usage has increased the speed of the transition of a percentage
of market share from shopping at physical locations to web-based purchases. If we are unsuccessful in adapting our business to
changing consumer spending habits, our results of operations and financial condition could be materially adversely affected.
If we lose our key management personnel, we might not be able to successfully manage our business and achieve our objectives.
Our management team has substantial experience in owning, operating, acquiring, and developing enclosed shopping centers
and other open-air properties. A large part of our success depends on the leadership and performance of our executive management
team and we cannot guarantee that they will remain with us. If we unexpectedly lose the services of these individuals, we might
not be able to successfully manage our business or achieve our business objectives. Additionally, we continue to actively recruit
management and other professional talent within the real estate and retail industries necessary to manage our properties to optimal
performance. If we are not able to successfully recruit such personnel or cannot do so readily, this may adversely impact our
ability to manage our business, achieve our financial goals, or meet our strategic and operational objectives.
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We have limited control with respect to some properties that are partially owned or managed by third parties, which could
adversely affect our ability to sell or refinance or otherwise take actions concerning these properties that would be in the best
interests of WPG Inc.'s shareholders.
We may continue to co-invest with third parties through partnerships, joint ventures, or other entities, including without
limitation by acquiring controlling or non-controlling interests in, or sharing responsibility for, managing the affairs of a property,
partnership, joint venture or other entity. At December 31, 2017, we do not have sole decision-making authority regarding 13
unconsolidated properties that we currently hold through joint ventures with third parties.
Additionally, we might not be in a position to exercise sole decision-making authority regarding any future properties that
we hold in a partnership or joint venture. Investments in partnerships, joint ventures or other entities could, under certain
circumstances, involve risks that would not be present were a third party not involved, including the possibility that partners or
co-venturers might become bankrupt, suffer a deterioration in their financial condition, or fail to fund their share of required capital
contributions. Partners or co-venturers could have economic or other business interests or goals that are inconsistent with our own
business interests or goals, and could be in a position to take actions contrary to our policies or objectives.
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Such investments also have the potential risk of creating impasses on decisions, such as a sale or financing, because neither
we nor our partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners
or co-venturers might result in litigation or arbitration that could increase our expenses and prevent our officers and/or directors
from focusing their time and efforts on our business. Consequently, actions by, or disputes with, partners or co-venturers might
result in subjecting properties owned by the partnership or joint venture to additional risk. Additionally, we risk the possibility of
being liable for the actions of our third-party partners or co-venturers.
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Our revenues are dependent on the level of revenues realized by our tenants, and a decline in their revenues could materially
adversely affect our business, results of operations and financial condition.
We are subject to various risks that affect the retail environment generally, including levels of consumer spending, seasonality,tt
changes in economic conditions, unemployment rates, an increase in the use of the Internet by retailers and consumers, and natural
disasters. Additionally, levels of consumer spending could be adversely affected by, for example, increases in consumer savings
rates, increases in tax rates, reduced levels of income growth, interest rate increases, and other declines in consumer net worth and
a strengthening of the U.S. dollar as compared to non-U.S. currencies.
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As a result of these and other economic and market-based factors, our tenants might be unable to pay their existing minimum
rents or expense recovery charges due. Because substantially all of our income is derived from rentals of commercial real property,
our income and cash flow would be adversely affected if a significant number of tenants are unable to meet their obligations or
their revenues decline, especially if they were tenants with a significant number of locations within our portfolio. Additionally, a
decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical
rates.
Store closures and/or bankruptcy filings by tenants could occur during the course of our operations. We continually seek to
re-lease vacant spaces resulting from tenant terminations. Large scale store closings or the bankruptcy of a tenant, particularly an
anchor tenant, might make it more difficult to lease the remainder of a particular property or properties. Furthermore, certain of
our tenants, including anchor tenants, hold the right under their lease(s) to terminate their lease(s) or reduce their rental rate if
certain occupancy conditions are not met, if certain anchor tenants close, if certain sales levels (sales kick-out provisions) or profit
margins are not achieved, or if an exclusive use provision is violated, which all could be triggered in the event of one or more
tenant bankruptcies. Future tenant bankruptcies, especially by anchor tenants, could adversely affect our properties or impact our
ability to successfully execute our re-leasing strategy as well as adversely impact our ability to achieve our operational and strategic
objectives.
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Economic and market conditions could negatively impact our business, results of operations and financial condition.
The market in which we operate is affected by a number of factors that are largely beyond our control but could nevertheless
have a significant negative impact on us. These factors include, but are not limited to:
Fluctuations or frequent variances in interest rates and credit spreads;
•
• The availability of credit, including the price, terms and conditions under which it can be obtained;
• A decrease in consumer spending or sentiment, including as a result of increases in savings rates and tax increases, and
any effect that this might have on retail activity;
• The actual and perceived state of the real estate market, market for dividend-paying stocks and public capital markets
in general; and
• Unemployment rates, both nationwide and within the primary markets in which we operate.
In addition, increased inflation might have a pronounced negative impact on the interest expense we pay in connection with
our outstanding indebtedness and our general and administrative expenses, as these costs could increase at a rate higher than our
rents. Inflation might adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation
at any given time. Inflation could also have an adverse effect on consumer spending which could impact our tenants' sales and,
in turn, our own results of operations.
Conversely, deflation might result in a decline in general price levels, often caused by a decrease in the supply of money or
credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted
lending practices might impact our ability to obtain financing for our properties and might also negatively impact our tenants'
ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
A slow-growing economy hinders consumer spending, which could decrease the level of discretionary income available for
shopping at our properties. Weak income growth could weigh down consumer spending, which could be further affected if the
overall economy suffers a setback.
An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect
WPG Inc.'s common share price.
An environment of rising interest rates could lead holders of our common shares to seek higher yields through other
investments, which could adversely affect the market price of our common shares. One of the factors that may influence the price
of our common shares in public markets is the annual distribution rate we pay as compared with the yields on alternative investments.
Additionally, increases in market interest rates could result in increased borrowing costs for us, which may adversely affect our
cash flow and the amounts available for distributions to our shareholders.
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We have significant indebtedness, which could adversely affect our business, including decreasing our business flexibility and
increasing our interest expense.
The consolidated indebtedness of our business as of December 31, 2017 was approximately $2.9 billion. We have and will
continue to incur various costs and expenses associated with our transactions and executing our operational and fiscal strategy.
Any future increased levels of indebtedness could also reduce access to capital and increase borrowing costs generally, thereby
reducing funds available for working capital, capital expenditures, tenant improvements, acquisitions and other general corporate
purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve
our operational and growth goals or if the financial performance of the Company does not meet current expectations, then our
ability to service our indebtedness may be adversely impacted. Lastly, if interest rates increase, the cost of capital and expenses
of debt service requirements relating to our variable rate debt, which constitutes 10.4% of our consolidated indebtedness as of
December 31, 2017, would increase which could adversely affect our cash flows.
We may not be able to generate sufficient cash to service and repay all of our debt and may be forced to take other actions to
satisfy our obligations under our debt, which may not be successful.
Our ability to make scheduled payments on, or to refinance, our debt will depend on our financial condition, liquidity and
operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business,
legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating
activities sufficient to permit us both to fund our business purposes and to pay the principal of, or premium, if any, and interest on
our debt.
If our cash flows and capital resources are insufficient to service and repay our debt and fund other cash requirements, we
could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell
assets or operations, seek additional capital or restructure or refinance our debt. We may not be able to effect any such alternative
measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow
us to meet all of our debt obligations. Our unsecured revolving credit facility (the "Revolver") and senior unsecured term loanaa
(the "Term Loan" and collectively with the Revolver, the "Facility") were amended and restated on January 22, 2018 and restrict
(i) our ability to dispose of assets and (ii) our ability to incur debt. We may not be able to consummate those dispositions or to
obtain proceeds in an amount sufficient to meet any debt obligations then due.
In addition, we conduct our operations through our subsidiaries. Our subsidiaries may not be able to, or may not be permitted
to, make cash available to us to enable us to make payments in respect of our debt. Each subsidiary is a distinct legal entity and,
under certain circumstances, legal and contractual prohibitions or other restrictions may limit our ability to obtain cash from our
subsidiaries. In the event that our subsidiaries do not make sufficient cash available to us, we may be unable to make required
principal, premium, if any, and interest payments on our debt.
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Our inability to obtain sufficient cash flows from our subsidiaries, whether as a result of their performance or otherwise, to
satisfy our debt, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect
our financial position, condition, liquidity and results of operations.
If we fail to make required payments in respect of our debt, (i) we will be in default thereunder and, as a result, the related
debt holders and lenders, and potentially other debt holders and lenders, could declare all outstanding principal and interest to be
due and payable, (ii) the lenders under the Revolver could terminate their commitments to loan money to us, (iii) our secured
lenders could foreclose against the assets securing the related debt, (iv) could result in cross defaults on other financing obligations
or defaults in other transactional arrangements we have; and (v) we could be forced into bankruptcy or liquidation.
Despite current and anticipated debt levels, we may still be able to incur substantially more debt.
We may be able to incur substantial additional debt in the future. Although the Facility and the WPG L.P. notes restrict the
incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and the additional debt
incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks
that we now face would increase.
We depend on external financings for our growth and ongoing debt service requirements.
We depend on external financings, principally debt financings, to fund our acquisitions, development and other capital
expenditures and to ensure that we can meet our debt service requirements. Our long-term ability to grow through acquisitions
or development, which is an important component of our strategy, will be limited if we cannot obtain additional debt financing.
Our access to financings depends on our credit ratings, the willingness of banks to lend to us and conditions in the capital markets.
Market conditions might make it difficult to obtain debt financing, and we cannot be certain that we will be able to obtain additional
debt financing or that we will be able to obtain such financing on acceptable terms.
aa
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The agreements that govern our indebtedness contain various covenants that impose restrictions on us and certain of our
subsidiaries that might affect our or their ability to operate.
We have a variety of debt, including the unsecured Facility, the unsecured WPG L.P. notes, and secured property-level debt.
The agreements that govern such indebtedness contain various affirmative and negative covenants that could, subject to certain
significant exceptions, restrict our ability and certain of our subsidiaries to, among other things, have liens on property, incur
additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, and/or merge or
consolidate with any other entity or sell or convey certain assets to any one person or entity. Additionally, some of the agreements
that govern the debt financing contain financial covenants that require us to maintain certain financial ratios. Our ability and the
ability of our subsidiaries to comply with these provisions might be affected by events beyond our control. Failure to comply with
these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations.
aa
If we cannot obtain additional capital, our growth might be limited.
In order to qualify and maintain our qualification as a REIT each year, we are required to distribute at least 90% of our REIT
taxable income, excluding net capital gains, to our shareholders. As a result, our retained earnings available to fund acquisitions,
development, or other capital expenditures are nominal, and we rely upon the availability of additional debt or equity capital to
fund these activities. Our long-term ability to grow through acquisitions, development, or strategic partnerships which is an
important component of our strategy, will be limited if we cannot obtain additional debt financing or equity capital. Market
conditions might make it difficult to obtain debt financing or raise equity capital, and we cannot be certain that we will be able to
obtain additional debt or equity financing or that we will be able to obtain such capital on favorable terms.
a
Adverse changes in any credit rating might affect our borrowing capacity and borrowing terms.
Our outstanding debt is periodically rated by nationally recognized credit rating agencies. Our credit ratings impact the cost
and availability of future borrowings and, accordingly, our cost of capital. Our ratings reflect each rating organization's opinion
of our financial strength, operating performance and ability to meet debt obligations. We currently have investment grade credit
ratings. Although we currently hold this rating, we have in the past been subject to downgrades. There can be no assurance that
we will achieve a particular rating or maintain a particular rating in the future. Furthermore, the interest rate under the Facility is
variable and could increase in the event our credit rating is downgraded, resulting in higher borrowing costs. An increase in our
cost of capital could adversely impact our ability to fund key activities related to achieving our business objectives.
We may enter into hedging interest rate protection arrangements that might not effectively limit our interest rate risk.
We may seek to selectively manage any exposure that we might have to interest rate risk through interest rate protection
agreements geared toward effectively fixing or capping a portion of our variable-rate debt. Additionally, we may refinance fixed-
rate debt at times when we believe rates and terms are appropriate. Any such efforts to manage these exposures might not be
successful.
Our potential use of interest rate hedging arrangements to manage risk associated with interest rate volatility might expose
us to additional risks, including the risk that a counterparty to a hedging arrangement fails to honor its obligations. Developing
an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest
rate fluctuations. There can be no assurance that hedging activities will have the desired beneficial impact on our results of
operations or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or
breakage costs.
As owners of real estate, we might face liabilities or other significant costs related to environmental issues.
Federal, state and local laws and regulations relating to the protection of the environment might require us, as a current or
previous owner or operator of real property, to investigate and clean up hazardous or toxic substances or petroleum product releases
at a property or at impacted neighboring properties. These laws and regulations might require us to abate or remove asbestos
containing materials in the event of damage, demolition or renovation, reconstruction or expansion of a property and also governrr
emissions of and exposure to asbestos fibers in the air. These laws and regulations also govern the installation, maintenance and
removal of underground storage tanks used to store waste oils or other petroleum products. Many of our properties contain, or at
one time contained, asbestos containing materials or underground storage tanks (primarily related to auto service center
establishments or emergency electrical generation equipment). The costs of investigation, removal or remediation of hazardous
or toxic substances could be substantial and could adversely affect our results of operations or financial condition. The presence
of contamination, or the failure to remediate contamination, might also adversely affect our ability to sell, lease or redevelop a
property or to borrow using a property as collateral.
13
In addition, under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator
of real estate might be held liable to third parties for bodily injury or property damage incurred by the parties in connection with
the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or otherwise caused,
the release of the hazardous or toxic substances. The presence of contamination at any of our properties, or the failure to remediate
contamination discovered at such properties, could result in significant costs to us and/or materially adversely affect our ability to
sell or lease such properties or to borrow using such properties as collateral.
n
For example, federal, state and local laws require abatement or removal of asbestos-containing materials in the event of
demolition or certain renovations or remodeling, the cost of which might be substantial for certain re-developments. These
regulations also govern emissions of, and exposure to, asbestos fibers in the air, which might necessitate implementation of site-
specific maintenance practices. Certain laws also impose liability for the release of asbestos-containing materials into the air, and
third parties might seek recovery from owners or operators of real property for personal injury or property damage associated with
asbestos-containing materials. Asbestos-containing building materials are present at some of our properties and might be present
at others. To minimize the risk of on-site asbestos being improperly disturbed, we have developed and implemented asbestos
operations and maintenance programs to manage asbestos-containing materials and suspected asbestos-containing materials in
accordance with applicable legal requirements, however we cannot be certain that our programs eliminate all risk of asbestos being
improperly disturbed. Any liability, and the associated costs thereof, we might face for environmental matters could adversely
impact our ability to operate our business and our financial condition.
Lastly, in connection with certain mortgages on our properties, our affiliate, Washington Prime Property, L.P., singly, or
together with WPG L.P. and certain other affiliates, have executed environmental indemnification agreements to indemnify the
respective lenders for those loans against losses or costs to remediate damage to the mortgaged property caused by the presence
or release of hazardous materials.
We are subject to various regulatory requirements, and any changes in such requirements could have a material adverse effect
on our business, results of operations and financial condition.
The laws, regulations and policies governing our business, or the regulatory or enforcement environment at the national
level or in any of the states in which we operate, might change at any time and could have a material adverse effect on our business.
For example, the Patient Protection and Affordable Care Act of 2010, as it is phased-in over time, might significantly impact our
cost of providing employees with health care insurance. Similarly, its repeal could result in unanticipated administrative costs,
disruptions and business inefficiencies that could adversely impact our business and fiscal results. We are unable to predict how
this, or any other future legislative or regulatory proposals or programs, will be administered or implemented, or whether any
additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occur in the
future. Additionally, changes in tax laws might have a significant impact on our operating results. For more information regarding
the impact of changing tax laws on our operating results, please refer to the risk factors section titled "Risks Related to Our Status
as a REIT."
n
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Also, we may be required to expend significant sums of money to comply with the Americans with Disabilities Act of 1990,
as amended (“ADA”), and other federal, state, and local laws in order for our properties and facilities to meet requirements related
to access and use by physically challenged persons. Additionally, unanticipated costs and expenses may be incurred in connection
with defending lawsuits relating to ADA compliance not covered by our liability insurance.
Our inability to remain in compliance with regulatory requirements could have a material adverse effect on our operations
and on our reputation generally. We are unable to give any assurances that applicable laws or regulations will not be amended or
construed differently, or that new laws and regulations will not be adopted, either of which could have a material adverse effect
on our business, financial condition or results of operations.
Some of our potential losses might not be covered by insurance.
We maintain insurance coverage with financially-sound insurers for property, third-party liability, terrorism, workers
compensation, and rental loss insurance on all of our properties. However, certain catastrophic perils are subject to large deductibles
that may cause an adverse impact on our operating results. Additionally, there are some types of losses, including lease and other
contract claims, that generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, or a loss for which
there is a large deductible occurs, we could lose all or a portion of the capital we have invested in a property, as well as the
anticipated future revenue it could generate.
We currently maintain insurance coverage for acts of terrorism by foreign or domestic agents. The United States government
provides reinsurance coverage to insurance companies following a declared terrorism event under the Terrorism Risk Insurance
Program Reauthorization Act, which extended the effectiveness of the Terrorism Risk Insurance Extension Act (which we refer
to as the "TRIA") of 2005. The TRIA is designed to reinsure the insurance industry from declared terrorism events that cause or
create in excess of $100 million in damages or losses. The U.S. government could terminate its reinsurance of terrorism, thus
increasing the risk of uninsured losses for such acts. Our tenants are likely subject to similar risks.
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We face possible risks associated with climate change.
We cannot determine with certainty whether global warming or cooling is occurring and, if so, at what rate. To the extent
climate change causes changes in weather patterns, our properties in certain markets and regions could experience increases in
storm intensity and rising sea-levels. Over time, these conditions could result in volatile or decreased demand for retail space at
certain of our properties or, in extreme cases, our inability to operate the properties at all. Climate change may also have indirect
effects on our business by increasing the cost of (or making unavailable) insurance on favorable terms and increasing the cost of
energy and snow removal at our properties. Moreover, compliance with new laws or regulations related to climate change, including
compliance with "green" building codes, may require us to make improvements to our existing properties or increase taxes and
fees assessed on us or our properties. At this time, there can be no assurance that climate change will not have a material adverse
effect on us.
Some of our properties are subject to potential natural or other disasters.
A number of our properties are located in Florida, California, Texas, and Hawaii or in other areas with a higher risk of natural
disasters such as earthquakes, tornadoes, hurricanes, or tsunamis. The occurrence of natural disasters can adversely impact
operations, redevelopment, or development at our centers and projects, increase investment costs to repair or replace damaged
properties, increase future property insurance costs, and negatively impact the tenant demand for lease space. Additionally, some
of our properties are located in coastal regions, and would therefore be affected by any future increases in sea levels. If insurance
is unavailable to us or is unavailable on acceptable terms, or our insurance is not adequate to cover losses from these events, our
financial condition and results of operations could be adversely affected.
Our due diligence review of acquisition opportunities or other transactions might not identify all pertinent risks, which could
materially affect our business, financial condition, liquidity and results of operations.
Although we intend to conduct due diligence with respect to each acquisition opportunity or other transaction that we pursue,
it is possible that our due diligence processes will not or did not uncover all relevant facts, particularly with respect to any assets
we acquire from unaffiliated third parties. In some cases, we might be given limited access to information about the investment
and will rely on information provided by the target of the investment. Additionally, if opportunities are scarce, the process for
selecting bidders is competitive, or the time frame in which we are required to complete diligence is short, our ability to conduct
a due diligence investigation might be limited, and we would be required to make investment decisions based upon a less thorough
diligence process than would otherwise be the case. Accordingly, investments and other transactions that initially appear to be
viable may prove to not be so over time, due to the limitations of the due diligence process or other factors.
Management and administrative services provided by unaffiliated persons or entities to one or more of the WPG Legacy
Properties between May 28, 2014 and March 31, 2016 (the “Service Period”) may have been provided in such a manner that
requires personnel of WPG (or any affiliate) to address issues, problems, or disputes that arose during the Service Period and
were not addressed resulting in our expenditure of time, capital and resources to address such matters to a degree that could
materially affect our business, financial condition, liquidity or results of operations.
We depended on unaffiliated persons or entities to provide certain services in connection with their operation and management
of the WPG Legacy Properties during the Service Period. These services included, but were not limited to, promoting the respective
property through advertisements, leasing the WPG Legacy Properties, billing tenants for rent and all other charges, paying the
salaries of persons responsible for management of the WPG Legacy Properties, making such infrastructure repairs as approved in
the fiscal budget for the WPG Legacy Properties, maintenance and payment of any taxes or fees.
In the event there were isolated or perhaps even systemic instances of the aforementioned services being provided in a manner
inconsistent with WPG’s current business practices, philosophy or standards due to the inattention, underperformance,
mismanagement, or deficit service, WPG personnel would, upon assuming management and operational control of the WPG
Legacy Properties, which we did by March 31, 2016, have to address one or more issues, problems, or disputes that arose during
the Service Period and were not addressed resulting in our expenditure of time, capital and resources to resolve such matters to a
degree that could materially affect our business, financial condition, liquidity and results of operations as well as the optimal
operation of one or more of the WPG Legacy Properties.
We cannot assure you that we will be able to continue paying distributions at the current rate.
We have maintained a policy to pay a quarterly cash distribution at an annualized rate of $1.00 per common share/unit and
intend to pay the same distribution going forward. However, holders of our common shares/units may not receive the same
quarterly distributions for various reasons, including the following:
• We may not have enough cash to pay such distributions due to changes in our cash requirements, indebtedness, capital
spending plans, cash flows or financial position;
15
• Decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at
the discretion of WPG Inc.'s Board of Directors, which reserves the right to change dividend practices at any time and
for any reason;
• We may desire to retain cash to maintain or improve our credit ratings or to address costs related to implementing our
growth strategy or executing on our operational strategy; and
• The ability of our subsidiaries to make distributions to us may be subject to restrictions imposed by law, regulation or
the terms of any current or future indebtedness that these subsidiaries may incur.
Our shareholders/unitholders have no contractual or other legal right to distributions that have not been declared.
Risks associated with the implementation of new information systems or upgrades to existing systems may interfere with our
operations or ability to maintain adequate records.
We are continuing to implement new information systems and upgrades to existing systems as part of our growing business
and problems with the design as well as the security or implementation of these new or upgraded systems could interfere with our uu
operations or ability to maintain adequate and secure records.
The occurrence of cyber incidents, a deficiency in our cyber security, or a data breach could negatively impact our business
by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our
business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our
information resources. More specifically, a cyber-incident is an intentional attack or an unintentional event that can include gaining
unauthorized access to systems to disrupt operations, corrupting data, or stealing confidential information. We rely upon information
technology networks and systems, some of which are managed by third-parties, to process, transmit, and store electronic
information, some of which may be confidential and/or proprietary, and to manage or support a variety of business processes and
activities. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have
outsourced. Primary risks that could directly result from the occurrence of a cyber-incident include, but are not limited to, operational
interruption, damage to our relationship with our tenants and other business partners, and private data exposure (including personally
identifiable information, or proprietary and confidential information, of ours and our employees, as well as third parties). Anynn
such incidents could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of
personal information, and reduce the benefits of our advanced technologies. We carry cyber liability insurance; however a loss
could exceed the limits of the policy. We have implemented processes, procedures and controls to help mitigate these risks, but
these measures, our increased awareness of a risk of a cyber-incident, and our insurance coverage, do not guarantee that our
financial results will not be negatively impacted by such an incident.
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Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act could have a material adverse effect on our business and WPG Inc.'s share price.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the
Dodd-Frank Act and are required to prepare our financial statements according to the rules and regulations required by the Securities
and Exchange Commission (the "SEC"). Additionally, the Exchange Act requires that we file annual, quarterly and current reports.
Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject
us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing.
uu
In addition, the Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls
and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be
revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our
internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with
respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain
or document effective internal control over financial reporting, our independent registered public accounting firm will not be able
to certify as to the effectiveness of our internal control over financial reporting in future reports, when such certifications will be
required.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or
may cause our company to restate previously issued financial information, and thereby subject us to adverse regulatory
consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There
could also be a negative reaction in the financial markets due to a loss of investor confidence in our company and the reliability
of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent
registered public accounting firm report a material weakness in our internal control over financial reporting or if the firm resigns
in light of such a weakness. This could materially adversely affect our company by, for example, leading to a decline in WPG
Inc.'s share price and impairing our ability to raise additional capital.
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Risks Related to the Separation from SPG
Potential indemnification liabilities to SPG pursuant to the Separation Agreement could materially adversely affect our
operations.
The Separation Agreement with SPG provides for, among other things, the principal corporate transactions required to effect
the separation, certain conditions to the separation and distribution and provisions governing our relationship with SPG with respect
to and following the separation and distribution. Among other things, the Separation Agreement provides for indemnification
obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business
activities, whether incurred prior to or after the separation and distribution, as well as those obligations of SPG that we will assume
pursuant to the Separation Agreement. If we are required to indemnify SPG under the circumstances set forth in this agreement,
we may be subject to substantial liabilities.
In connection with our separation from SPG, SPG will indemnify us for certain pre-distribution liabilities and liabilities related
to SPG assets. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount
of such liabilities, or that SPG's ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Separation Agreement, SPG has agreed to indemnify us for certain liabilities. However, third parties could
seek to hold us responsible for any of the liabilities that SPG agrees to retain, and there can be no assurance that SPG will be able
to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from SPG any amounts for
which we are held liable, such indemnification may be insufficient to fully offset the financial impact of such liabilities and/or we
may be temporarily required to bear these losses while seeking recovery from SPG.
dd
ff
We have a limited history operating as an independent company, and our historical financial information is not necessarily
representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable
indicator of our future results.
The historical information about us in this Form 10-K prior to May 28, 2014 is derived from the historical accounting records
of SPG and refers to our business as operated by and integrated with SPG. Some of our historical financial information included
in this annual report is derived from the consolidated financial statements and accounting records of SPG. Accordingly, the
historical and financial information does not necessarily reflect the financial condition, results of operations or cash flows that we
would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the
future. Factors which could cause our results to differ from those reflected in such historical financial information and which may
adversely impact our ability to receive similar results in the future include, but are not limited to, the following:
•
Prior to the separation, a portion of our current business had been operated by SPG as part of its broader corporate
organization, rather than as an independent, stand-alone company. SPG or one of its affiliates performed various
corporate functions for us, such as accounting, property management, information technology, legal, and finance.
Following the separation, SPG provided some of these functions to us. Our historical financial results for periods prior
to the separation from SPG reflect allocations of corporate expenses from SPG for such functions and are likely to be
less than the expenses we would have incurred had we operated as a separate, publicly traded company. We have and
will continue to make significant investments to replicate or outsource from other providers certain facilities, systems,
infrastructure, and personnel to which we no longer have access after our separation from SPG. Developing our ability
to operate without access to SPG's current operational and administrative infrastructure has been challenging;
• During the time our business was integrated with the other businesses of SPG, we were able to use SPG's size and
purchasing power in procuring various goods and services and shared economies of scope and scale in costs, employees,
vendor relationships and customer relationships. For example, we were historically able to take advantage of SPG's
purchasing power in technology and services, including information technology, marketing, insurance, treasury services,
property support and the procurement of goods. We entered into certain transition and other separation-related
agreements with SPG, however these agreements have either expired or been terminated and we may not continue to
fully capture the benefits we enjoyed as a result of being integrated with SPG and might result in us paying higher
charges than in the past for these services. As a separate, independent company, we may be unable to on a consistent,
sustainable and long-term basis obtain goods and services at the prices and terms obtained prior to the separation, which
could decrease our overall profitability. As a separate, independent company, we may also not be as successful on a
consistent, sustainable and long-term basis in negotiating favorable tax treatments and credits with governmental entities.
Likewise, it may be more difficult for us to attract and retain desired tenants on a consistent, sustainable and long-term
basis. This could have an adverse effect on our business, results of operations and financial condition following the
completion of the separation;
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• Before the separation, generally our working capital requirements and capital for our general corporate purposes,
including acquisitions, research and development, and capital expenditures, were historically satisfied as part of SPG's
cash management policies. Since the separation, we have been and may continue to be required to obtain additional
financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships
or other arrangements, which might not be on terms as favorable to those obtained by SPG, and the cost of capital for
our business may be higher than SPG's cost of capital prior to the separation; and
• As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and
the Dodd-Frank Act and are required to prepare our financial statements according to the rules and regulations
promulgated by the SEC. Complying with these requirements could result in significant costs to us and require us to
divert substantial resources, including management time, from other activities.
Other significant changes have occurred and may continue to occur in our cost structure, management, strategic transactions,
financing and business operations as a result of operating as an independent company. For additional information about the past
financial performance of our business and the basis of presentation of the historical combined financial statements of our business,
please refer to "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and accompanying notes included elsewhere in this Form 10-K.
Risks Related to WPG Inc.'s Status as a REIT
If WPG Inc. fails to remain qualified as a REIT, it will be subject to U.S. federal income tax as a regular corporation and could
face substantial tax liability, which would substantially reduce funds available for distribution to its shareholders and result ll
in other negative consequences.
If WPG Inc. were to fail to qualify as a REIT in any taxable year, it would be subject to U.S. federal income tax, including
any applicable alternative minimum tax, on its taxable income at regular corporate rates, and distributions to its shareholders would
not be deductible by WPG Inc. in computing its taxable income. Any such corporate tax liability could be substantial and would
reduce the amount of cash available for distribution to WPG Inc.'s shareholders, which in turn could have an adverse effect on the
value of, and trading prices for, WPG Inc.'s common shares. Unless WPG Inc. is deemed to be entitled to relief under certain
provisions of the Code, it would also be disqualified from taxation as a REIT for the four taxable years following the year during
which it initially ceased to qualify as a REIT.
Furthermore, the NYSE requires, as a condition to the listing of WPG Inc.'s common shares, that WPG Inc. maintain its
REIT status. Consequently, if WPG Inc. fails to maintain its REIT status, its common shares could promptly be delisted from the
NYSE, which would decrease the trading activity of such common shares, making the sale of such common shares difficult.
Dividends paid by REITs do not qualify for the reduced tax rates available for some dividends.
Dividends paid by certain non-REIT corporations to their shareholders that are individuals, trusts and estates are generally
taxed at reduced tax rates. Dividends payable by REITs, however, generally are not eligible for the reduced rates. The more
favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive
investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends,
which could adversely affect the value of the shares of REITs, including WPG Inc.'s common shares.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualifying as a REIT involves the application of highly technical and complex provisions of the Code for which only limited
judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize WPG Inc.'s REIT
qualification. WPG Inc.'s qualification as a REIT will depend on WPG Inc.'s satisfaction of certain asset, income, organizational,
distribution, shareholder ownership and other requirements on a continuing basis. Compliance with these requirements must be
carefully monitored on a continuing basis, and there can be no assurance that WPG Inc.'s personnel responsible for doing so will
be able to successfully monitor WPG Inc.'s compliance, despite clauses in the property management agreements requiring such
monitoring. Additionally, WPG Inc.'s ability to satisfy the requirements to qualify to be taxed as a REIT might depend, in part,rr
on the actions of third parties over which we have either no control or only limited influence.
Monitoring REIT qualification for both WPG Inc. as well as the separate individual REITs within joint venture arrangements
adds compliance complexity.
REIT compliance is required to be tested for WPG Inc. as well as any subsidiary REIT within our structure. Each REIT’s
compliance is tested and determined separately. Therefore the subsidiary REITs have a lower materiality threshold. If one of the
subsidiary REITs failed to be REIT compliant it may impact the REIT status of WPG Inc.
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Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could have a
negative effect on WPG Inc.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process,
and by the IRS and the U.S. Department of the Treasury (the "Treasury"). On December 22, 2017, the Tax Cuts and Jobs Act was
signed into law by the U.S. President. Although we are not aware of any provision in the final tax reform legislation or any pending
tax legislation that would adversely affect our ability to operate as a REIT, changes to the tax laws or interpretations thereof by
the IRS and the Treasury, with or without retroactive application, could materially and adversely affect WPG Inc.'s investors or
WPG Inc. WPG Inc. cannot predict how changes in the tax laws might affect its investors or WPG Inc. New legislation, Treasury
regulations, administrative interpretations or court decisions could significantly and negatively affect WPG Inc.'s ability to qualify
to be taxed as a REIT and/or the U.S. federal income tax consequences to WPG Inc.'s investors and WPG Inc. of such qualification.
Legislative or regulatory action could adversely affect stockholders.
Future changes to tax laws may adversely affect the taxation of the REIT, its subsidiaries or its stockholders. These changes
could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. These
potential changes could generally result in REITs having fewer tax advantages, and may lead REITs to determine that it would be
more advantageous to elect to be taxed, for federal income tax purposes, as a corporation.
Not all states automatically conform to changes in the Internal Revenue Code. Some states use the legislative process to
decide whether it is in their best interests to conform or not to various provisions of the Code. This could increase the complexity
of our compliance efforts, increase compliance costs, and may subject us to additional taxes and audit risk.
WPG Inc.'s REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
In order for WPG Inc. to qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, it
generally must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and
excluding any net capital gains, to its shareholders each year, so that U.S. federal corporate income tax does not apply to earnings
that it distributes. To the extent that WPG Inc. satisfies this distribution requirement and qualifies for taxation as a REIT, but
distributes less than 100% of its REIT taxable income, determined without regard to the dividends paid deduction and including
any net capital gains, it will be subject to U.S. federal corporate income tax on its undistributed net taxable income. Additionally,
WPG Inc. will be subject to a 4% nondeductible excise tax if the actual amount that it distributes to its shareholders in a calendar
year is less than a minimum amount specified under U.S. federal income tax laws. WPG Inc. intends to make distributions to its
shareholders to comply with the REIT requirements of the Code.
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From time to time, WPG Inc. might generate taxable income greater than its cash flow as a result of differences in timing
between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the
creation of reserves, or required debt or amortization payments. If we do not have other funds available in these situations, we
could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices, distribute amounts that would
otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or make taxable distributions of WPG
Inc.'s capital stock or debt securities to make distributions sufficient to enable WPG Inc. to pay out enough of its taxable income
to satisfy the REIT distribution requirement and avoid corporate income tax and the 4% excise tax in a particular year. These
alternatives could increase our costs or reduce our equity. Further, amounts distributed will not be available to fund investment
activities. Thus, compliance with WPG Inc.'s REIT requirements may hinder our ability to grow, which could adversely affect
the value of WPG Inc.'s shares. Any restrictions on our ability to incur additional indebtedness or make certain distributions could
preclude WPG Inc. from meeting the 90% distribution requirement. Decreases in funds from operations due to unfinanced
expenditures for acquisitions of properties or increases in the number of shares outstanding without commensurate increases in
funds from operations each would adversely affect WPG Inc.'s ability to maintain distributions to its shareholders. Consequently,
there can be no assurance that WPG Inc. will be able to make distributions at the anticipated distribution rate or any other rate.aa
t
Even if WPG Inc. remains qualified as a REIT, it could face other tax liabilities that reduce its cash flows.
Even if WPG Inc. remains qualified for taxation as a REIT, it could be subject to certain U.S. federal, state and local taxes
on its income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes. For
example, in order to meet the REIT qualification requirements, WPG Inc. may hold some of its assets or conduct certain of its
activities through one or more taxable REIT subsidiaries ("TRSs") or other subsidiary corporations that will be subject to federal,
state and local corporate-level income taxes as regular C corporations. Additionally, WPG Inc. might incur a 100% excise tax on
transactions with a TRS if they are not conducted on an arm's-length basis. Any of these taxes would decrease cash available for
distribution to WPG Inc.'s shareholders.
ff
19
Complying with WPG Inc.'s REIT requirements might cause us to forego otherwise attractive acquisition opportunities or
liquidate otherwise attractive investments.
To qualify to be taxed as a REIT for U.S. federal income tax purposes, WPG Inc. must ensure that, at the end of each calendar
quarter, at least 75% of the value of its assets consist of cash, cash items, government securities and "real estate assets" (as defined
in the Code), including certain mortgage loans and securities. The remainder of WPG Inc.'s investments (other than government
securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding
voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
Additionally, in general, no more than 5% of the value of WPG Inc.'s total assets (other than government securities, qualified
real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 25% (20% as of
January 1, 2018) of the value of our total assets can be represented by securities of one or more TRSs. If WPG Inc. fails to comply
with these requirements at the end of any calendar quarter, it must correct the failure within 30 days after the end of the calendar
quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and suffering adverse tax consequences.
As a result, we might be required to liquidate or forego otherwise attractive investments. These actions could have the effect of
reducing WPG Inc.'s income and amounts available for distribution to its shareholders.
t
In addition to the asset tests set forth above, to qualify to be taxed as a REIT, WPG Inc. must continually satisfy tests
concerning, among other things, the sources of its income, the amounts it distributes to its shareholders and the ownership of its
shares. We might be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-
income or asset-diversification requirements of WPG Inc. for qualifying as a REIT. Thus, compliance with WPG Inc.'s REIT
requirements may hinder our ability to make certain attractive investments.
Complying with WPG Inc.'s REIT requirements might limit our ability to hedge effectively and may cause WPG Inc. to incur
tax liabilities.
The REIT provisions of the Code to which WPG Inc. must adhere substantially limit our ability to hedge our assets and
liabilities. Income from certain potential hedging transactions that we may enter into to manage risk of interest rate changes with
respect to borrowings made or to be made to acquire or carry real estate assets or from transactions to manage risk of currency
fluctuations with respect to any item of income or gain that satisfy WPG Inc.'s REIT gross income tests (including gain from the
termination of such a transaction) does not constitute "gross income" for purposes of the 75% or 95% gross income tests that apply
to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging
transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income
for purposes of both of WPG Inc.'s gross income tests.
As a result of these rules, we might be required to limit our use of advantageous hedging techniques or implement those
hedges through a total return swap. This could increase the cost of our hedging activities because the total return swap may be
subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
Additionally, losses in the total return swap will generally not provide any tax benefit, except that such losses could theoretically
be carried back or forward against WPG Inc.'s past or future taxable income in the total return swap.
The share ownership limit imposed by the Code for REITs, and WPG Inc.'s amended and restated articles of incorporation,
may inhibit market activity in WPG Inc.'s shares and restrict our business combination opportunities.
In order for WPG Inc. to maintain its qualification as a REIT under the Code, not more than 50% in value of its outstanding
shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any
time during the last half of each taxable year after its first taxable year. WPG Inc.'s amended and restated articles of incorporation,
with certain exceptions, authorize its Board of Directors to take the actions that are necessary and desirable to preserve its
qualification as a REIT. Unless exempted by WPG Inc.'s Board of Directors, no person may own more than 8%, or 18% in the
case of certain family members and other related persons of Mr. David Simon, the current Chairman and CEO of SPG and former
member of our Board of Directors, of any class of WPG Inc.'s capital stock or any combination thereof, determined by the number
of shares outstanding, voting power or value (as determined by WPG Inc.'s Board of Directors), whichever produces the smallest
holding of capital stock under the three methods, computed with regard to all outstanding shares of capital stock and, to the extent
provided by the Code, all shares of WPG Inc.'s capital stock issuable under outstanding options and exchange rights that have not
been exercised. WPG Inc.'s Board of Directors may grant an exemption in its sole discretion, subject to such conditions,
representations and undertakings as it may determine in its sole discretion. These ownership limits could delay or prevent a
transaction or a change in control that might involve a premium price for WPG Inc.'s common shares or otherwise be in the best
interest of WPG Inc.'s shareholders.
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20
Risks Related to Our Common and Preferred Shares/Units
We cannot guarantee the timing, amount, or payment of distributions on our common shares/units.
Although we expect to pay regular cash distributions, the timing, declaration, amount and payment of future distributions
to shareholders will fall within the discretion of our Board of Directors. Our Board of Directors' decisions regarding the payment
of distributions will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations,
limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other factors that
it deems relevant. Our ability to pay distributions will depend on our ongoing ability to generate cash from operations and access
capital markets. We cannot guarantee that we will pay a distribution in the future or continue to pay any distribution at a particular
rate.
a
The market value or trading price of our preferred and Common Shares could decrease based upon uncertainty in the
marketplace and market perception.
The market price of our common and preferred shares may fluctuate widely as a result of a number of factors, many of which
are outside our control or influence. Additionally, the stock market is subject to fluctuations in share prices and trading volumes
that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may
continue to adversely affect the market price of our common and preferred shares. Among the factors that could adversely affect
the market price of our common and preferred shares are:
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated quarterly fluctuations in our operating results and financial condition;
changes in our FFO, revenue, or earnings estimates or publication of research reports and recommendations by financial
analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
negative speculation or information in the media or investment community;
any changes in our distribution or dividend policy;
any sale or disposal of properties within our portfolio;
any future issuances of equity securities;
increases in leverage, mortgage debt financing, or outstanding borrowings;
strategic actions by our Company or our competitors, such as acquisitions, joint ventures, or restructurings;
general market conditions and, in particular, developments related to market conditions for the real estate industry;
proposed or adopted regulatory or legislative changes or developments; or
anticipated or pending investigations, proceedings, or litigation that involves or affect us.
WPG Inc.'s cash available for distribution to shareholders might be insufficient to pay distributions at any particular levels or
in amounts sufficient in order for WPG Inc. to maintain its REIT qualification, which could require us to borrow funds in
order to make such distributions.
As a REIT, WPG Inc. is required to distribute at least 90% of its REIT taxable income each year, excluding net capital gains,
to its shareholders. WPG Inc. intends to make regular quarterly distributions whereby it expects to distribute at least 100% of its
REIT taxable income to its shareholders out of assets legally available thereof. Based on the amount of its REIT taxable income
for the year ended December 31, 2017, WPG Inc.'s annual dividend of $1.00 per share satisfied this requirement. However, WPG
Inc.'s ability to make distributions could be adversely affected by various factors, many of which are not within its control. For
example, in the event of downturns in its financial condition or operating results, economic conditions or otherwise, WPG Inc.
might be unable to declare or pay distributions to its shareholders to the extent required to maintain its REIT qualification. WPG
Inc. might be required either to fund distributions from borrowings under the Revolver or to reduce its distributions. If we borrow
to fund WPG Inc.'s distributions, our interest costs could increase, thereby reducing our earnings and cash available for distribution
from what they otherwise would have been.
In addition, some of WPG Inc.'s distributions may include a return of capital. To the extent that WPG Inc. makes distributions
in excess of its current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), such distributions
would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder's adjusted tax
basis in its shares. A return of capital is not taxable, but it has the effect of reducing the holder's adjusted tax basis in its investment.
To the extent that distributions exceed the adjusted tax basis of a holder's shares, the distributions will be treated as gain from the
sale or exchange of such shares.
21
Your percentage of ownership in WPG Inc. may be diluted in the future.
In the future, your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market
transactions or otherwise. WPG Inc. also regularly grants compensatory equity awards to directors, officers, employees, advisors,
and consultants who are eligible to receive such awards. Such awards will have a dilutive effect on WPG Inc.'s earnings per share,
which could adversely affect the market price of WPG Inc.'s common shares.
In addition, WPG Inc.'s amended and restated articles of incorporation authorize WPG Inc. to issue, without the approval
of its shareholders, one or more additional classes or series of preferred shares having such designation, powers, preferences and
relative, participating, optional and other special rights, including preferences over our common shares respecting dividends and
distributions, as WPG Inc.'s Board of Directors generally may determine.
The terms of one or more such classes or series of preferred shares could dilute the voting power or reduce the value of WPG
Inc.'s common shares. For example, WPG Inc. could grant the holders of preferred shares the right to elect some number of WPG
Inc. directors in all events or on the occurrence of specified events, or the right to veto specified transactions. Similarly, the
repurchase or redemption rights or liquidation preferences we could assign to holders of preferred shares could affect the residual
value of the common shares.
Certain provisions in WPG Inc.'s amended and restated articles of incorporation and bylaws, and provisions of Indiana law,
might prevent or delay an acquisition of our company, which could decrease the trading price of WPG Inc.'s common shares.
WPG Inc.'s amended and restated articles of incorporation and bylaws contain, and Indiana law contains, provisions that
are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably
expensive to the bidder and to encourage prospective acquirers to negotiate with WPG Inc.'s Board of Directors rather than to
attempt a hostile takeover. These provisions include, among others:
• The inability of WPG Inc.'s shareholders to call a special meeting;
• Restrictions on the ability of WPG Inc.'s shareholders to act by written consent without a meeting;
• Advance notice requirements and other limitations on the ability of shareholders to present proposals or nominate
directors for election at shareholder meetings;
• The right of WPG Inc.'s Board of Directors to issue preferred shares without shareholder approval;
• Limitations on the ability of WPG Inc.'s shareholders to remove directors;
• The ability of WPG Inc.'s directors, and not shareholders, to fill vacancies on WPG Inc.'s Board of Directors;
• Restrictions on the number of shares of capital stock that individual shareholders may own;
•
Supermajority vote requirements for shareholders to amend certain provisions of WPG Inc.'s amended and restated
articles of incorporation and bylaws;
• Limitations on the exercise of voting rights in respect of any "control shares" acquired in a control share acquisition,
which WPG Inc. has currently opted out of in WPG Inc.'s amended and restated bylaws but which could apply to WPG
Inc. in the future; and
• Restrictions on an "interested shareholder" to engage in certain business combinations with WPG Inc. for a five-year
period following the date the interested shareholder became such.
We believe these provisions will protect WPG Inc.'s shareholders from coercive or otherwise unfair takeover tactics by
requiring potential acquirers to negotiate with WPG Inc.'s Board of Directors and by providing WPG Inc.'s Board of Directors
with more time to assess any acquisition proposal. These provisions are not intended to make the company immune from takeovers.
However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or
prevent an acquisition that WPG Inc.'s Board of Directors determines is not in the best interests of WPG Inc. and its shareholders.
These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Several of the agreements that we entered into with SPG in connection with the separation require SPG's consent to any
assignment by us of our rights and obligations under the agreements, but these agreements generally expired within two years of
May 28, 2014, except for certain agreements that continue for longer terms. These agreements include the Separation Agreement
and the Tax Matters Agreement. The consent and termination rights set forth in these agreements might discourage, delay or
prevent a change of control that you may consider favorable.
In addition, an acquisition or further issuance of WPG Inc.'s common shares could trigger the application of Section 355(e)
of the Code. Under the tax related agreement(s) we had with SPG following the separation, we would be required to indemnify
SPG for any resulting taxes and related amounts, and this indemnity obligation might discourage, delay or prevent a change of
control that you may consider favorable.
22
Certain provisions in WPG L.P.'s amended and restated limited partnership agreement may limit our ability to execute
transactions that you may consider favorable.
WPG L.P.'s amended and restated limited partnership agreement, as amended (the "Partnership Agreement") provides that
we must obtain the approval of a majority of the units of limited partnership interest held by limited partners in order to merge or
consolidate WPG L.P. or voluntarily sell or otherwise transfer all or substantially all of the assets of WPG L.P. In addition, during
all periods in which Melvin Simon, Herbert Simon and David Simon and members of their immediate families (and including
their lineal descendants, trusts established for their benefit and entities controlled by them), collectively, hold at least 10% of the
partnership units in WPG L.P., the Partnership Agreement requires that WPG L.P. obtain the consent of the Simons holding more
than 50% of the partnership units then held by the Simons prior to, among other things, selling, exchanging, transferring or otherwise
disposing of all or substantially all of the assets of WPG L.P. David Simon (or such other person as may be designated by the
holders of more than 50% of the partnership units held by the Simons) has been granted authority by those limited partners who
are Simons to grant and withhold consent on behalf of the Simons whenever such consent of the Simons is required. Because
WPG L.P.'s assets comprise substantially all of our assets, these restrictions could limit our ability to sell or transfer all or substantially
all of our assets, or impact the manner in which we do so, even if some of our shareholders believe that doing so would be in our
and their best interests.
r
t
WPG Inc.'s substantial shareholders may exert influence over our company that may be adverse to our best interests and those
of WPG Inc.'s other shareholders.
A substantial portion of WPG Inc.'s outstanding common shares are held by a relatively small group of shareholders. This
concentration of ownership may make some transactions more difficult or impossible without the support of some or all of these
shareholders. For example, the concentration of ownership held by the substantial shareholders, even if they are not acting in a n
coordinated manner, could allow them to influence our policies and strategy and could delay, defer or prevent a change of control
or impede a merger, takeover or other business combination that may otherwise be favorable to us and our other shareholders.
Additionally, the interests of any of WPG Inc.'s substantial shareholders, or any of their respective affiliates, could conflict with
or differ from the interests of WPG Inc.'s other shareholders or the other substantial shareholders. A substantial shareholder or
affiliate thereof may also pursue acquisition opportunities that may be complementary to our business, and as a result, those
acquisition opportunities may not be available to us.
r
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2017, our portfolio of properties consisted of material interests in 108 properties totaling approximately
59 million square feet of GLA. We also own parcels of land which can be used for either new development or the expansion of
existing properties. While most of these properties are wholly owned by us, several are less than wholly owned through joint
ventures and other arrangements with third parties, which is common in the real estate industry. As of December 31, 2017, our
properties had an ending occupancy rate of 93.1% (based on the measures described in note (2) to the table that follows).
Our properties are leased to a variety of tenants across the retail spectrum including anchor stores, big-box tenants, national
inline tenants, sit-down restaurants, movie theatres, and regional and local retailers. As of December 31, 2017, selected anchors
and tenants include Macy's, Inc., Dillard's, Inc., J.C. Penney Co., Inc., Sears Holdings Corporation, Target Corporation, The Bon-
Ton Stores, Inc., Kohl's Corporation, Dick's Sporting Goods, Best Buy Co., Inc., Bed Bath & Beyond Inc. and TJX Companies, Inc.
With respect to all tenants in our portfolio, no single tenant was responsible for more than 3.0% of our total base minimum rental
revenues for the year ended December 31, 2017. Further, no single property accounted for more than 5.1%, of our total base
minimum rental revenues for the year ended December 31, 2017. Finally, as of December 31, 2017, no more than 13.6% of our
total gross annual base minimum rental revenues was derived from leases that expire in any single calendar year. Capitalized
terms not defined in this Item 2 shall have the definition ascribed to these terms in Item 1 of this Form 10-K.
The following table summarizes certain data for our portfolio of properties as of December 31, 2017:
Property Information
As of December 31, 2017
Property Name
State
Enclosed Retail Properties
City (Major
Metropolitan
Area)
Ownership
Interest
(Expiration
if Lease)
Financial
Interest
(1)
Year
Acquired
or Built
Occupancy
(%)(2)
Total
Center
SF
Anchors
Anderson Mall
SC
Anderson
Fee
100.0%
Built
1972
78.3%
670,031 Belk(10), Books-A-
Million, Dillard's(10),
JCPenney, Sears(10)
23
Property Name
State
City (Major
Metropolitan
Area)
Ownership
Interest
(Expiration
if Lease)
Financial
Interest
(1)
Arbor Hills
MI
Ann Arbor
Arboretum, The
TX
Austin
Ashland Town
Center
KY
Ashland
Bowie Town Center MD
Bowie (Wash,
D.C.)
Fee
Fee
Fee
Fee
51.0%
51.0%
100.0%
100.0%
Boynton Beach
Mall
FL
Boynton Beach
(Miami)
Fee
100.0%
Brunswick Square
NJ
East Brunswick
(New York)
Fee
100.0%
Charlottesville
Fashion Square
VA
Charlottesville
Chautauqua Mall
NY
Lakewood
Chesapeake Square
Theater
Clay Terrace
VA
IN
Chesapeake (VA
Beach)
Carmel
(Indianapolis)
Ground
Lease
(2076)
Fee
Fee
Fee
100.0%
100.0%
100.0%
100.0%
Cottonwood Mall
NM
Albuquerque
Fee
100.0%
Year
Acquired
or Built
Acquired
2015
Acquired
1998
Acquired
2015
Built
2001
Acquired
1996
Acquired
1996
Acquired
1997
Acquired
1996
Acquired
1996
Acquired
2014
Built
1996
Dayton Mall
OH
Dayton
Fee
100.0%
Acquired
2015
96.7%
Edison Mall
FL
Fort Myers
Grand Central Mall WV
Parkersburg
Fee
Fee
100.0%
100.0%
Great Lakes Mall
OH
Mentor
(Cleveland)
Fee
100.0%
Acquired
1997
Acquired
2015
Acquired
1996
Indian Mound Mall
OH
Newark
Fee
100.0%
Acquired
2015
91.8%
Irving Mall
TX
Irving (Dallas)
Fee
100.0%
Built
1971
99.9%
Occupancy
(%)(2)
Total
Center
SF
100.0%
87,395 N/A
Anchors
94.3%
94.3%
88.1%
195,302 Barnes & Noble,
Cheesecake Factory,
Pottery Barn
433,558 Belk, Belk Home Store,
JCPenney(10), T.J.
Maxx
571,820 Barnes & Noble, Best
Buy, L.A. Fitness,
Macy's(10), Off
Broadway Shoes,
Sears(8)
87.3%
1,101,881 Cinemark Theatres,
Dillard's(10), JCPenney,
Macy's(10), Sears, You
Fit Health Clubs
760,998 Barnes & Noble,
JCPenney(10),
Macy's(10), Starplex
Luxury Cinema
578,063 Belk(4), JCPenney(10)
Sears
432,931 Bon Ton, JCPenney,
Office Max, Sears
98.5%
87.3%
91.1%
100.0%
42,248 Cinemark Theatres
90.0%
1,038,097 Books-A-Million,
97.3%
87.8%
90.4%
91.6%
577,601 Dick's Sporting Goods,
DSW, Pier 1,
St. Vincent's Sports
Performance, Whole
Foods
1,050,499 Conn's Electronic &
Appliance(10),
Dillard's(10),
JCPenney(10), Regal
Cinema, Sears(10)
1,442,615 Dick's Sporting Goods,
DSW, Elder-
Beerman(10), JCPenney,
Macy's(10), Sears(8)
Dillard's(10), JCPenney,
Macy's(4), Sears(8)
846,249 Belk, Dunham's Sports,
Elder-Beerman(5)
JCPenney, Regal
Cinemas, Sears
1,222,601 Atlas Cinema Stadium
16, Barnes & Noble,
Dick's Sporting Goods,
Dillard's(10), JCPenney,
Macy's(10)
556,746 AMC Theaters, Big
Sandy Superstore(10),
Dick's Sporting Goods,
Elder-Beerman,
JCPenney, Sears(10)
1,052,204 AMC Theatres,
Burlington Coat Factory,
Dillard's(10), Fitness
Connection, La Vida
Fashion and Home
Décor(10), Macy's(10),
Sears(8), Shoppers
World, Sky Zone
Jefferson Valley
Mall
NY
Yorktown Heights
(New York)
Lima Mall
OH
Lima
Lincolnwood Town
Center
IL
Lincolnwood
(Chicago)
Fee
Fee
Fee
Built
1983
Acquired
1996
Built
1990
92.4%
578,245 Dick's Sporting Goods,
Macy's, Sears(8)
80.6%
743,361
JCPenney, Macy's(10),
Sears
86.7%
422,997 Carson Pirie Scott,
Kohl's
100.0%
100.0%
100.0%
24
Property Name
State
City (Major
Metropolitan
Area)
Ownership
Interest
(Expiration
if Lease)
Lindale Mall
IA
Cedar Rapids
Longview Mall
TX
Longview
Fee
Fee
Financial
Interest
(1)
100.0%
100.0%
Malibu Lumber
Yard
Mall at Fairfield
Commons, The
Mall at Johnson
City, The
CA
Malibu
OH
Beavercreek
Ground
Lease
(2047)
Fee
51.0%
100.0%
TN
Johnson City
Fee
51.0%
Maplewood Mall
MN
St. Paul
(Minneapolis)
Fee
100.0%
Markland Mall
IN
Kokomo
Fee (9)
100.0%
Melbourne Square
FL
Melbourne
Mesa Mall
CO
Grand Junction
Morgantown Mall
WV
Morgantown
Muncie Mall
IN
Muncie
New Towne Mall
OH
New Philadelphia
Fee
Fee
Fee
Fee
Fee
100.0%
100.0%
100.0%
100.0%
100.0%
Year
Acquired
or Built
Acquired
1998
Built
1978
Acquired
2015
Acquired
2015
Acquired
2015
Acquired
2002
Built
1968
Acquired
1996
Acquired
1998
Acquired
2015
Built
1970
Acquired
2015
Occupancy
(%)(2)
Total
Center
SF
94.3%
730,590
Anchors
Sears(8), Von Maur,
Younkers
99.4%
653,238 Dick's Sporting Goods,
Dillard's(10),
JCPenney(10),
L'Patricia(10),
Sears(10), Stage(10)
73.6%
31,514 N/A
92.7%
1,043,107 Dick's Sporting Goods,
Elder-Beerman,
JCPenney, Macy's(10),
Sears
98.9%
567,895 Belk for Her, Belk
Home Store, Dick's
Sporting Goods,
JCPenney, Sears(10)
83.6%
905,960 Barnes & Noble,
92.6%
90.2%
93.2%
90.9%
84.9%
90.9%
89.9%
98.0%
JCPenney(10),
Kohl's(10), Macy's(10),
Sears(8)
312,579 Carson Pirie Scott,
Target
723,804 Dick's Sporting Goods,
Dillard's(11), JCPenney,
L.A. Fitness, Macy's(10)
873,467 Cabela's(10),
Herberger's,
JCPenney(10), Jo-Ann
Fabrics, Sears,
Target(10)
555,531 AMC Theaters, Belk(5),
Elder-Beerman,
JCPenney, Sears
641,821 Carson's, JCPenney,
Macy's(10), Sears(10)
506,618 Dick's Sporting Goods,
Elder-Beerman, Jo-Ann
Fabrics, Kohl's,
Marshalls, Super Fitness
Center
607,199 Becker Furniture, Best
Buy, Burlington Coat
Factory, Herberger's,
Hobby Lobby, Home
Depot, L.A. Fitness
294,598 Trader Joe's, Whole
Foods
959,438 AMC Theatres,
Belk(10), Dick's
Sporting Goods,
Dillard's(10), JCPenney,
Sears(10)
922,286 Bed Bath & Beyond,
Burlington Coat Factory,
Dave & Busters, L.A.
Fitness, Nordstrom
Rack, Sam's Club(5)
Northtown Mall
MN
Blaine
Fee
100.0%
Acquired
2015
93.5%
Northwoods Mall
IL
Peoria
Oak Court Mall
TN
Memphis
Oklahoma City
Properties
OK
Oklahoma City
Orange Park Mall
FL
Orange Park
(Jacksonville)
Fee
Fee
Fee
Fee
100.0%
100.0%
51.0% (7)
100.0%
Built
1983
Acquired
1997
Acquired
2015
Acquired
1994
81.1%
686,176
JCPenney(10), Round
One, Sears(10)
96.7%
847,398 Dillard's(4), Macy's(10)
Outlet Collection® |
Seattle, The
WA
Auburn (Seattle)
Fee
100.0%
Acquired
2015
94.2%
Paddock Mall
Pearlridge Center
FL
HI
Ocala
Aiea
Acquired
1996
Acquired
2015
95.4%
548,120 Belk, JCPenney,
Macy's(10), Sears(8)
93.1%
1,288,651 Longs Drug Store,
Macy's, Pearlridge Mall
Theaters, Ross Dress for
Less, Sears, T.J. Maxx
Fee
100.0%
Fee and
Ground
Lease
(2043,
2058)
51.0%
25
Property Name
Polaris Fashion
Place®
State
OH
City (Major
Metropolitan
Area)
Ownership
Interest
(Expiration
if Lease)
Financial
Interest
(1)
Columbus
Fee
51.0%
Year
Acquired
or Built
Acquired
2015
Occupancy
(%)(2)
Total
Center
SF
Anchors
99.1%
1,570,588 Barnes & Noble, Dick's
Port Charlotte
Town Center
FL
Port Charlotte
Fee
100.0% (6)
Acquired
1996
87.7%
Rolling Oaks Mall
TX
San Antonio
Rushmore Mall
SD
Rapid City
Fee
Fee
100.0%
100.0%
Built
1988
Acquired
1998
96.7%
80.3%
Scottsdale Quarter®
AZ
Scottsdale
Fee
51.0%
Acquired
2015
91.5%
Seminole Towne
Center
FL
Sanford (Orlando)
Fee
22.4%
Built
1995
88.9%
Southern Hills Mall
IA
Sioux City
Fee
100.0%
Acquired
1998
90.9%
Southern Park Mall
OH
Youngstown
Sunland Park Mall
TX
El Paso
Town Center at
Aurora
CO
Aurora (Denver)
Fee
Fee
Fee
100.0%
100.0%
100.0%
Town Center
Crossing & Plaza
KS
Leawood
Fee
51.0%
Towne West Square KS
Wichita
Fee
100.0%
Waterford Lakes
Town Center
FL
Orlando
Fee
100.0%
Acquired
1996
Built
1988
Acquired
1998
Acquired
2015
Built
1980
Built
1999
85.4%
83.0%
94.1%
94.2%
79.4%
100.0%
Weberstown Mall
CA
Stockton
West Ridge Mall
KS
Topeka
Fee
Fee
100.0%
100.0%
Acquired
2015
Built
1988
98.6%
82.8%
26
Sporting Goods,
JCPenney(10),
Macy's(10), Saks Fifth
Avenue(10), Sears(10),
Von Maur(10)
777,246 Bealls(10), Dillard's(10),
DSW, JCPenney,
Macy's(10),
Recreational Warehouse,
Regal Cinema, Sears
883,336 Dillard's(10),
JCPenney(10),
Macy's(10), Sears(10)
831,040 AMC Theaters, At
Home, Herberger's,
Hobby Lobby,
JCPenney, Planet
Fitness, Sears(5), Toys
'R Us(5)
725,431 Apogee Physicians,
H&M, iPic Theaters,
JDA Software,
Restoration Hardware,
Starwood Hotels
1,109,948 Athletic Apex,
Burlington Coat Factory,
Dick's Sporting Goods,
Dillard's(10),
JCPenney(10), Macy's,
Sears(10), United Artists
Theatre
794,010 AMC Theaters, Barnes
& Noble, Hy-Vee,
JCPenney(10), Scheel's
All Sports, Sears(10),
Younkers
1,202,924 Cinemark Theatres,
Dillard's(10), JCPenney,
Macy's, Sears
927,703 Cinemark, Dillard's(11),
Forever 21(10),
Sears(10)
1,080,940 Century Theatres,
Dillard's(10),
JCPenney(10),
Macy's(10), Sears(10)
671,286 Arhaus, Barnes &
Noble, Crate & Barrel,
Macy's(10), Restoration
Hardware
898,662 Dick's Sporting
Goods(10),
Dillard's(11),
JCPenney(10), The
Movie Machine
965,482 Ashley Furniture Home
Store (10), Barnes &
Noble, Bed Bath &
Beyond, Best Buy, Jo-
Ann Fabrics, L.A.
Fitness(10), Office Max,
Regal Cinemas, Ross
Dress for Less,
Target(10), T.J. Maxx
859,287 Barnes & Noble,
Dillard's(10),
JCPenney(10), Sears(10)
1,015,064 Burlington Coat
Factory(5),
Dillard's(10), Furniture
Mall of Kansas(10),
JCPenney(10),
Sears(10), Sky Zone
Property Name
Westminster Mall
State
CA
City (Major
Metropolitan
Area)
Westminster (Los
Angeles)
Ownership
Interest
(Expiration
if Lease)
Financial
Interest
(1)
Fee
100.0%
WestShore Plaza
FL
Tampa
Fee
100.0%
Year
Acquired
or Built
Acquired
1998
Acquired
2015
Occupancy
(%)(2)
87.6%
Total
Center
SF
Anchors
1,214,525 Chuze Fitness, DSW,
JCPenney(10),
Macy's(10), Sears(5)(8),
Sky Zone, Target(10)
96.5%
1,075,486 AMC Theatres, Dick's
Sporting Goods,
JCPenney, Macy's(10),
Sears
Total Enclosed Retail Properties Portfolio Square Footage (3)
44,708,390
Open Air Properties
Bloomingdale
Court
IL
Bloomingdale
(Chicago)
Fee
100.0%
Built
1987
Bowie Town Center
Strip
MD
Bowie (Wash,
D.C.)
Canyon View
Marketplace
Charles Towne
Square
CO
Grand Junction
SC
Charleston
Chesapeake Center
VA
Chesapeake
(Virginia Beach)
Concord Mills
Marketplace
NC
Concord
(Charlotte)
Countryside Plaza
IL
Countryside
(Chicago)
Dare Centre
NC
Kill Devil Hills
DeKalb Plaza
Empire East
Fairfax Court
Fairfield Town
Center
PA
SD
VA
King of Prussia
(Philadelphia)
Sioux Falls
Fairfax (Wash,
D.C.)
TX
Houston
Forest Plaza
IL
Rockford
Gaitway Plaza
FL
Ocala
Fee
Fee
Fee
Fee
Fee
Fee
Ground
Lease
(2058)
Fee
Fee
Fee
Fee
Fee
Fee
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Built
2001
Acquired
2015
Built
1976
Acquired
1996
Acquired
2007
Built
1977
Acquired
2004
Acquired
2003
Acquired
1998
Acquired
2014
Built
2014
Built
1985
99.0% (6) Acquired
2014
Gateway Centers
TX
Austin
Fee
51.0%
Greenwood Plus
IN
Henderson Square
PA
Greenwood
(Indianapolis)
King of Prussia
(Philadelphia)
Keystone Shoppes
IN
Indianapolis
Fee
Fee
Fee
100.0%
100.0%
100.0%
27
Acquired
2004
Built
1979
Acquired
2003
Acquired
1997
99.3%
696,588 Best Buy, Dick's
Sporting Goods(10), Jo-
Ann Fabrics, Office
Max, Picture Show,
Ross Dress for Less, T.J.
Maxx N More, Walmart
Supercenter(10)
100.0%
106,636
Safeway(10)
95.6%
43,053 City Market(10),
Kohl's(10)
100.0%
71,794 Regal Cinema
100.0%
305,853 Dollar Tree(10),
100.0%
99.9%
PetSmart, Value City
Furniture
262,020 At Home, BJ's
Wholesale Club, REC
Warehouse
403,756 Best Buy, Dollar Tree,
Floor & Decor, Home
Depot(10), Jo-Ann
Fabrics, PetSmart, The
Tile Shop
100.0%
168,673 Belk(10), Food Lion
100.0%
100.0%
101,911 ACME Grocery(10),
Bob's Discount
Furniture
301,438 Bed Bath & Beyond,
Kohl's, Target(10)
89.3%
249,488 Burlington Coat Factory,
Pier 1, XSport Fitness
97.1%
100.0%
98.4%
97.9%
293,524 Academy Sports,
HEB(10), Marshalls,
Party City
433,718 Babies 'R Us/Toys 'R
Us, Bed Bath & Beyond,
Kohl's, Marshalls,
Michaels, Office Max,
Petco
208,039 Bed Bath & Beyond,
Michael's, Office Depot,
Ross Dress for Less, T.J.
Maxx
512,153 Best Buy, Crate &
,
Barrel, Nordstrom Rack,
Saks 5th Ave,
Off 5th
Regal Cinema(10),
REI(10), Whole Foods,
The Container Store,
The Tile Shop
100.0%
155,319 Best Buy, Kohl's
100.0%
107,371 Avalon Carpet & Tile
Shop, Giant(10)
87.3%
36,402 N/A
Property Name
State
City (Major
Metropolitan
Area)
Ownership
Interest
(Expiration
if Lease)
Lake Plaza
Lake View Plaza
IL
IL
Waukegan
(Chicago)
Orland Park
(Chicago)
Fee
Fee
Financial
Interest
(1)
100.0%
100.0%
Lakeline Plaza
TX
Cedar Park
(Austin)
Fee
100.0%
Lima Center
OH
Lima
Lincoln Crossing
IL
O'Fallon (St.
Louis)
MacGregor Village
NC
Cary
Mall of Georgia
Crossing
GA
Buford (Atlanta)
Fee
Fee
Fee
Fee
100.0%
100.0%
100.0%
100.0%
Markland Plaza
IN
Kokomo
Fee
100.0%
Martinsville Plaza
VA
Martinsville
Matteson Plaza
Muncie Towne
Plaza
North Ridge
Shopping Center
IL
IN
Matteson
(Chicago)
Muncie
NC
Raleigh
Northwood Plaza
IN
Fort Wayne
Palms Crossing
TX
McAllen
Ground
Lease
(2026)
Fee
Fee
Fee
Fee
Fee
100.0%
100.0%
100.0%
100.0%
100.0%
51.0%
Richardson Square
TX
Richardson
(Dallas)
Fee
100.0%
Rockaway
Commons
Rockaway Town
Plaza
NJ
NJ
Royal Eagle Plaza
FL
Shops at Arbor
Walk, The
TX
Austin
Rockaway (New
York)
Fee
100.0%
Rockaway (New
York)
Coral Springs
(Miami)
Fee
Fee
Ground
Lease
(2056)
100.0%
100.0%
51.0%
Year
Acquired
or Built
Occupancy
(%)(2)
Total
Center
SF
Anchors
Built
1986
Built
1986
Built
1998
Acquired
1996
Built
1990
Acquired
2004
Built
1999
Built
1974
Built
1967
Built
1988
Built
1998
Acquired
2004
Built
1974
Built
2007
Acquired
1996
Acquired
1998
Built
2004
Acquired
2014
Built
2006
100.0%
99.0%
215,590 Home Owners Bargain
Outlet
367,369 Arhaus, Best Buy, Bob's
Discount Furniture, Golf
Galaxy, Jo-Ann Fabrics,
Petco, Tuesday
Morning, Value City
Furniture(10)
97.0%
386,229 Best Buy, Jumpstreet,
Office Max, PetSmart,
Ross Dress for Less, T.J.
Maxx, Total Wine &
More(10)
100.0%
233,878 Hobby Lobby(10), Jo-
Ann Fabrics, Kohl's,
T.J. Maxx
100.0%
303,526 Academy Sports,
PetSmart, Walmart(10)
80.8%
146,777 Apex Soccer
100.0%
440,774 American Signature
Furniture, Best Buy,
Nordstrom Rack,
Staples, Target(10),
T.J. Maxx 'n More
95.2%
90,527 Bed Bath & Beyond,
Best Buy
69.2%
102,105 Rose's
56.2%
273,836
Shoppers World
86.1%
96.5%
171,621 AMC Theatres, Kohl's,
T.J. Maxx
171,570 Ace Hardware, Harris-
Teeter Grocery, O2
Fitness Club
81.4%
204,956 Target(10)
97.2%
409,158 Babies 'R Us, Barnes &
Noble, Bealls, Best Buy,
DSW, Hobby Lobby,
Overstock Furniture &
Mattress
327,483 Big Lots, Jo-Ann
Fabrics, Michael's(10),
PetSmart(10), Total
Wine & More, Toys 'R
Us(10)
100.0%
516,100 Lowe's Home
Improvement(10), Ross
Dress for Less,
Sears(10), Super
Target(10)
97.9%
239,050 Best Buy, Buy Buy
Baby, Christmas Tree
Shops, DSW, Michael's,
Nordstrom Rack
100.0%
374,430
Dick's Sporting
Goods(10), PetSmart,
Target(10)
82.4%
98.4%
186,283 Hobby Lobby, Lucky's
Market
458,469 DSW, Home Depot, Jo-
Ann Fabrics, Marshalls,
Sam Moon Trading Co.,
Spec's Wine, Spirits and
Fine Foods
365,039 Barnes & Noble, Bed
Bath & Beyond, Best
Buy, DSW, Michaels,
PetSmart, T.J. Maxx
Shops at North East
Mall, The
TX
Hurst (Dallas)
Fee
100.0%
Built
1999
100.0%
28
Plaza at Buckland
Hills, The
CT
Manchester
Fee
100.0%
Acquired
2014
88.8%
Property Name
St. Charles Towne
Plaza
State
MD
City (Major
Metropolitan
Area)
Waldorf (Wash,
D.C.)
Ownership
Interest
(Expiration
if Lease)
Financial
Interest
(1)
Fee
100.0%
Tippecanoe Plaza
University Center
University Town
Plaza
IN
IN
FL
Lafayette
Mishawaka
Pensacola
Fee
Fee
Fee
100.0%
100.0%
100.0%
Year
Acquired
or Built
Built
1987
Built
1974
Acquired
1996
Redevelo
ped 2013
Occupancy
(%)(2)
Total
Center
SF
Anchors
87.4%
391,653 Ashley Furniture, Big
Lots, Citi Trends, Dollar
Tree, K & G Menswear,
Shoppers Food
Warehouse, Value City
Furniture(10)
100.0%
90,522 Barnes & Noble, Best
Buy
95.1%
150,441 Best Buy(10), Michael's,
Ross Dress for Less
100.0%
565,538 Academy Sports,
Burlington Coat Factory,
JCPenney(10), Sears(8),
Toys 'R Us/Babies 'R Us
Village Park Plaza
IN
Carmel
(Indianapolis)
Fee
100.0%
Acquired
2014
100.0%
575,548 Bed Bath & Beyond,
Hobby Lobby, Kohl's,
Marsh Supermarket(10),
Regal Cinemas, Walmart
Supercenter(10)
79.4%
50,107
Jo-Ann Fabrics
Washington Plaza
IN
Indianapolis
West Ridge Plaza
KS
Topeka
West Town Corners
FL
Altamonte Springs
(Orlando)
Westland Park
Plaza
FL
Orange Park
(Jacksonville)
White Oaks Plaza
IL
Springfield
Fee
Fee
Fee
Fee
Fee
100.0%
100.0%
100.0% (6)
Acquired
1996
Built
1988
Acquired
2014
100.0% (6)
Acquired
2014
100.0%
Built
1986
100.0%
93.5%
86.7%
100.0%
Whitehall Mall
PA
Whitehall
Fee
100.0%
Acquired
2014
99.5%
253,086 Target(10), T.J. Maxx,
Toys 'R Us(10)
380,240 American Signature
Furniture(10), PetSmart,
Walmart(10), Winn-
Dixie Marketplace
163,259 Beall's, Burlington Coat
Factory, Guitar Center,
L.A. Fitness
398,077 Babies 'R Us/Toys 'R
Us(10), County
Market(10), Kohl's,
Office Max, T.J. Maxx
603,475 Bed Bath & Beyond,
Buy Buy Baby, Gold's
Gym, Kohl's, Michael's,
Raymour & Flanigan
Furniture, Sears
Wolf Ranch
TX
Georgetown
(Austin)
Fee
100.0%
Built
2005
Total Open Air Portfolio Square Footage(3)
Total Portfolio Square Footage(3)
____________________________________________________________________
97.9%
632,258 Best Buy, DSW, Gold's
Gym, Kohl's(10),
Michael's, Office Depot,
PetSmart, Ross Dress
for Less, Target(10), T.J.
Maxx
14,696,710
59,405,100
(1) Direct and indirect interests in some joint venture properties are subject to preferences on distributions and/or capital allocation in favor of other partners.
(2) Enclosed Retail Properties—Executed leases for all Company-owned GLA in enclosed retail property stores, excluding majors and anchors. Open Air
aa
Properties—Executed leases for all Company-owned retail GLA (or total center GLA).
(3)
Includes office space in the properties, including the following properties with more than 20,000 square feet of office space:
Clay Terrace—80,033 sq. ft.; Oak Court Mall—123,891 sq. ft.; Oklahoma City Properties—26,846 sq. ft.
Royal Eagle Plaza—25,207 sq. ft.; Pearlridge Center—185,206 sq. ft.; Scottsdale Quarter—301,565 sq. ft.; Town West Square—32,362 sq. ft.
(4)
Indicates tenant has multiple locations at this property and one of these spaces is owned by others.
(5)
Indicates anchor has announced its intent to close this location in 2018.
(6) We receive substantially all the economic benefit of the property due to a preference or advance.
(7)
Includes the following properties: Classen Curve, Nichols Hills Plaza and The Triangle @ Classen Curve.
(8) Sears store owned by Seritage Growth Properties.
(9) During the year ended December 31, 2017, we purchased the fee interest in the land, and terminated the ground lease.
(10) Indicates anchor space is owned by others.
(11) Indicates tenant has multiple locations at this property and both of these spaces are owned by others.
29
Lease Expirations(1)
The following table summarizes lease expiration data for our properties as of December 31, 2017:
Year
Inline Stores and Freestanding
Month To Month Leases
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 and Thereafter
Specialty Leasing Agreements w/ terms in
excess of 11 months
Anchors
Month To Month Leases
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 and Thereafter
Number of
Leases
Expiring
Square Feet
Average Base
Minimum Rent
Per Square Foot
Percentage of
Gross Annual
Rental
Revenues(2)
157
684
792
709
560
529
342
239
217
231
225
68
710
1
22
30
53
48
41
40
17
14
12
17
15
324,590
2,008,740
2,492,748
2,396,749
1,895,909
1,846,987
1,483,266
932,271
945,645
1,183,525
1,046,734
455,501
1,630,971
17,892
1,455,902
1,840,142
2,624,820
2,792,119
2,426,802
1,831,789
848,845
597,259
430,373
843,633
1,152,318
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
30.30
25.47
26.81
24.92
25.67
25.37
25.05
26.84
27.41
26.78
25.35
23.77
14.06
4.02
5.12
6.17
7.99
7.46
6.20
9.90
8.37
13.07
11.39
7.65
8.41
1.7%
8.6%
11.3%
10.1%
8.2%
7.9%
6.3%
4.2%
4.4%
5.3%
4.5%
1.8%
3.9%
0.0%
1.3%
1.9%
3.5%
3.5%
2.5%
3.1%
1.2%
1.3%
0.8%
1.1%
1.6%
_______________________________________________________________________________
(1) Does not consider the impact of renewal options that may be contained in leases and only considers Company-owned
GLA.
(2) Gross annual rental revenues represents 2017 consolidated and joint venture combined base rental revenue for the
portfolio.
30
Mortgage Financing on Properties
The following table sets forth certain information regarding the mortgages and unsecured indebtedness encumbering our
properties and the properties held in our joint venture arrangements, and our unsecured corporate debt as of December 31, 2017:
Summary of Mortgage and Other Indebtedness
As of December 31, 2017
(In thousands)
Maturity
Date (1)
Interest
Rate
Principal
Balance
Our Share
of
Principal
Balance
F = Fixed
V = Variable
Floating
Property Name
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:29)
(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)
Anderson Mall
Ashland Town Center
Brunswick Square
Canyon View Marketplace
Charlottesville Fashion Square
Concord Mills Marketplace
Cottonwood Mall
Dayton Mall
Forest Plaza
Grand Central Mall
Lakeline Plaza
Lincolnwood Town Center
Mall of Georgia Crossing
Muncie Mall
Muncie Towne Plaza
North Ridge Shopping Center
Oak Court Mall
Outlet Collection® | Seattle, The
Port Charlotte Town Center
Rushmore Mall
Town Center at Aurora
Towne West Square
Weberstown Mall
West Ridge Mall
West Ridge Plaza
Westminster Mall
White Oaks Plaza
Whitehall Mall
(cid:56)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)
Credit Facility
5.950% Notes due 2024
3.850% Notes due 2020 ("Exchange Notes")
June 2015 Term Loan
December 2015 Term Loan
Total Indebtedness at Face Value
4.61 % $
4.90 %
4.80 %
5.47 %
4.54 %
4.82 %
4.82 %
4.57 %
7.50 %
6.05 %
7.50 %
4.26 %
4.28 %
4.19 %
7.50 %
3.41 %
4.76 %
3.06 %
5.30 %
5.79 %
4.19 %
5.61 %
3.31 %
4.84 %
4.84 %
4.65 %
7.50 %
7.00 %
2.81 %
5.95 %
3.85 %
2.56 %
$
18,449
37,652
72,504
5,305
47,009
16,000
99,031
81,689
16,084
40,397
15,068
49,668
22,713
34,645
6,264
12,018
37,701
86,500
43,133
94,000
53,250
46,188
65,000
40,697
10,174
80,019
12,528
8,750
18,449
37,652
72,504
5,305
47,009
16,000
99,031
81,689
16,084
40,397
15,068
49,668
22,713
34,645
6,264
12,018
37,701
86,500
43,133
94,000
53,250
46,188
65,000
40,697
10,174
80,019
12,528
8,750
155,000
750,000
250,000
270,000
155,000
750,000
250,000
270,000
3.51 %
340,000
4.57% 2,917,436
340,000
2,917,436
(2)
(3)
(4)
(4)(5)
(5)
12/1/2022
7/6/2021
3/1/2024
11/6/2023
4/1/2024
11/1/2023
4/6/2024
9/1/2022
10/10/2019
7/6/2020
10/10/2019
4/1/2021
10/6/2022
4/1/2021
10/10/2019
12/1/2022
4/1/2021
1/14/2020
11/1/2020
2/1/2019
4/1/2021
6/1/2021
6/8/2021
3/6/2024
3/6/2024
4/1/2024
10/10/2019
11/1/2018
5/30/2019
8/15/2024
4/1/2020
3/2/2020
1/10/2023
4.4 yrs.
31
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
V
F
F
F
F
V
F
F
F
F
F
V
V
F
F
F
Property Name
Maturity
Date (1)
Interest
Rate
Principal
Balance
Our Share
of
Principal
Balance
F = Fixed
V = Variable
Floating
(cid:51)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:16)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)
(cid:37)(cid:82)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:44)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)
Total Consolidated Indebtedness
(cid:56)(cid:81)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:29)
Arbor Hills
Arboretum, The
Gateway Centers
Mall at Johnson City, The
Oklahoma City Properties
Loan One
Loan Two
Palms Crossing
Pearlridge Center
Loan One
Loan Two
Polaris Fashion Place®
Loan One
Loan Two
Scottsdale Quarter®
Loan One
Loan Two
Seminole Towne Center
Shops at Arbor Walk, The
Town Center Crossing & Plaza
Loan One
Loan Two
Other joint venture mortgage debt
Total Indebtedness at Face Value
(cid:51)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:16)(cid:53)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)
(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:44)(cid:86)(cid:86)(cid:88)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)
Total Unconsolidated Indebtedness
Total Mortgage and Other Indebtedness
8,338
(11,086)
(17,079)
4.57% 2,897,609
8,338
(11,086)
(17,079)
2,897,609
4.27 %
4.13 %
4.03 %
6.76 %
3.90 %
4.06 %
5.49 %
25,105
59,400
112,500
49,939
52,779
13,250
34,804
12,804
30,294
57,375
25,469
26,917
6,758
17,750
4.4 yrs.
1/1/2026
6/1/2027
6/1/2027
5/6/2020
6/1/2027
1/1/2023
8/1/2021
6/1/2025
5/1/2025
3.53 %
4.07 %
225,000
43,200
114,750
22,032
3/1/2025
3/1/2025
3.90 %
4.46 %
225,000
15,500
114,750
7,905
6/1/2025
4/1/2027
5/6/2021
8/1/2021
2/1/2027
2/1/2027
7/1/2032
7.4 yrs.
7.4 yrs.
4.9 yrs.
3.53 %
4.36 %
5.97 %
5.49 %
165,000
55,000
54,627
39,336
34,442
4.25 %
69,498
5.00 %
4.17 %
20,259
4.15% 1,294,639
84,150
28,050
12,226
20,061
17,565
35,444
2,079
636,379
13,275
(5,771)
4.15% 1,302,143
4.49% $4,199,752
6,770
(2,871)
640,278
$ 3,537,887
(3)
F
F
F
F
F
V
F
F
F
F
F
F
F
F
F
F
F
F
_______________________________________________________________________________
(1) Maturity date assumes full exercise of extension options.
(2) On January 19, 2018 an affiliate of WPG Inc. repaid the outstanding balance. See discussions presented in Part II,
Item 7 and Note 13 of the Notes to the Consolidated Financial Statements presented in Part IV, Item 15 for further
details.
(3) Our share does not reflect our legal ownership percentage due to capital preferences.
(4) On January 22, 2018, the Company amended and restated the terms of the Credit Facility. See Item 7 for further
details. See discussions presented in Part II, Item 7 and Note 13 of the Notes to the Consolidated Financial Statements
presented in Part IV, Item 15 for further details.
(5) Interest rate fixed via swap agreements as of December 31, 2017.
Note: Substantially all of the above mortgage and property related debt is nonrecourse to us.
32
The following table lists the 68 unencumbered properties in our portfolio as of December 31, 2017:
Unencumbered Properties
As of December 31, 2017
Financial Interest
Enclosed Retail Properties:
Bowie Town Center
Boynton Beach Mall
Chautauqua Mall
Clay Terrace
Edison Mall
Great Lakes Mall
Indian Mound Mall
Irving Mall
Jefferson Valley Mall
Lima Mall
Lindale Mall
Longview Mall
Malibu Lumber Yard(1)
Mall at Fairfield Commons, The
Maplewood Mall
Markland Mall
Melbourne Square
Mesa Mall
Morgantown Mall
New Towne Mall
Northtown Mall
Northwoods Mall
Orange Park Mall
Paddock Mall
Rolling Oaks Mall
Southern Hills Mall
Southern Park Mall
Sunland Park Mall
Waterford Lakes Town Center
WestShore Plaza
Open Air Properties:
Bloomingdale Court
Bowie Town Center Strip
Charles Towne Square
Chesapeake Center
Countryside Plaza
Dare Centre
DeKalb Plaza
Empire East
Fairfax Court
Fairfield Town Center
Gaitway Plaza(2)
33
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
51.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.0%
Greenwood Plus
Henderson Square
Keystone Shoppes
Lake Plaza
Lake View Plaza
Lima Center
Lincoln Crossing
MacGregor Village
Markland Plaza
Martinsville Plaza
Matteson Plaza
Northwood Plaza
Plaza at Buckland Hills, The
Richardson Square
Rockaway Commons
Rockaway Town Plaza
Royal Eagle Plaza
Shops at North East Mall, The
St. Charles Towne Plaza
Tippecanoe Plaza
University Center
University Town Plaza
Village Park Plaza
Washington Plaza
West Town Corners(2)
Westland Park Plaza(2)
Wolf Ranch
Financial Interest
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
_______________________________________________________________________________
(1) This property is part of the O'Connor Joint Venture II, as discussed in Part II, Item 7 and Note 5 of the Notes to the
Consolidated Financial Statements presented in Part IV, Item 15.
(2) We receive substantially all the economic benefit of the property due to a capital preference.
34
Item 3. Legal Proceedings
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 of
our exposure can be reasonably estimated.
t
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
WPG Inc.
Market Information
WPG Inc.'s common shares are traded on the NYSE under the symbol "WPG." The following table sets forth, for the periods
indicated, the high and low sales prices per common share and the dividends declared per common share:
2017
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Price Per
Common Share
High
Low
Dividend
Declared Per
Common
Share
$
$
$
$
$
$
$
$
10.97
9.49
9.79
8.87
$
$
$
$
7.90
7.31
8.00
6.62
Price Per
Common Share
High
Low
11.00
12.17
14.15
12.37
$
$
$
$
7.41
9.23
10.94
9.44
$
$
$
$
$
$
$
$
0.25
0.25
0.25
0.25
Dividend
Declared Per
Common
Share
0.25
0.25
0.25
0.25
The closing price for WPG Inc.'s common shares, as reported by the NYSE at December 31, 2017, was $7.12 per share.
Stockholder Information
As of February 21, 2018, there were 1,381 holders of record of WPG Inc.'s common shares.
Distribution Information
WPG Inc. must pay a minimum amount of dividends to maintain its status as a REIT. WPG Inc.'s future dividends and
future distributions of WPG L.P. will be determined by WPG Inc.'s Board of Directors based on actual results of operations, cash
available for dividends and limited partner distributions, cash reserves as deemed necessary for capital and operating expenditures,
and the amount required to maintain WPG Inc.'s status as a REIT. We announced a policy to pay a quarterly cash distribution at
an annualized rate of $1.00 per common share/unit, which continues in effect as of the date of this Annual Report on Form 10-K.
tt
Common share/unit distributions paid during each of 2017 and 2016 aggregated $1.00 per share/unit.
35
WPG Inc. 7.5% Series H Cumulative Redeemable Preferred Stock ("Series H Preferred Shares") and 6.875% Series I
Cumulative Redeemable Preferred Stock ("Series I Preferred Shares") that were issued on January 15, 2015 in connection with
the Merger each pay cumulative dividends, and therefore WPG Inc. is obligated to pay the dividends for these shares in each fiscal
period in which the shares remain outstanding. Further, WPG L.P. issued 7.3% Series I-1 Preferred Units (the "Series I-1 Preferred
Units") which pay cumulative distributions, and therefore we are obligated to pay the distributions for these units in each fiscal
period in which the units remain outstanding. The aggregate preferred obligation is approximately $14.3 million per year.
WPG L.P.
Market Information
There is no established public trading market for WPG L.P.'s units, including the preferred units, the transfers of which
are restricted by the terms of WPG L.P.'s limited partnership agreement. The following table sets forth, for the periods indicated,
WPG L.P.'s distributions declared per common unit:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Distribution Declared Per
Common Unit
2017
2016
$
$
$
$
0.25
0.25
0.25
0.25
$
$
$
$
0.25
0.25
0.25
0.25
Unitholder Information
As of February 21, 2018, there were 252 holders of record of WPG L.P.'s common units.
Distribution Information
Included in WPG Inc.'s "Distribution Information" discussion above.
Operating Partnership Units and Recent Sales of Unregistered Securities
On January 15, 2015, in connection with the Merger, WPG L.P. issued 1,621,695 common units of limited partnership interest
and 130,592 WPG L.P. Series I-1 Preferred Units to third parties.
Additionally, long-term incentive units ("LTIP") of limited partnership interest have been previously issued to executives
of the Company from our equity incentive compensation plan in connection with our equity compensation awards. See Note 9 -
"Equity" in the Notes to Consolidated Financial Statements. Holders of common units of limited partnership interest receive
distributions per unit in the same manner as distributions on a per common share basis to WPG Inc.'s common shareholders of
beneficial interest.
Common shares to be issued upon redemption of common units of limited partnership interest would be issued in reliance
on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act").
Issuances Under Equity Compensation Plans (WPG Inc. and WPG L.P.)
For information regarding the securities authorized for issuance under our equity compensation plans, see Item 12 of this
report.
36
Item 6. Selected Financial Data
The following tables set forth selected financial data for WPG Inc. and WPG L.P. The consolidated and combined statements
of operations include the consolidated accounts of the Company and the combined accounts of SPG Businesses. Accordingly, the
results presented for the year ended December 31, 2014 reflect the aggregate operations and changes in cash flows and equity on
a carve-out basis of the SPG Businesses for the period from January 1, 2014 through May 27, 2014 and on a consolidated basis
of the Company subsequent to May 27, 2014 following our separation from SPG. The financial statements for the periods prior
to the separation are prepared on a carve-out basis from the consolidated financial statements of SPG using the historical results
of operations and bases of the assets and liabilities of the transferred businesses and including allocations from SPG.
The combined historical financial statements prior to the separation do not necessarily include all of the expenses that would
have been incurred had we been operating as a separate, stand-alone entity and may not necessarily reflect our results of operations,
financial position and cash flows had we been a stand-alone company during the periods presented prior to the separation. Our
combined historical financial statements include charges related to certain SPG corporate functions, including senior management,
property management, legal, leasing, development, marketing, human resources, finance, public reporting, tax and information
technology. These expenses have been charged based on direct usage or benefit where identifiable, with the remainder charged
on a pro rata basis of revenues, headcount, square footage, number of transactions or other measures. We consider the expense
allocation methodology and results to be reasonable for all periods presented. However, the charges may not be indicative of the
actual expenses that would have been incurred had WPG operated as an independent, publicly-traded company for the periods
presented prior to the separation. Post-separation, WPG now incurs additional costs associated with being an independent, publicly
traded company, primarily from newly established or expanded corporate functions.
t
The selected financial data should be read in conjunction with the financial statements and notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of Operations". Other financial data we believe is
important in understanding trends in our business is also included in the tables. The amounts in the below tables are in thousands,
except per share amounts.
a
37
Operating Data:
Total revenue
Depreciation and amortization
Spin-off, merger and transaction costs
Other operating expenses
Impairment loss
Operating income
Interest expense, net
Income and other taxes
Income (loss) from unconsolidated entities
Gain on extinguishment of debt, net
Gain (loss) upon acquisition of controlling
interests and on sale of interests in properties,
net
Net income (loss)
WPG Inc.:
Net income (loss)
Net (income) loss attributable to noncontrolling
interests
Preferred share dividends
Net income (loss) attributable to common
shareholders
Earnings (loss) per common share, basic and
diluted
WPG L.P.:
Net income (loss)
Net income attributable to noncontrolling
interests
Preferred unit distributions
Net income (loss) attributable to common
unitholders
Earnings (loss) per common unit, basic and
diluted
Cash Flow Data:
Operating activities
Investing activities
Financing activities
Other Financial Data:
FFO(1)
Distributions per common share/unit(2)
Balance Sheet Data:
Cash and cash equivalents
Total assets
Mortgages and other debt
Redeemable noncontrolling interests
Cumulative redeemable preferred stock
Total equity
2017
2016
2015
2014
2013
$
$
$
$
$
$
$
$
758,122
(258,740)
—
(287,651)
(66,925)
144,806
(126,541)
(3,417)
1,395
90,579
124,771
231,593
231,593
(34,530)
(14,032)
183,031
0.98
231,593
(68)
(14,272)
217,253
0.98
$
$
$
$
$
$
$
$
843,475
(281,150)
(29,607)
(325,846)
(21,879)
184,993
(136,225)
(2,232)
(1,745)
34,612
$
921,356
(332,469)
(31,653)
(375,520)
(147,979)
33,735
(139,923)
(849)
(1,247)
—
$
660,978
(197,890)
(47,746)
(238,205)
—
177,137
(82,428)
(1,215)
973
—
(1,987)
77,416
4,162
$ (104,122) $
110,988
205,455
77,416
$ (104,122) $
205,455
(10,285)
(14,032)
18,825
(15,989)
(35,426)
—
53,099
$ (101,286) $
170,029
0.29
$
(0.55) $
1.10
77,416
$ (104,122) $
205,455
(11)
(14,272)
(286)
(16,218)
—
—
63,133
$ (120,626) $
205,455
0.29
$
(0.55) $
1.10
$
$
$
$
$
$
$
$
626,289
(182,828)
—
(216,441)
—
227,020
(55,058)
(196)
1,416
—
14,152
187,334
187,334
(31,853)
—
155,481
1.00
187,334
(213)
—
187,121
1.00
289,798
327,512
100,292
$
$
$ (435,138) $ (220,756) $
$
310,763
$
$ (125,942) $ (705,482) $ (234,432) $
402,204
277,640
39,703
336,434
(92,608)
$ (248,955)
$
$
$
$
$
452,128
1.00
$
$
398,091
1.00
$
$
375,271
1.00
$
$
295,051
0.50
$
359,107
N/A
2017
2016
2015 (3)
2014
2013
As of December 31,
$
52,019
$ 4,451,407
$ 2,897,609
3,265
$
$
202,576
$ 1,267,122
$
59,353
$ 5,107,466
$ 3,506,404
10,660
$
$
202,576
$ 1,262,811
$
116,253
$ 5,459,609
$ 3,648,601
6,132
$
$
202,576
$ 1,407,373
38
$
108,768
$ 3,528,003
$ 2,348,864
$
$
$
$
25,857
$ 3,002,658
918,614
$
—
— $
—
— $
$ 1,884,525
958,041
(1) FFO does not represent cash flow from operations as defined by GAAP and may not be reflective of WPG's operating
performance due to changes in WPG's capital structure in connection with the separation and distribution. We use FFO
as a supplemental measure of our operating performance. For a definition of FFO as well as a discussion of its uses
and inherent limitations, please refer to "Non-GAAP Financial Measures" below.
(2) Distributions per common share/unit are only applicable for periods after our separation from SPG on May 28, 2014
when we first issued common shares and units as a separate stand-alone entity.
(3) As a result of the Merger which closed on January 15, 2015 (net of the impact of the O'Connor Joint Venture transaction
which closed on June 1, 2015), our assets, liabilities and equity as of December 31, 2015 increased significantly over
our assets, liabilities and equity as of December 31, 2014.
39
Item 7. 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 that are
included in this Annual Report on Form 10-K. Capitalized terms not defined in this Item 7 shall have the definitions ascribed to
those terms in Items 1-6 of this Annual Report on Form 10-K.
Overview—Basis of Presentation
WPG Inc. is an Indiana corporation that operates as a self administered and self managed REIT, under the Code. WPG will
generally qualify as a REIT for U.S. federal income tax purposes as long as it continues to distribute not less than 90% of REIT
taxable income and satisfy certain other requirements. WPG 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.
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. On May 28, 2014,
WPG separated from SPG through the distribution of 100% of the outstanding units of WPG L.P. to the owners of SPG L.P. and
100% of the outstanding shares of WPG Inc. to the SPG common shareholders in a tax-free distribution. Prior to the separation,
WPG Inc. and WPG L.P. were wholly owned subsidiaries of the SPG Businesses. As of December 31, 2017, our assets consisted
of material interests in 108 shopping centers in the United States, consisting of open air properties and enclosed retail properties,
comprised of approximately 59 million square feet of GLA.
The consolidated financial statements are prepared in accordance with U.S. GAAP. The consolidated balance sheets as of
December 31, 2017 and December 31, 2016 include the accounts of WPG Inc. and WPG L.P., as well as their wholly-owned
subsidiaries. The consolidated statements of operations include the consolidated accounts of the Company. All intercompany
transactions have been eliminated in consolidation. WPG L.P. holds a service mark registered with the United States Patent and
Trademark Office for the name Washington Prime Group®.
The Merger
On January 15, 2015, the Company acquired GRT as part of the Merger. In the Merger, GRT's common shareholders received,
for each GRT common share, $14.02 consisting of $10.40 in cash and 0.1989 of a share of the WPG Inc.'s common stock valued
at $3.62 per GRT common share, based on the closing price of the WPG Inc.'s common stock on the Merger closing date.
Approximately 29.9 million shares of WPG Inc.'s common stock were issued to GRT shareholders in the Merger, and WPG L.P.
issued to WPG Inc. a like number of common units as consideration for the common shares issued. Additionally, included in the
consideration were operating partnership units held by limited partners and preferred stock as noted below. In connection with the
closing of the Merger, an indirect subsidiary of WPG L.P. was merged into GRT's operating partnership. In the Merger, we acquired
material interests in the Merger Properties comprised of approximately 15.8 million square feet of GLA and assumed additional
mortgages on 14 properties with a fair value of approximately $1.4 billion. The combined company was renamed WP Glimcher
Inc. in May 2015 upon receiving shareholder approval.
In the Merger, the preferred stock of GRT was converted into preferred stock of WPG Inc., and WPG L.P. issued to WPG
Inc. preferred units as consideration for the preferred shares issued. Additionally, each outstanding unit of GRT's operating
partnership held by limited partners was converted into 0.7431 of a unit of WPG L.P. Further, each outstanding stock option in
respect of GRT common stock was converted into a WPG Inc. option, and certain other GRT equity awards were assumed by
WPG Inc. and converted into equity awards in respect of WPG Inc.'s common shares.
Concurrent with the closing of the Merger, GRT completed a transaction with SPG under which affiliates of SPG acquired
Jersey Gardens in Elizabeth, New Jersey, and University Park Village in Fort Worth, Texas, properties previously owned by
affiliates of GRT, for an aggregate purchase price of $1.09 billion, including SPG's assumption of approximately $405.0 million
of associated mortgage indebtedness (the "Property Sale").
The cash portion of the Merger consideration was funded by the Property Sale and draws under the Bridge Loan (see
"Financing and Debt" below). During the year ended December 31, 2015, the Company incurred $31.7 million of costs related
to the Merger, which are included in merger, restructuring and transaction costs in the consolidated statements of operations and
comprehensive income (loss).
aa
40
Leadership Changes and Corporate Name Change
2015 Activityy
On June 1, 2015, the Company announced a management transition plan through which Mr. Mark S. Ordan, the then Executive
Chairman of the WPG Inc. Board of Directors (the "Board"), transitioned to serve as an active non-executive Chairman of the
Board and provide consulting services to the Company under a Transition and Consulting Agreement, effective as of January 1,
2016 (see "2016 Activity" below for subsequent matters related to Mr. Ordan). Additionally, the Company reduced staff formerly
located in its Bethesda, Maryland-based transition operations group led by Mr. C. Marc Richards, the Company’s then Executive
Vice President and Chief Administrative Officer, who departed the Company on January 15, 2016.
Other senior executives from the Bethesda office who departed the Company at the end of 2015 were Mr. Michael J. Gaffney,
then Executive Vice President, Head of Capital Markets (who served as a consultant to the Company through March 31, 2016),
and Ms. Farinaz S. Tehrani, then Executive Vice President, Legal and Compliance. During the year ended December 31, 2015,
the Company incurred $8.6 million of related severance costs, consisting of $4.6 million in cash severance and approximately
$4.0 million in non-cash stock compensation charges, which are included in the total merger, restructuring and transactions costs
disclosed above.
2016 Activityy
On June 20, 2016, the Company announced the following leadership changes: (1) the resignation of Mr. Michael P. Glimcher
as the Company’s Chief Executive Officer and Vice Chairman of the Board; (2) the appointment of Mr. Louis G. Conforti, a current
Board member, as Interim Chief Executive Officer; (3) the resignation of Mr. Mark S. Ordan as non-executive Chairman of the
Board; and (4) the resignation of Mr. Niles C. Overly from the Board. In July of 2016, the Company terminated some additional
executive and non-executive personnel as part of an effort to reduce overhead costs. On October 6, 2016, the Company announced
that Mr. Conforti would serve as the Company's Chief Executive Officer for a term ending December 31, 2019, subject to early
termination clauses and automatic renewals pursuant to his employment agreement.
In connection with and as part of the aforementioned management changes, the Company recorded aggregate charges of
$29.6 million during the year ended December 31, 2016, of which $25.5 million related to severance and restructuring-related
costs, including $9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards, and $4.1 million
related to fees and expenses incurred in connection with the Company's investigation of various strategic alternatives, which costs
are included in merger, restructuring and transaction costs in the consolidated statements of operations and comprehensive income
(loss). During WPG Inc.'s annual meeting of shareholders on August 30, 2016, the common shareholders approved a proposal to
change WPG Inc.'s name back to Washington Prime Group Inc.
2017 Activityy
On September 28, 2017, Mr. Keric M. "Butch" Knerr, Executive Vice President and Chief Operating Officer, informed the
Company of his resignation. Mr. Knerr's final day of employment was October 13, 2017. There were no severance payments or
accelerated vesting of stock compensation benefits in connection with his resignation.
The O'Connor Joint Ventures
The Company has two joint ventures with O'Connor Mall Partners, L.P. ("O'Connor").
• The O'Connor Joint Venture I
On June 1, 2015, we completed a joint venture transaction with O'Connor, an unaffiliated third party, with respect to the
ownership and operation of five of the Company’s enclosed retail properties and certain related out-parcels acquired in
the Merger, 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 (the "O'Connor Joint Venture I"). The O'Connor Joint Venture I was valued at approximately
$1.625 billion, and we retained a 51% non-controlling interest. The transaction generated net proceeds, after taking into
consideration the assumption of debt and costs associated with the transaction, of approximately $432 million (including
$28.7 million for the partial reimbursement of the Scottsdale Quarter development costs), which was used to repay a
portion of the Bridge Loan (for definition, see "Financing and Debt" below). We deconsolidated the properties and
recorded a gain in connection with this sale of $4.2 million, which is included in gain (loss) on disposition of interests
in properties, net for the year ended December 31, 2015 within the consolidated statements of operations and
comprehensive income (loss). We retained day to day management, leasing, and development responsibilities for the
O'Connor Joint Venture I.
41
During the year ended December 31, 2016, the O'Connor Joint Venture I sold its 25% indirect ownership interest in
Crescent-SDQ III Venture, LLC to unaffiliated third parties. The Company received a cash distribution from the joint
venture at closing of $4.4 million and recorded $0.3 million as our share of the joint venture's gain, based on our pro-
rata ownership interest in the O'Connor Joint Venture I, which is recorded in income (loss) from unconsolidated entities
on the consolidated statements of operations and comprehensive income (loss).
On March 2, 2017, the O'Connor Joint Venture I acquired an additional section at Pearlridge Center for a gross purchase
price of $70.0 million. Pearlridge Center is currently comprised of two distinct enclosed venues commonly referred to
as Uptown and Downtown. The acquired section consists of approximately 153,000 square feet, which is part of Uptown
(and referenced herein as Pearlridge Uptown II), and is anchored by Ross Dress for Less and TJ Maxx. Subsequent to
the purchase, the joint venture placed secured debt on the property (see below for details). Our share of the purchase
price was funded by a combination of our share of the secured debt and availability on our credit facility.
On March 30, 2017, the O'Connor Joint Venture I closed on a $43.2 million non-recourse mortgage note payable with
an eight year term and a fixed interest rate of 4.071% secured by Pearlridge Uptown II. The mortgage note payable
requires monthly interest only payments until April 1, 2019, at which time monthly interest and principal payments are
due until maturity. Our pro-rata share of the mortgage note payable issuance is $22.0 million.
On March 29, 2017, the O'Connor Joint Venture I closed on a $55.0 million non-recourse mortgage note payable with a
ten year term and a fixed interest rate of 4.36% secured by sections of Scottsdale Quarter® known as Block K and Block
M. The mortgage note payable requires monthly interest only payments until May 1, 2022, at which time monthly interest
and principal payments are due until maturity. Our pro-rata share of the mortgage note payable issuance is $28.1 million.
• The O'Connor Joint Venture II
During the year ended December 31, 2017, we completed an additional joint venture transaction with O'Connor with
respect to the ownership and operation of seven of the Company's 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," collectively); 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"). The transaction valued the properties at $598.6 million
before closing adjustments and debt assumptions. Under the terms of the joint venture agreement, we retained a non-
controlling 51% interest in the O'Connor Joint Venture II and sold the remaining 49% to O'Connor. The transaction
generated net proceeds to the Company of approximately $138.9 million, after taking into consideration costs associated
with the transaction and the assumption of debt (including the new mortgage loans on The Arboretum, Gateway Centers,
and Oklahoma City Properties which closed prior to the joint venture transaction; see "Financing and Debt" below for
net proceeds to the Company from the new mortgage loans), which we used to reduce the Company's debt as well as for
general corporate purposes. We deconsolidated the properties included in the O'Connor Joint Venture II and recorded a
gain in connection with this partial sale of $126.1 million, which is included in gain (loss) on disposition of interests in
properties, net in the consolidated statements of operations and comprehensive income (loss) during the year then ended.
The gain was recorded pursuant to Accounting Standards Codification ("ASC") 360-20 and calculated based upon proceeds
received, less 49% of the book value of the deconsolidated net assets. Our retained 51% non-controlling equity method
interest was valued at historical cost based upon the pro rata book value of the retained interest in the net assets. We
retained management and leasing responsibilities of the properties, though our partner's substantive participating rights
over the decisions most important to the operations of the O'Connor Joint Venture II preclude our control and consolidation
of this venture. In connection with the formation of this joint venture, we recorded transaction costs of approximately
$6.4 million as part of our basis in this investment.
Outparcel Sale
On September 20, 2017, the Company executed a purchase and sale agreement with an affiliate of Four Corners Property
Trust, Inc. ("FCPT") to sell 41 restaurant outparcels located at 21 of the Company's enclosed retail properties and open air properties.
On January 12, 2018, we completed the sale of the first tranche of restaurant outparcels which consisted of 10 restaurant outparcels,
for an allocated purchase price of approximately $13.7 million. The net proceeds of approximately $13.5 million were used to
fund future acquisitions and development and for general corporate purposes. The Company expects to close on the second tranche
in the second half of 2018, subject to due diligence and closing conditions.
a
42
Southgate Mall
On December 22, 2017 the Company executed a purchase agreement to acquire Southgate Mall, located in Missoula, Montana,
for $58.0 million. Due diligence was completed on February 21, 2018 and the purchase is expected to be completed on or about
April 20, 2018. The purchase will be funded by a combination of proceeds from the transaction with FCPT (see details under
"Overview - Basis of Presentation - Outparcel Sale"), the Revolver and potentially the issuance of operating partnership units.
The enclosed retail property contains approximately 632,000 square feet of GLA and is anchored by a recently constructed AMC
Theater, a new Lucky’s Market grocer that replaced a portion of a former Sears, Herberger’s, J.C. Penney (non-owned) and Dillard’s
(non-owned) and is the dominant retail center in this secondary market, with no competitive destination retail product located
within 130 miles. The cap rate on underwritten NOI is approximately 10.4% and will be accretive to the Company's earnings.
Impairment
During the fourth quarter of 2017, a major anchor tenant of Rushmore Mall, located in Rapid City, South Dakota, informed
us of their intention to close their store at the property. The impending closure was deemed a triggering event and, therefore, we
evaluated this property in conjunction with our quarterly impairment review and preparation of our financial statements for the
year ended December 31, 2017. We compared the estimated fair value of $37.5 million to the related carrying value of $75.0
million, which resulted in the recording of an impairment charge of approximately $37.5 million in the consolidated statements
of operations and comprehensive income (loss) for the year ended December 31, 2017.
On October 4, 2017, the Company entered into a purchase and sale agreement to sell Colonial Park Mall, located in Harrisburg,
Pennsylvania, to an unaffiliated private real estate investor, which was sold on November 3, 2017. During the third quarter of
2017, we shortened the hold period used in assessing impairment for this asset, which resulted in the carrying value not being
recoverable from the expected cash flows. We compared the fair value measurement of the property to its relative carrying value,
which resulted in the recording of an impairment charge of approximately $20.9 million in the consolidated statements of operations
and comprehensive income (loss) for the year ended December 31, 2017.
During the first quarter of 2017, the Company entered into a purchase and sale agreement to dispose of Morgantown Commons,
located in Morgantown, West Virginia, which was sold in the second quarter of 2017. We shortened the hold period used in assessing
impairment for the asset during the quarter ended March 31, 2017, which resulted in the carrying value not being recoverable from
the expected cash flows. The purchase offer represented the best available evidence of fair value for this property. We compared
the fair value to the carrying value, which resulted in the recording of an impairment charge of approximately $8.5 million in the
consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2017.
a
During the year ended December 31, 2016, we recorded an impairment charge of $21.9 million primarily related to noncore
properties consisting of Gulf View Square, located in Port Richey, Florida; Richmond Town Square, located in Cleveland, Ohio;
River Oaks Center, located in Chicago, Illinois; and Virginia Center Commons, located in Glen Allen, Virginia. The impairment
charge was attributed to the continued declines in the fair value of the properties and executed agreements entered into in 2016 to
sell these properties at prices below the carrying value. Each of the aforementioned noncore properties has been sold in accordance
with the Company's strategic objectives.
During the year ended December 31, 2015, we took an impairment charge of approximately $138.0 million primarily related
to certain noncore properties, in addition to Forest Mall, located in Fond Du Lac, Wisconsin and Northlake Mall, located in Atlanta,
Georgia, which were both sold on January 29, 2016, and Knoxville Center, located in Knoxville, Tennessee, which was sold on
August 19, 2016. The impairment charge resulted from the change 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.
During the third quarter of 2015, a major anchor tenant of Chesapeake Square, located in Chesapeake, Virginia, informed
us of their intention to close their store at the property. The impending closure was deemed a triggering event and, therefore, we
evaluated this property in conjunction with our quarterly impairment review and preparation of our financial statements for the
quarter ended September 30, 2015. We compared the fair value to the related carrying value, which resulted in the recording of
an impairment charge of approximately $9.9 million in the consolidated statements of operations and comprehensive income (loss)
for the year ended December 31, 2015. Furthermore, we transferred ownership of this property to the mortgage lender on April
28, 2016 (see "Financing and Debt - Covenants" below).
Hurricane Harvey and Hurricane Irma
During the third quarter of 2017, Hurricane Harvey and Hurricane Irma made landfall in Houston, Texas and Southern
Florida, respectively. The Company had 15 assets experience damage attributed to the hurricanes, but no asset sustained catastrophic
damage. Further, no asset experienced a significant loss of business or functionality. The Company recognized approximately
$900,000 of expense attributed to the damage, repairs and asset write-offs, which was below insurance deductible thresholds.
tt
43
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, FFO and cash flows by enhancing the profitability and operation of our
properties and investments.
f
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 or contribute to a joint venture 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 ending occupancy,
average base minimum rent per square foot and comparable NOI for the properties owned at December 31, 2017.
Core business fundamentals in the overall portfolio during 2017 were generally stable compared to 2016. Ending occupancy
for the portfolio was 93.1% as of December 31, 2017, as compared to 94.1% as of December 31, 2016. Average base minimum
rent per square foot for the portfolio increased by 0.2% when comparing December 31, 2017 to December 31, 2016. Comparable
NOI decreased 1.2% for the portfolio when comparing calendar year 2017 to 2016. Our enclosed retail properties had a decrease
in comparable NOI of 3.0%, which was driven primarily by the impact of tenant bankruptcies filed in 2016 and 2017. The open
air properties had comparable NOI growth of 4.5% in 2017 when compared to 2016.
The following table sets forth key operating statistics for the combined portfolio of properties or interests in properties:
Ending occupancy (1)
Average base minimum rent per square foot (2)
93.1% (1.0)%
94.1%
$
21.93
0.2 % $
21.88
0.6%
1.2% $
93.5%
21.63
December 31,
2017
%
Change
December 31,
2016
%
Change
December 31,
2015
(1)
Ending occupancy is the percentage of 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 year ended December 31, 2017, 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 portfolio, comprising
approximately 2,635,100 square feet. The average annual initial base minimum rent for new leases was $25.25 per square foot
("psf") and for renewed leases was $25.34 psf. For these leases, the average for tenant allowances was $36.05 psf for new leases
and $3.49 psf for renewals. During the year ended December 31, 2016, 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 portfolio, comprising approximately 2,637,500 square feet. The average annual initial base minimum rent for new
leases was $23.54 psf and for renewed leases was $28.91 psf. For these leases, the average for tenant allowances was $35.28 psf
for new leases and $4.86 psf for renewals.
m
44
Portfolio Summary
We have provided some of our key operating metrics for our enclosed retail property portfolio in different tiers. The purpose
of the disclosure is to provide some distinction between the characteristics of the enclosed retail properties. Tier 1 enclosed retail
properties generally have higher occupancy, sales productivity and growth profiles, while Tier 2 enclosed retail properties are
viable enclosed retail properties with lower productivity and modest growth profiles. The table below provides some of our key
metrics for the enclosed retail property tiers as well as some key metrics for our open air property portfolio:
Leased Occupancy
%1
Store Sales Per Square
Foot for 12 Months
Ended1
pp
Store Occupancy
Cost %1
% of Total Comp
NOI for 12
Months Ended1
Count
12/31/17
12/31/16
12/31/17
12/31/16
12/31/17
12/31/16
12/31/17
Open Air Properties
Tier 1 Enclosed retail properties
Tier 2- Enclosed retail properties
Enclosed Retail Properties Subtotal
51
38
19
57
95.8%
95.8%
92.8 %
88.3 %
91.3%
93.6 % $
91.7 % $
93.0% $
397
287
365
$
$
$
399
305
370
12.2 %
14.0 %
12.6%
12.2 %
13.9 %
12.6%
Total Portfolio
108
93.1%
94.1%
1Metrics only include properties owned as of December 31, 2017.
Enclosed Retail Property Tiers
24.9%
56.3 %
18.8 %
75.1%
100.0%
The following table categorizes the enclosed retail properties into the respective tiers as of December 31, 2017:
Arbor Hills
Arboretum, The
Ashland Town Center
Bowie Town Center
Brunswick Square
Clay Terrace
Dayton Mall
Edison Mall
Grand Central Mall
Great Lakes Mall
Jefferson Valley Mall
Lima Mall(1)
Lindale Mall
Tier 1
Northwoods Mall
Oklahoma City Properties
Orange Park Mall
Paddock Mall
Pearlridge Center
Polaris Fashion Place
Port Charlotte Town Center
Scottsdale Quarter
Southern Hills Mall
Southern Park Mall
The Outlet Collection | Seattle
Town Center at Aurora
Town Center Crossing & Plaza
Waterford Lakes Town Center
Longview Mall
Malibu Lumber Yard
Weberstown Mall
Mall at Fairfield Commons, The Westminster Mall
Mall at Johnson City, The
WestShore Plaza
Markland Mall
Melbourne Square
Morgantown Mall
Muncie Mall(1)
1Property has been identified to change tiers in 2018.
2Reclassified as noncore properties in 2018.
Tier 2
Anderson Mall
Boynton Beach Mall
Charlottesville Fashion Square
Chautauqua Mall
Cottonwood Mall(1)
Indian Mound Mall
Irving Mall(1)
Lincolnwood Town Center
Maplewood Mall
Mesa Mall(1)
New Towne Mall
Northtown Mall(1)
Oak Court Mall
Rolling Oaks Mall
Rushmore Mall(2)
Seminole Towne Center
Sunland Park Mall
Towne West Square(2)
West Ridge Mall(2)
45
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application
of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various
other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various
transactions had been different, it is possible that different accounting policies would have been applied resulting in a different
presentation of our financial statements. From time to time, we reevaluate our estimates and assumptions. In the event estimates
or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current
information. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in
their application or require estimates about matters that are inherently uncertain. For a summary of our significant accounting
policies, please refer to Note 3 of the notes to the consolidated financial statements.
• We, as a lessor, retain substantially all of the risks and benefits of ownership of the investment properties and account
for our leases as operating leases. We generally accrue minimum rents on a straight-line basis over the terms of their
respective leases. Many of our retail tenants are also required to pay overage rents based on sales over a stated amount
during the lease year. We recognize overage rents only when each tenant's sales exceed its sales threshold as defined in
their lease. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the
term of the related lease or occupancy term of the tenant, if shorter.
• We review investment properties for impairment on a property-by-property basis whenever events or changes in
circumstances indicate that the carrying value of investment properties may not be recoverable. These circumstances
include, but are not limited to, a decline in a property's cash flows, ending occupancy, estimated market values or our
decision to dispose of a property before the end of its estimated useful life. Furthermore, this evaluation is conducted no
less frequently than quarterly, irrespective of changes in circumstances. We measure any impairment of investment
property when the estimated undiscounted operating income before depreciation and amortization plus its residual value
is less than the carrying value of the property. To the extent impairment has occurred, we charge to expense the excess
of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as
operating income, estimated capitalization rates, leasing prospects and local market information. We may decide to sell
properties that are held for use and the sale prices of these properties may differ from their carrying values. We also
review our investments, including investments in unconsolidated entities, if events or circumstances change indicating
that the carrying amount of our investments may not be recoverable. We will record an impairment charge if we determine
that a decline in the fair value of the investments below carrying value is other-than-temporary. Changes in economic
and operating conditions that occur subsequent to our review of recoverability of investment property and other
investments could impact the assumptions used in that assessment and could result in future charges to earnings if
assumptions regarding those investments differ from actual results.
• To maintain its status as a REIT, WPG Inc. must distribute at least 90% of its REIT taxable income in any given year and
meet certain asset and income tests. We monitor our business and transactions that may potentially impact WPG Inc.'s
REIT status. In the unlikely event that WPG Inc. fails to maintain REIT status, and available relief provisions do not
apply, then it would be required to pay federal income taxes at regular corporate income tax rates during the period it did
not qualify as a REIT. If WPG Inc. lost its REIT status, it could not elect to be taxed as a REIT for four years unless its
failure was due to reasonable cause and certain other conditions were met. As a result, failing to maintain REIT status
would result in a significant increase in the income tax expense recorded and paid during those periods.
• We make estimates as part of our recording of property acquisitions to the various components of the acquisition based
upon the fair value of each component. The most significant components of our allocations are typically the recording
of the fair value of buildings as-if-vacant, land and market value of in-place leases. In the case of the fair value of buildings
and the recording of the fair value of land and other intangibles, our estimates of the values of these components will
affect the amount of depreciation we record over the estimated useful life of the property acquired or the remaining lease
term. In the case of the market value of in-place leases, we make our best estimates of the tenants' ability to pay rents
based upon the tenants' operating performance at the property, including the competitive position of the property in its
market as well as tenant sales, rents per square foot, and overall occupancy cost for the tenants in place at the acquisition
date. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the
acquired in-place leases.
46
• A variety of costs are incurred in the development and leasing of properties. After determination is made to capitalize a
cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project
is substantially complete and capitalization must cease involves a degree of professional judgment. The costs of land and
buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs
essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries
and related costs and other costs incurred during the period of development. We consider a construction project as
substantially completed when it is held available for occupancy, and accordingly, cease capitalization of costs upon
opening.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with
Customers (Topic 606)." ASU 2014-09 revises GAAP by offering a single comprehensive revenue recognition standard instead
of numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for
economically similar transactions. This new standard is effective for the Company as of January 1, 2018 and impacts revenue
streams consisting of fees earned from management, development and leasing services provided to joint ventures in which we
own an interest and other ancillary income earned from our properties. In 2017, these revenues were approximately 2.5% of
consolidated revenue. Fee income earned from our joint ventures for management and development services and other ancillary
property income will generally be recognized in a manner consistent with our current measurement and patterns of recognition
whereas we will fully recognize leasing service fee revenue upon lease execution. We will adopt the standard effective January
1, 2018, using the modified retrospective approach, which will require an immaterial cumulative effect adjustment as of the date
of adoption to the opening balance of retained earnings. We expect an immaterial impact to our net income on an ongoing basis
due to the aforementioned changes in patterns of recognition.
In February 2017, the FASB issued guidance that clarified the scope of ASC 610-20, "Other Income - Gains and Losses from
the Derecognition of Nonfinancial Assets," which was finalized in conjunction with ASU 2014-09. ASC 610-20 applies to the
sale, transfer and derecognition of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial
sales, and eliminates the guidance specific to real estate in ASC 360-20. The guidance is effective as of January 1, 2018. With t
respect to full disposals, the recognition pattern did not change from our current measurement and pattern of recognition. With
respect to partial sales of real estate to joint ventures such as the O'Connor Joint Venture II, as defined below (see Note 5 -
"Investment in Unconsolidated Entities, at Equity"), the new guidance requires us to recognize a full gain where an equity investment
was retained, resulting in a basis difference as we are required to measure our retained equity interest at fair value, whereas the
joint venture may measure the assets received at carryover basis. We will adopt the standard effective January 1, 2018, using the
modified retrospective approach.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
changes to lessor accounting. It is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years, with early adoption permitted. The new leases standard requires a modified retrospective transition approach
for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In
January 2018, the FASB issued a proposed amendment that would provide an entity the optional transition method to initially
account for the impact of the adoption ASU 2016-02 with a cumulative adjustment to retained earnings on January 1, 2019 (the
effective date of the ASU), rather than January 1, 2017, which would eliminate the need to restate amounts presented prior to
January 1, 2019. From a lessee perspective, the Company currently has four material ground leases and two material office leases
that, under the new guidance, will result in the recognition of a lease liability and corresponding right-of-use asset.
From a lessor perspective, the new guidance remains mostly similar to current rules, though contract consideration will now
be allocated between lease and non-lease components. Non-lease component allocations will be recognized under ASU 2014-09,
and we expect that this will result in a different pattern of recognition for certain non-lease components, including for fixed
common-area ("CAM") revenues. However, the FASB's proposed amendment to ASU 2016-02 referred to above would also allow
lessors to elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their
relative standalone selling prices. If adopted, this practical expedient will allow lessors to elect a combined single lease component
presentation if (i) the timing and pattern of the revenue recognition of the combined single lease component is the same, and (ii)
the combined single component would be classified as an operating lease. In addition, ASU 2016-02 limits the capitalization of
leasing costs to initial direct costs, which will likely result in a reduction to our capitalized leasing costs and an increase to general
and administrative expenses, though the amount of such changes is highly dependent upon the leasing compensation structures
in place at the time of adoption. For the year ended December 31, 2017, the Company deferred $16.9 million of internal leasing
costs. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.
47
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)." ASU 2016-15 is intended to reduce
diversity in practice in how certain transactions are classified in the statement of cash flows. It is effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years with early adoption permitted. Additionally, in
November 2016, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue 16-A "Restricted Cash," requiring that
a statement of cash flows explain the change during the period in total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash would be included with
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of
cash flows. This guidance is also effective for fiscal years beginning after December 15, 2017, including interim periods. These
new standards require a retrospective transition approach. The Company has $18.2 million and $29.2 million of restricted cash
on its consolidated balance sheets as of December 31, 2017 and 2016, respectively, whose cash flow statement classification will
change to align with the new guidance upon adoption of the EITF. We adopted the standards effective January 1, 2018.
d
aa
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a
Business," that provides guidance to assist entities with evaluating when a set of transferred assets and activities (set) is a business.
The new guidance requires an acquirer to determine if substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of assets; if so, the set of transferred assets and activities is not a business. The new guidance
is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early
adoption permitted and will be applied on a prospective basis for transactions that occur within the period of adoption. We adopted
this standard early and applied it prospectively as of January 1, 2017, as permitted under the standard, and anticipate subsequent
property acquisitions to be accounted for under asset acquisition accounting rather than business combination accounting, resulting
in capitalization of transactions costs rather than expensing of said costs.
a
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities," to better align the results of hedge accounting with an entity's risk management activities. The new
guidance aims to reduce complexity in fair value hedges of interest rate risk and eliminates the requirement to separately measure
and report hedge ineffectiveness, generally requiring the entire change in the fair value of the hedging instrument to be presented
in the same income statement line as the hedged item. The new guidance is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years, and requires a cumulative-effect adjustment to the balance sheet ast
of the beginning of the fiscal year of adoption, with early adoption permitted in any interim period or fiscal year before the effective
date. The updated presentation and disclosure guidance is required only on a prospective basis. The Company is currently evaluating
the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
Results of Operations
The following acquisitions and dispositions affected our results in the comparative periods:
• On November 3, 2017, we completed the sale of Colonial Park Mall.
• On October 17, 2017, we completed a discounted payoff of the mortgage loan secured by Southern Hills Mall, located
in Sioux City, Iowa.
• On October 3, 2017, we transitioned Valle Vista Mall, located in Harlingen, Texas, to the lender.
• On June 13, 2017, we sold 49% of our interest in Malibu Lumber Yard as part of the O'Connor Joint Venture II transaction.
• On June 7, 2017, we completed the sale of Morgantown Commons.
• On May 16, 2017, we completed the sale of an 80,000 square foot vacant anchor parcel at Indian Mound Mall, located
in Heath, Ohio.
• On May 12, 2017, we completed the transaction forming the O'Connor Joint Venture II with regard to the ownership and
operation of six of the Company's retail properties and certain related outparcels. Under the terms of the joint venture agreement,
we retained a 51% non-controlling interest and sold a 49% interest to O'Connor, the third party partner.
• On April, 25, 2017, we completed a discounted payoff of the mortgage loan secured by Mesa Mall, located in Grand
Junction, Colorado.
• On February 21, 2017, we completed the sale of Gulf View Square and River Oaks Center.
• On January 10, 2017, we completed the sale of Virginia Center Commons.
• On December 29, 2016, we transitioned River Valley Mall, located in Lancaster, Ohio, to the lender.
• On November 10, 2016, we completed the sale of Richmond Town Square.
48
• On August 19, 2016, we completed the sale of Knoxville Center.
• On June 9, 2016, we transitioned Merritt Square Mall, located in Merritt Island, Florida, to the lender.
• On April 28, 2016, we transitioned Chesapeake Square, located in Chesapeake, Virginia, to the lender.
• On January 29, 2016, we completed the sale of Forest Mall and Northlake Mall.
• On June 1, 2015, we completed the transaction forming the O'Connor Joint Venture I.
• On January 15, 2015, we acquired 23 properties in the Merger.
• On January 13, 2015, we acquired Canyon View Marketplace, located in Grand Junction, Colorado.
Year Ended December 31, 2017 vs. Year Ended December 31, 2016
For the purposes of the following comparisons, the transactions listed above that occurred in the periods under comparison
(excluding the properties included in the O'Connor Joint Venture II and the discounted payoffs of Mesa Mall and Southern Hills
Mall, which are referred to as their respective capitalized terms) are referred to as the "Property Transactions," and "comparablea
properties" refers to the remaining properties we owned and operated throughout both years in the year-to-year comparisons.
Minimum rents decreased $56.4 million, primarily due to a $33.3 million decrease related to the Property Transactions and
$23.6 million decrease related to the O'Connor Joint Venture II properties offset by a $0.5 million increase attributable to the
comparable properties. Overage rents decreased $3.8 million, primarily due to a $1.0 million decrease related to the Property
Transactions, $1.3 million decrease related to the O'Connor Joint Venture II properties, and a $1.5 million decrease attributable
to the comparable properties. Tenant reimbursements decreased $28.2 million due to a $12.1 million decrease attributable to the
Property Transactions, $8.0 million decrease related to the O'Connor Joint Venture II properties, and an $8.1 million decrease
attributable to the comparable properties, primarily due to rent restructuring in leases for national retailers that filed bankruptcy
in 2017 and 2016. Other income increased $3.0 million, primarily due to a $2.2 million increase from lease settlements that
occurred in 2017 and a $1.2 million increase in management, leasing and development fee income from the unconsolidated joint
ventures to which we provide such services, offset by a net $0.4 million decrease attributable to ancillary property income.
kk
Property operating expenses decreased $20.2 million, of which $14.1 million was attributable to the Property Transactions,
$3.9 million was attributable to the O'Connor Joint Venture II properties, and $2.2 million was attributable to the comparable
properties, primarily involving a reduction in management fee expense related to the termination of certain transition service
agreements with SPG in connection with the 2014 spin-off. Depreciation and amortization decreased $22.4 million, primarily due
to a $17.1 million decrease attributable to the Property Transactions and an $11.5 million decrease attributable to the O'Connor
Joint Venture II properties, offset by a $6.2 million increase attributable to the comparable properties, which was primarily due to
development assets placed into service. Real estate taxes decreased $13.0 million, primarily due to an $8.7 million decrease
attributable to the Property Transactions and a $5.0 million decrease attributable to the O'Connor Joint Venture II properties, offset
by a $0.7 million increase attributable to the comparable properties. Provision for credit losses increased $0.6 million, primarilya
attributable to tenant bankruptcies during 2017. General and administrative expenses decreased $2.4 million, primarily due to
reductions in external legal, consulting, and audit fees and reductions in salaries and wages expenses. The decrease in merger,
restructuring and transaction costs of $29.6 million was attributable to the management transition as well as strategic alternatives
explored during 2016 and no comparable costs occurring in 2017. The increase of $45.0 million in impairment losses recorded in
2017 relate to the write down of Rushmore Mall, Colonial Park Mall and Morgantown Commons, as described in further detail
under "Impairment," when compared to the impairments taken during the comparable period in 2016.
dd
aa
Interest expense, net, decreased $9.7 million, of which $7.5 million was attributable to the Property Transactions, $11.0
million was attributable to the discounted payoffs of the mortgage loans secured by Mesa Mall and Southern Hills Mall, respectively,
and $3.3 million was attributable to the O'Connor Joint Venture II properties. Offsetting these decreases were increases of $11.4
million related to corporate debt activity, primarily related to the August 2017 bond offering offset by reduced Revolver activity,
reductions in term loan interest expense, and swap ineffectiveness, and $0.7 million related to other financing activities.
Gain on extinguishment of debt, net recognized in the 2017 period consisted of the $90.6 million gain related to the discounted
payoff of the $99.7 million mortgage loan secured by Southern Hills Mall, transitioning of $40.0 million mortgage loan secured
by Valle Vista Mall to the lender, and the discounted payoff of the $87.3 million mortgage loan secured by Mesa Mall. The gain
on extinguishment of debt, net recognized in the 2016 period consisted of the $34.6 million net gain from the transitioning of
River Valley Mall, Merritt Square Mall, and Chesapeake Square to the lenders.
Income and other taxes increased $1.2 million, which was attributable primarily to a nonrecurring state use tax that was
incurred in 2017.
49
Gain (loss) on disposition of interests in properties, net in the 2017 period consisted of a net gain of $124.8 million from the
sales of Colonial Park Mall, Morgantown Commons, a vacant anchor parcel at Indian Mound Mall, the O'Connor Joint Venture
II transaction, Gulf View Square, River Oaks Center, and Virginia Center Commons. The $2.0 million loss in the 2016 period
occurred from the sales of Richmond Town Square, Knoxville Center, Forest Mall, and Northlake Mall.
For WPG Inc., net income (loss) attributable to noncontrolling interests primarily relates to the allocation of income (loss)
to third parties based on their respective weighted average ownership interest in WPG L.P., which percentage remained consistent
over the periods.
Year Ended December 31, 2016 vs. Year Ended December 31, 2015
For the purposes of the following comparisons, the properties acquired in the Merger transaction, including the impact of
the deconsolidation of certain properties in the O'Connor Joint Venture I transaction, the transitioning to the lenders of River Valley
Mall and Merritt Square Mall (both causing decreases period over period), certain properties included in the O'Connor Joint Venture
II transaction, and the dispositions of Morgantown Commons and Colonial Park Mall are referred to as the "Merger Properties"
and the other transactions listed above that occurred in the periods under comparison are referred to as the "Property Transactions."
In the following discussions of our results of operations, "comparable" refers to the remaining properties we owned and operated
throughout both years in the year-to-year comparisons.
Minimum rents decreased $50.3 million, primarily due to a $37.6 million decrease related to the Merger Properties and $12.8
million decrease related to the Property Transactions offset by a $0.1 million increase attributable to the comparable properties.
Overage rents decreased $1.2 million primarily attributable to the Merger Properties. Tenant reimbursements decreased $23.3
million due to a $5.5 million decrease attributable to the Property Transactions and a net $18.0 million decrease attributable to the
Merger Properties offset by a $0.2 million increase attributable to the comparable properties. Other income decreased $3.1 million,
primarily due to a $3.6 million decrease from the comparable properties primarily due to lease settlements that occurred in 2015
and a $2.3 million decrease attributable to sponsorship income at the comparable properties, partially offset by a $2.8 million
increase in management, leasing and development fee income from the unconsolidated joint ventures to which we provide such
services.
Total operating expenses decreased $229.1 million, of which $61.7 million was attributable to the Merger Properties,
$20.5 million was attributable to the Property Transactions and $8.0 million was attributable to the comparable properties, primarily
related to decreased depreciation on fully depreciated assets, $10.8 million was attributable to a net decrease in general and
administrative expenses, $2.0 million was attributable to a net decrease in merger, restructuring and transaction costs, primarily
attributable to the management transition that occurred during the year ended 2015, and $126.1 million was attributable to a net
decrease in impairment losses recorded during the year ended 2016.
Interest expense, net, decreased $3.7 million, due to a $5.8 million decrease attributable to the repayment of certain mortgages
in 2015 and a $5.8 million decrease attributable to the Merger Properties, which were partially offset by a $6.8 million increase
attributable to additional interest on borrowings to finance the Merger transaction (net of Bridge Loan fees written off in 2015)
and a $1.1 million increase related to default interest on properties transitioned or to be transitioned to lenders.
Gain on extinguishment of debt recognized in the 2016 period consisted of $34.6 million net gain from the transitioning of
River Valley Mall, Merritt Square Mall, and Chesapeake Square to the lenders. There was no such gain in the 2015 period.
Gain (loss) on disposition of interests in properties recognized in the 2016 period consisted of the $2.0 million loss from the
sales of Richmond Town Square, Knoxville Center, Forest Mall, and Northlake Mall and in the 2015 period consisted of the $4.2
million gain related to the O'Connor Joint Venture I transaction.
Preferred share dividends relate to the 8.125% Series G Cumulative Redeemable Preferred Stock (the "Series G Preferred
Shares"), the 7.5% Series H Cumulative Redeemable Preferred Stock (the "Series H Preferred Shares"), and the 6.875% Series I
Cumulative Redeemable Preferred Stock (the "Series I Preferred Shares") issued in conjunction with the Merger. Preferred dividends
decreased $2.0 million primarily related to the Series G Preferred Shares, which were redeemed in full on April 15, 2015.
For WPG Inc., net income (loss) attributable to noncontrolling interests primarily relates to the allocation of income (loss)
to third parties based on their respective weighted average ownership interest in WPG L.P., which percentage remained consistent
over the periods.
Liquidity and Capital Resources
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, tenant allowance and dividends. Our primary
sources of cash are operating cash flow and borrowings under our debt arrangements, including our senior unsecured revolving
credit facility, or "Revolver", unsecured notes payable and senior unsecured term loans as further discussed below.
50
We derive most of our liquidity from leases that generate positive net cash flow from operations, the total of which was
$327.5 million during the year ended December 31, 2017.
Our balance of cash and cash equivalents decreased $7.3 million during 2017 to $52.0 million as of December 31, 2017.
The decrease was primarily due to net repayment of debt, dividend distributions, and capital expenditures, partially offset by
operating cash flow from properties, net distributions from our joint ventures, and the net proceeds from the disposition of properties.
See "Cash Flows" below for more information.
Because we own primarily long-lived income-producing assets, our financing strategy relies on a combination of long-term
mortgage debt as well as 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 December 31, 2017, floating rate debt (excluding loans hedged to fixed interest)
comprised 10.4% of our total consolidated debt. We will continue to monitor our borrowing mix to limit market risk.
During the third quarter of 2017, we successfully completed the issuance of $750.0 million of unsecured notes. The notes
are due on August 15, 2024 and the proceeds were used to repay the $500.0 million Term Loan (as defined in "Financing and
Debt"), with a maturity date of May 30, 2018 and $230.0 million of the June 2015 Term Loan (as defined in "Financing and Debt")
with a maturity date of March 2, 2020, respectively.
Additionally, on January 22, 2018, we amended and restated our Facility (as defined under "Financing and Debt"). Under
the amended and restated terms, the Facility will mature in December 2022 assuming all extension options are exercised. Prior
to the amendment and restatement, the Revolver matured on May 30, 2019, assuming all extension options were exercised. These
transactions are reflective of our strategy to access the unsecured debt markets to extend our weighted average debt maturity.
On December 31, 2017, we had an aggregate available borrowing capacity of $744.8 million under the Revolver, net of
outstanding borrowings of $155.0 million and $0.2 million reserved for outstanding letters of credit. The weighted average interest
rate on the Revolver was 2.2% for the year ended December 31, 2017. Upon the date of the amended and restated Facility, we
had an aggregate borrowing capacity of $494.8 million under the Revolver, net of outstanding borrowings of $155.0 million and
$0.2 million reserved for outstanding letters of credit.
The consolidated indebtedness of our business was approximately $2.9 billion as of December 31, 2017, or a decrease of
approximately $608.8 million from December 31, 2016. The change in consolidated indebtedness from December 31, 2016 is
described in greater detail under "Financing and Debt."
Outlook
Our business model and WPG Inc.'s status as a REIT requires 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. We believe we have sufficient cash on hand, availability under the
Revolver and cash flow from operations to address our debt maturities, distributions and capital needs through 2018.
The successful execution of our business strategy will require the availability of substantial amounts of operating and
development capital both currently and over time. Sources of such capital could include additional bank borrowings, public and
private offerings of debt or equity, including rights offerings, sale of certain assets and joint ventures. The major credit rating
agencies have assigned us investment grade credit ratings, but there can be no assurance that the Company will achieve a particular
rating or maintain a particular rating in the future.
Cash Flows
Our net cash flow from operating activities totaled $327.5 million during 2017. During 2017, we also:
•
•
•
•
•
•
funded capital expenditures of $147.3 million,
received net proceeds from the disposition of properties of $224.4 million,
funded investments in unconsolidated entities of $50.9 million,
received distributions of capital from unconsolidated entities of $73.3 million,
funded the net repayment of debt of $188.4 million; and
funded distributions to common and preferred shareholders and unitholders of $236.2 million.
51
In general, we anticipate that cash generated from operations will be sufficient to meet operating expenses, monthly debt
service, recurring capital expenditures, and distributions to shareholders necessary to maintain WPG Inc.'s status as a REIT on a
long-term basis. In addition, we expect to be able to generate or obtain capital for nonrecurring capital expenditures, such as
acquisitions, major building renovations and expansions, as well as for scheduled principal maturities on outstanding indebtedness,
from:
•
•
•
•
•
excess cash generated from operating performance and working capital reserves,
borrowings on our debt arrangements,
opportunistic asset sales,
additional secured or unsecured debt financing, or
additional equity raised in the public or private markets.
We expect to generate positive cash flow from operations in 2018, and we consider these projected cash flows in our sources
and uses of cash. These cash flows are principally derived from rents paid by our retail tenants. A significant deterioration in
projected cash flows from operations could cause us to increase our reliance on available funds from our debt arrangements, curtail
planned capital expenditures, or seek other additional sources of financing as discussed above.
n
rr
Financing and Debt
Mortgage Debt
Total mortgage indebtedness at December 31, 2017 and 2016 was as follows (in thousands):
Face amount of mortgage loans
Fair value adjustments, net
Debt issuance cost, net
Carrying value of mortgage loans
$
December 31,
2017
1,152,436
8,338
(3,692)
1,157,082
$
$
December 31,
2016
1,610,429
12,661
(5,010)
1,618,080
$
A roll forward of mortgage indebtedness from December 31, 2016 to December 31, 2017 is summarized as follows (in
thousands):
Balance at December 31, 2016
Debt amortization payments
Repayment of debt
Debt issuances, net of debt issuance costs
Debt canceled upon partial paydown
Debt canceled upon lender foreclosures
Debt transferred to unconsolidated entities, net of debt issuance costs and fair value
adjustments
Amortization of fair value and other adjustments
Amortization of debt issuance costs
Balance at December 31, 2017
$ 1,618,080
(19,455)
(229,298)
213,574
(68,931)
(40,000)
(314,595)
(3,475)
1,182
$ 1,157,082
On January 19, 2018, an affiliate of WPG Inc. repaid the $86.5 million mortgage loan secured by The Outlet Collection®
Seattle, located in Auburn, Washington. This repayment was funded by borrowings on the Revolver.
On December 29, 2017, an affiliate of WPG Inc. repaid the $11.7 million mortgage loan secured by Henderson Square,
located in King of Prussia, Pennsylvania. This repayment was funded by cash on hand.
On October 17, 2017, an affiliate of WPG Inc. completed a discounted payoff of the $99.7 million mortgage loan secured
by Southern Hills Mall for $55.0 million (see "Covenants" section below for additional details).
On October 3, 2017, the $40.0 million mortgage on Valle Vista Mall was canceled upon a deed-in-lieu of foreclosure agreement
(see "Covenants" section below for additional details).
52
On October 2, 2017, an affiliate of WPG Inc. repaid the $99.6 million mortgage loan on WestShore Plaza, located in Tampa,
Florida. This repayment was funded by borrowings on the Revolver.
On May 10, 2017, the Company closed on non-recourse mortgage loans encumbering The Arboretum, Gateway Centers,
and Oklahoma City Properties. The completion of the aforementioned mortgage transactions preceded the sale and deconsolidation
of our 49% interests (see section "The O'Connor Joint Ventures" for additional details). The following table summarizes the key
terms of each mortgage loan:
Property
The Arboretum
Gateway Centers
Oklahoma City Properties
Total
Principal
$ 59,400
112,500
43,279
$ 215,179
$
$
Debt
issuance
costs
Net debt
issuance
58,948
111,791
42,852
(1,588) $ 213,591
(452) $
(709)
(427)
Interest
Rate
Maturity
Date
4.13% June 1, 2027
4.03% June 1, 2027
3.90% June 1, 2027
The Arboretum and Gateway Centers loans require monthly interest only payments until July 1, 2021, at which time monthly
interest and principal payments are due until maturity. The Oklahoma City Properties loan requires monthly interest only payments
until July 1, 2022, at which time monthly interest and principal payments are due until maturity. We used the net proceeds to repay
a portion of the outstanding balance on the Revolver, as defined below. These three loans were deconsolidated in connection witht
the completion of the O'Connor Joint Venture II transaction.
On April 25, 2017, the Company completed a discounted payoff of the $87.3 million mortgage loan secured by Mesa Mall
for $63.0 million (see "Covenants" section below for additional details).
Bridge Loan
On September 16, 2014, in connection with the execution of the Merger Agreement, WPG entered into a debt commitment
letter, which was amended and restated on September 23, 2014 pursuant to which parties agreed to provide up to $1.25 billion in
a senior unsecured bridge loan facility (the “Bridge Loan”). The Bridge Loan had a maturity date of January 14, 2016, the date
that was 364 days following the closing date of the Merger.
On January 15, 2015, the Company borrowed $1.19 billion under the Bridge Loan in connection with the closing of the
Merger, which balance was repaid in full during 2015.
The Company incurred $10.4 million of Bridge Loan commitment, structuring and funding fees. Upon full repayment of
the Bridge Loan, the Company accelerated amortization of the deferred loan costs, resulting in total amortization of $10.4 million
included in interest expense in the consolidated statements of operations and comprehensive income (loss) for the year ended
December 31, 2015.
53
Unsecured Debt
The following table identifies our total unsecured debt outstanding at December 31, 2017 and December 31, 2016:
Notes payable:
Face amount - the Exchange Notes(1)
Face amount - 5.950% Notes due 2024(2)
Debt discount, net
Debt issuance costs, net
Total carrying value of notes payable
Unsecured term loans:(8)
Face amount - Term Loan(3)(4)
Face amount - December 2015 Term Loan(5)
Face amount - June 2015 Term Loan(6)
Debt issuance costs, net
Total carrying value of unsecured term loans
Revolving credit facility:(3)(7)
Face amount
Debt issuance costs, net
Total carrying value of revolving credit facility
December 31,
2017
December 31,
2016
$
$
$
$
$
$
250,000
750,000
(11,086)
(9,542)
979,372
$
$
— $
340,000
270,000
(3,305)
606,695
155,000
(540)
154,460
$
$
$
250,000
—
(47)
(2,316)
247,637
500,000
340,000
500,000
(5,478)
1,334,522
308,000
(1,835)
306,165
(1) The Exchange Notes were issued at a 0.028% discount, bear interest at 3.850% per annum and mature on April 1, 2020.
(2) On August 4, 2017, WPG L.P. completed the issuance of $750.0 million of unsecured notes. The notes were issued at a 1.533% discount,
with an interest rate of 5.950% per annum, and mature on August 15, 2024. Proceeds from the unsecured notes offering were used to pay down
the Term Loan (defined below) and for partial repayment of the June 2015 Term Loan as discussed below. The interest rate could vary in the
future based upon changes to the Company's credit ratings.
d
(3) The unsecured revolving credit facility, or "Revolver" and unsecured term loan, or "Term Loan" are collectively known as the "Facility."
On January 22, 2018, the Company amended and restated $1.0 billion of the existing Facility. The newly recast Facility can be increased to $1.5
billion through currently uncommitted facility commitments. Excluding this accordion feature, the newly recast Facility includes a $650.0 million
Revolver and $350.0 million Term Loan. The interest rates for the Revolver and Term Loan are consistent with the existing terms. When
considering extension options, the Facility will mature in December of 2022.
(4) The Term Loan bore interest at one-month LIBOR plus 1.45% per annum. We had interest rate swap agreements totaling $200.0 million,
which effectively fixed the interest rate on a portion of the Term Loan at 2.04% per annum. During the year ended December 31, 2017, the Term
Loan was repaid in full and the Company wrote off $0.2 million of debt issuance costs. On January 22, 2018, the Company borrowed $350.0
million under the Term Loan feature of the amended and restated Facility.
(5) The December 2015 Term Loan bears interest at one-month LIBOR plus 1.80% per annum and will mature on January 10, 2023. We
have interest rate swap agreements totaling $340.0 million, which effectively fix the interest rate at 3.51% per annum through maturity.
(6) The June 2015 Term Loan bears interest at one-month LIBOR plus 1.45% per annum and will mature on March 2, 2020. We have
interest rate swap agreements totaling $270.0 million, which effectively fix the interest rate at 2.56% per annum through June 30, 2018. During
the year ended December 31, 2017, the Company repaid $230.0 million of the June 2015 Term Loan and wrote off $0.9 million of debt issuance
costs. On January 22, 2018, the Company repaid the $270.0 million outstanding with proceeds from the amended and restated Facility.
(7) The Revolver provides borrowings on a revolving basis up to $900.0 million, bears interest at one-month LIBOR plus 1.25%, and will
initially mature on May 30, 2018, subject to two six-month extensions available at our option subject to compliance with terms of the Facility
and payment of a customary extension fee. At December 31, 2017, we had an aggregate available borrowing capacity of $744.8 million under
the Revolver, net of $0.2 million reserved for outstanding letters of credit. At December 31, 2017, the applicable interest rate on the Revolver
was one-month LIBOR plus 1.25%, or 2.81%. On January 22, 2018, the Company amended the Revolver under the amended and restated
Facility to provide borrowings up to $650.0 million.
(8) While we have interest rate swap agreements in place that fix the LIBOR portion of the rates as noted above, the spread over LIBOR
could vary in the future based upon changes to the Company's credit ratings.
54
Covenants
Our unsecured debt agreements contain financial and other covenants. If we were to fail to comply with these covenants,
after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by
one or more of the respective lenders including adjustments to the applicable interest rate. As of December 31, 2017, management
believes the Company is in compliance with all covenants of its unsecured debt.
The total balance of mortgages was approximately $1.2 billion as of December 31, 2017. At December 31, 2017, certain of
our consolidated subsidiaries were the borrowers under 23 non-recourse loans, one full-recourse loan and one partial-recourse
loan secured by mortgages encumbering 28 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. Our existing non-recourse mortgage loans
generally prohibit our subsidiaries that are borrowers thereunder from incurring additional indebtedness, subject to certain
customary and limited exceptions. In addition, certain of these instruments limit the ability of the applicable borrower's parent
entity from incurring mezzanine indebtedness unless certain conditions are satisfied, including compliance with maximum loan
to value ratio and minimum debt service coverage ratio tests. Further, under certain of these existing agreements, if certain cash
flow levels in respect of the applicable mortgaged property (as described in the applicable agreement) are not maintained for at
least two consecutive quarters, the lender could accelerate the debt and enforce its right against its collateral. If the borrower fails
to comply with these covenants, the lenders could accelerate the debt and enforce its right against their collateral.
a
On March 30, 2017, the Company transferred the then $40.0 million mortgage loan secured by Valle Vista Mall to the special
servicer at the request of the borrower, a consolidated subsidiary of the Company. On May 18, 2017, we received a notice of default
letter, dated that same date, from the special servicer because the borrower did not repay the loan in full by its May 10, 2017
maturity date. On October 3, 2017, an affiliate of WPG Inc. transitioned the property to the lender.
ff
On June 6, 2016, we received a notice of default letter, dated June 3, 2016, from the special servicer to the borrower of the
then $99.7 million mortgage loan secured by Southern Hills Mall. The letter was sent because the borrower, a consolidated
subsidiary of the Company, did not repay the loan in full by its June 1, 2016 maturity date. On October 27, 2016, we received
notification that a receiver had been appointed to manage and lease the property. On October 17, 2017, an affiliate of WPG Inc.
completed a discounted payoff of the mortgage loan for $55.0 million and we retained ownership and management of the property.
On June 30, 2016, we received a notice, dated that same date, that the then $87.3 million mortgage loan secured by Mesa
Mall had been transferred to the special servicer due to the payment default that occurred when the borrower, a consolidated
subsidiary of the Company, did not repay the loan in full by its June 1, 2016 maturity date. On April 25, 2017, the Company
completed a discounted payoff of the mortgage loan for $63.0 million and retained ownership and management of the property.
On August 8, 2016, we received a notice of default letter, dated August 4, 2016, from the special servicer to the borrower
concerning the then $44.9 million mortgage loan secured by River Valley Mall. The letter was sent because the borrower, a
consolidated subsidiary of the Company, did not repay the loan in full by its January 11, 2016 maturity date. On December 29,
2016, we transferred title of the property to the mortgage lender pursuant to the terms of a deed-in-lieu of foreclosure agreement
entered into by the Company's affiliate and the mortgage lender.
On October 8, 2015, we received a notice of default letter, dated October 5, 2015, from the special servicer to the borrower
of the then $52.9 million mortgage loan secured by Merritt Square Mall. The letter was sent because the borrower, a consolidated
subsidiary of the Company, did not repay the loan in full by its September 1, 2015 maturity date. On May 25, 2016, the trustee
on behalf of the mortgage lender conducted a non-judicial foreclosure sale of Merritt Square Mall, in which the Company's affiliate
previously held a 100% ownership interest. The mortgage lender was the successful bidder at the sale and ownership transferred
on June 9, 2016. The Company managed the property through and including July 31, 2016.
On October 30, 2015, we received a notice of default letter, dated that same date, from the special servicer to the borrower
concerning the then $62.4 million mortgage loan that matures on February 1, 2017 and was secured by Chesapeake Square. The
default resulted from an operating cash flow shortfall at the property in October 2015 that the borrower, a consolidated subsidiary
of the Company, did not cure. On April 21, 2016, the trustee on behalf of the mortgage lender conducted a non-judicial foreclosure
of Chesapeake Square, in which the Company's affiliate previously held majority ownership interest. The mortgage lender was
the successful bidder at the sale and ownership transferred on April 28, 2016.
55
Upon the discounted payoff of the mortgage note payable secured by Southern Hills Mall, ownership transfer of Valle Vista
Mall, and discounted payoff of the mortgage note payable secured by Mesa Mall, the Company recognized a net gain of $90.6
million based on the cancellation of the remaining outstanding mortgage debt of $108.9 million, which is included in gain on
extinguishment of debt, net in the consolidated statements of operations and comprehensive income (loss) for the year ended
December 31, 2017. During the year ended December 31, 2016, the Company recognized a net gain of $34.6 million related to
the $160.1 million mortgage debt cancellation and ownership transfers of River Valley Mall, Merritt Square Mall, and Chesapeake
Square, which is included in gain on extinguishment of debt, net in the consolidated statements of operations and comprehensive
income (loss) for the year then ended.
At December 31, 2017, management believes the applicable borrowers under our other non-recourse mortgage loans were
in compliance with all covenants where non-compliance could individually, or giving effect to applicable cross-default provisions
in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.
Summary of Financing
Our consolidated debt and the effective weighted average interest rates as of December 31, 2017 and 2016 consisted of the
following (dollars in thousands):
Fixed-rate debt, face amount
Variable-rate debt, face amount
Total face amount of debt
Note discount
Fair value adjustments, net
Debt issuance costs, net
Total carrying value of debt
Contractual Obligations
2017
2,610,936
306,500
2,917,436
(11,086)
8,338
(17,079)
2,897,609
$
$
Weighted
Average
Interest Rate
December 31,
2016
4.72% $ 2,649,329
859,100
2.99%
3,508,429
4.54%
(47)
12,661
(14,639)
$ 3,506,404
Weighted
Average
Interest Rate
4.23%
2.25%
3.75%
The following table summarizes the material aspects of the Company's future obligations for consolidated entities as of
December 31, 2017, assuming the obligations remain outstanding through maturities noted below (in thousands):
Long-term debt (1)
Interest payments (2)
Distributions (3)
Ground rent (4)
Purchase/tenant obligations (5)
Total
2018
$
25,412
2019 - 2020
$ 1,014,365
2021 - 2022
453,494
$
Thereafter
$ 1,424,165
Total
$ 2,917,436
127,536
4,309
509
79,862
237,628
230,099
—
1,018
2,608
$ 1,248,090
$
166,776
—
1,027
2,382
623,679
102,067
—
20,460
2,205
$ 1,548,897
626,478
4,309
23,014
87,057
$ 3,658,294
$
(1)Represents principal maturities only and therefore excludes net fair value adjustments of $8,338, debt issuance costs of $(17,079) and
bond discount of $(11,086) as of December 31, 2017. In addition, the principal maturities reflect any available extension options within the
control of the Company.
(2)Variable rate interest payments are estimated based on the LIBOR rate at December 31, 2017.
(3)Since there is no required redemption, distributions on the Series H Preferred Shares/Units, Series I Preferred Shares/Units and Series
I-1 Preferred Units may be paid in perpetuity; for purposes of this table, such distributions were included through the optional redemption dates
of August 10, 2017, March 27, 2018 and March 27, 2018, respectively, or upon declaration by the Board if subsequent to the optional redemption
dates.
(4)Represents minimum future lease payments due through the end of the initial lease term.
(5)Includes amounts due under executed leases and commitments to vendors for development and other matters.
56
The following table summarizes the material aspects of the Company's proportionate share of future obligations for
unconsolidated entities as of December 31, 2017, assuming the obligations remain outstanding through initial maturities (in
thousands):
Long-term debt (1)
Interest payments
Ground rent (2)
Purchase/tenant obligations (3)
Total
$
2018
3,080
26,511
3,615
13,474
$
2019 - 2020
32,965
53,684
7,695
11
$
2021 - 2022
59,035
45,858
7,700
4
$
Thereafter
$
541,299
65,731
171,136
—
Total
636,379
191,784
190,146
13,489
$
46,680
$
94,355
$
112,597
$
778,166
$ 1,031,798
(1)Represents principal maturities only and therefore excludes net fair value adjustments of $6,770 and debt issuance costs of $(2,871) as
of December 31, 2017. In addition, the principal maturities reflect any available extension options.
(2)Represents minimum future lease payments due through the end of the initial lease term.
(3)Includes amounts due under executed leases and commitments to vendors for development and other matters.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements consist primarily of investments in joint ventures which are common in the real estate
industry. Joint ventures typically fund their cash needs through secured debt financings obtained by and in the name of the joint
venture entity. The joint venture debt is secured by a first mortgage, is without recourse to the joint venture partners, and does
not represent a liability of the partners, except to the extent the partners or their affiliates expressly guarantee the joint venture
debt. As of December 31, 2017, there were no guarantees of joint venture related mortgage indebtedness. In addition to obligations
under mortgage indebtedness, our joint ventures have obligations under ground leases and purchase/tenant obligations. Our share
of obligations under joint venture debt, ground leases and purchase/tenant obligations is quantified in the unconsolidated entities
table within "Contractual Obligations" above. WPG may elect to fund cash needs of a joint venture through equity contributions
(generally on a basis proportionate to our ownership interests), advances or partner loans, although such fundings are not required
contractually or otherwise.
Equity Activity
During the year ended December 31, 2017, the Company increased the number of authorized shares of WPG Inc.'s common
shares, par value $0.0001 per share, from 300.0 million to 350.0 million.
The Merger
Related to the Merger completed on January 15, 2015, WPG Inc. issued 29,942,877 common shares, 4,700,000 Series G
Preferred Shares, 4,000,000 Series H Preferred Shares and 3,800,000 Series I Preferred Shares, and WPG L.P. issued to WPG Inc.
a like number of common and preferred units as consideration for the common and preferred shares issued. Additionally, WPG
L.P. issued to limited partners 1,621,695 common units and 130,592 WPG L.P. Series I 1 Preferred Units. The preferred shares
and units were issued as consideration for similarly-named preferred interests of GRT that were outstanding at the Merger date.
On April 15, 2015, WPG Inc. redeemed all of the 4,700,000 issued and outstanding Series G Preferred Shares, resulting in
WPG L.P. redeeming a like number of preferred units under terms identical to those of the Series G Preferred Shares described
below. The Series G Preferred Shares were redeemed at a redemption price of $25.00 per share, plus accumulated and unpaid
distributions up to, but excluding, the redemption date, in an amount equal to $0.5868 per share, for a total payment of $25.5868
per share. This redemption amount includes the first quarter dividend of $0.5078 per share that was declared on February 24,
2015 to holders of record of such Series G Preferred Shares on March 31, 2015. Because the redemption of the Series G Preferred
Shares was a redemption in full, trading of the Series G Preferred Shares on the NYSE ceased after the redemption date. The
aggregate amount paid to effect the redemptions of the Series G Preferred Shares was approximately $120.3 million, which was
funded with cash on hand.
57
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 year ended December 31,
2017, WPG Inc. issued 314,577 shares of common stock to a limited partner of WPG L.P. in exchange for an equal number of
units pursuant to the WPG L.P. Partnership Agreement. This transaction increased WPG Inc.’s ownership interest in WPG L.P. At
December 31, 2017, WPG Inc. had reserved 34,760,026 shares of common stock for possible issuance upon the exchange of units
held by limited partners.
The holders of the Series I-1 Preferred Units have, at their option, the right to have their units purchased by WPG L.P. subject
to the satisfaction of certain conditions. Therefore, these preferred units are classified as redeemable noncontrolling interests
outside of permanent equity.
Share Based Compensation
On May 28, 2014, the Board adopted the Washington Prime Group, L.P. 2014 Stock Incentive Plan (the "Plan"), which
permits the Company to grant awards to current and prospective directors, officers, employees and consultants of the Company
or any affiliate. An aggregate of 10,000,000 shares of common stock has been reserved for issuance under the Plan. In addition,
the maximum number of awards to be granted to a participant in any calendar year is 500,000 shares/units. 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
Plan terminates on May 28, 2024.
Long Term Incentive Awards
Time Vested LTIP Awards
The Company has issued time-vested LTIP units ("Inducement LTIP Units") to certain executive officers and employees
under the Plan, pursuant to LTIP Unit Award Agreements between the Company and each of the grant recipients. These awards
will vest and the related fair value will be expensed over a four-year vesting period. During the years ended December 31, 2017
and 2016, the Company did not grant any Inducement LTIP Units.
During the years ended December 31, 2015 and 2014, the Company awarded 203,215 and 283,610 Inducement LTIP Units,
respectively, to certain executive officers and employees of the Company under the Plan, pursuant to LTIP Unit Award Agreements
between the Company and each of the grant recipients.
The fair value of the Inducement LTIP Units of $8.4 million is being recognized as expense over the applicable vesting
period. As of December 31, 2017, the estimated future compensation expense for Inducement LTIP Units was $0.4 million. The
weighted average period over which the compensation expense will be recorded for the Inducement LTIP Units is approximately
1.1 years.
Performance Based Awards
2015 Awards
During 2015, the Company authorized the award of Performance LTIP Units, subject to certain market conditions under ASC
718, to certain executive officers and employees of the Company in the maximum total amount of 304,818 units, to be earned and
related fair value expensed over the applicable performance periods, except in certain instances that could result in accelerated
vesting due to severance arrangements.
The Performance LTIP Units that were allocated during the year ended December 31, 2015 are market based awards with a
service condition. Recipients may earn between 0% - 100% of the award based on the Company's achievement of absolute and
relative (versus the MSCI REIT Index) total shareholder return ("TSR") goals, with 40% of the Performance LTIP Units available
to be earned with respect to each performance period based on achievement of absolute TSR goals, and 60% of the Performance
LTIP Units available to be earned with respect to each performance period based on achievement of relative TSR goals. The
Performance LTIP Units issued during 2015 relate to the following performance periods: from the beginning of the service period
to (i) December 31, 2016 ("2015-First Special PP"), (ii) December 31, 2017 ("2015-Second Special PP"), and (iii) December 31,
2018 ("2015-Third Special PP"). There was no award for the 2015-First Special PP or 2015-Second Special PP since our TSR was
below the threshold level during 2016 and 2017, respectively.
58
2014 Awards
During 2014, the Company awarded Performance LTIP Units subject to performance conditions described below to certain
executive officers and employees of the Company in the maximum total amount of 451,017 units to be earned and related fair
value expensed over the applicable performance periods, except in certain instances that could result in accelerated vesting due
to severance arrangements.
The Performance LTIP Units that were issued during the year ended December 31, 2014 are market based awards with a
service condition. Recipients may earn between 0% - 100% of the award based on the Company's achievement of absolute and
relative (versus the MSCI REIT Index) total shareholder return ("TSR") goals, with 40% of the Performance LTIP Units available
to be earned with respect to each performance period based on achievement of absolute TSR goals, and 60% of the Performance
LTIP Units available to be earned with respect to each performance period based on achievement of relative TSR goals. The
Performance LTIP Units issued during 2014 relate to the following performance periods: from the beginning of the service period
to (i) December 31, 2015 ("2014-First Special PP"), (ii) December 31, 2016 ("2014-Second Special PP"), and (iii) December 31,
2017 ("2014-Third Special PP"). There was no award for the 2014-First Special PP, 2014-Second Special PP, or 2014-Third Special
PP since our TSR was below the threshold level during 2015, 2016, and 2017, respectively.
Vestingg
The Performance LTIP awards that are earned, if any, will then be subject to a service-based vesting period. Awards earned
under the 2015-Third Special PP would vest immediately upon the conclusion of the performance period and would require no
subsequent service.
Annual Long-Term Incentive Awards
On February 21, 2017 (the "Adoption Date"), the Company approved the terms and conditions of the 2017 annual award
("2017 Annual Long-Term Incentive Awards") for certain executive officers and employees of the Company. Under the terms of
the 2017 Annual Long-Term Incentive 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. During the year ended December 31, 2017, the Company issued 358,198 time-based RSUs, with a grant
date fair value of $3.4 million, which will vest in one-third installments on each of February 21, 2018, 2019, and 2020, 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 with respect to the RSUs
corresponding to the amount of any dividends paid by the Company to the Company's common shareholders for the applicable
dividend payment dates. Compensation expense is recognized on a straight-line basis over the three year vesting term. During
the year ended December 31, 2017, the Company allocated 358,198 PSUs, with a grant date fair value of $2.8 million. Actual
PSUs earned may range from 0%-150% of the PSUs allocated to the award recipient, based on the Company's TSR compared to
a peer group based on companies with similar assets and revenue over a three-year performance period that commenced on the
Adoption Date. During the performance period, dividend equivalents corresponding to the amount of any regular cash dividends
paid by the Company to the Company’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.
During 2016, the Company approved the performance criteria and maximum dollar amount of the 2016 annual awards (the
"2016 Annual Long-Term Incentive Awards"), that generally range from 30%-100% of actual base salary, for certain executive
officers and employees of the Company. The number of awards was determined by converting the cash value of the award to a
number of RSUs (the "Allocated RSUs") based on the closing price of WPG Inc.'s common shares for the final 15 trading days
of 2016. Eventual recipients were eligible to receive a percentage of the Allocated RSUs based on the Company's performance on
its strategic goals detailed in the Company's 2016 cash bonus plan and the Company's relative TSR compared to a peer group
based on companies with similar assets and revenue. Payout for 50% of the Allocated RSUs was based on the Company's
performance on the strategic goals and the payout on the remaining 50% was based on the Company's TSR performance. Both
the strategic goal component as well as the TSR performance were achieved at target, resulting in a 100% payout. During the year
ended December 31, 2017, the Company awarded 324,237 Allocated RSUs, with a grant date fair value of $2.2 million, related
to the 2016 Annual Long-Term Incentive Awards, which will vest in one-third installments on each of February 21, 2018, 2019
and 2020, subject to the participant's continued employment with the Company through each vesting date and the participant's
continued compliance with certain applicable covenants.
59
During 2015, the Company approved the performance criteria and maximum dollar amount of the 2015 annual LTIP unit
awards (the "2015 Annual Long-Term Incentive Awards"), that generally range from 30%-300% of actual base salary earnings,
for certain executive officers and employees of the Company. The number of awards was determined by converting the cash value
of the award to a number of LTIP units (the "Allocated Units") based on the closing price of WPG Inc.'s common shares for the
final 15 trading days of 2015. Eventual recipients were eligible to receive a percentage of the Allocated Units based on the Company's
performance on its strategic goals detailed in the Company's 2015 cash bonus plan and the Company's relative TSR compared to
the MSCI REIT Index. Payout for 40% of the Allocated Units was based on the Company's performance on the strategic goals
and the payout on the remaining 60% was based on the Company's TSR performance. The strategic goal component was achieved
in 2015; however, the TSR was below threshold performance, resulting in only a 40% payout for this annual LTIP award. During
the year ended December 31, 2016, the Company awarded 323,417 LTIP units related to the 2015 Annual Long-Term Incentive
Awards, of which 108,118 vest in one-third installments on each of January 1, 2017, 2018 and 2019, subject to the participant's
continued employment with the Company through each vesting date and the participant's continued compliance with certain
applicable covenants. The 94,106 LTIP units awarded to our former Executive Chairman fully vested on the grant date and the
121,193 LTIP units awarded to certain former executive officers fully vested on the applicable severance dates during 2016 pursuant
to the underlying severance arrangements. The fair value of the portion of the awards based upon the Company's performance of
the strategic goals was recognized to expense when granted.
WPG Restricted Share Awards
As part of the Merger, unvested restricted shares held by certain GRT executive employees, which had an original vesting
period of five years, were converted into 1,039,785 WPG restricted common shares (the “WPG Restricted Shares”). The WPG
Restricted Shares will be amortized over the remaining life of the applicable vesting period, except for the portion of the awardsaa
applicable to pre-Merger service, which was included as equity consideration issued in the Merger.
The amount of compensation expense related to unvested restricted shares that we expect to recognize in future periods is
$0.2 million over a weighted average period of 1.2 years. During the year ended December 31, 2017, the aggregate intrinsic value
of shares that vested was $1.0 million. As of December 31, 2017, 30,535 WPG Restricted Shares were outstanding.
WPG Restricted Stock Unit Awards
The Company issues RSUs to certain executive officers, employees, and non-employee directors of the Board of Directors
(see "Board of Directors Compensation" for discussion regarding RSUs issued to non-employee directors). The RSUs are service-
based awards and the related fair value is expensed over the applicable service periods, except in instances that result in accelerated
vesting due to severance arrangements. During the year ended December 31, 2017, the Company issued 747,435 RSUs under the
Plan with a fair value of $6.1 million, of which 682,435 RSUs with a fair value of $5.6 million relates to the annual long-term
incentive award issuances that occurred in February 2017 (see "Annual Long-Term Incentive Awards" section above). As of
December 31, 2017, 1,061,576 unvested RSUs were outstanding. The amount of compensation related to the unvested RSUs that
we expect to recognize in future periods is $8.0 million.
Board of Directors Compensation
On May 18, 2017, the Board approved annual compensation for the period of May 29, 2017 through May 28, 2018 for the
non-employee members of the Board. Each non-employee director's (other than the Board Chairman) annual compensation totaled
$230,000 based on a combination of cash and RSUs granted under the Plan. During 2017, the six non-employee directors were
each granted RSUs for 16,000 shares with an aggregate grant date fair value of $720,000, which is being recognized as expense
over the vesting period ending on May 29, 2018.
During 2016, we modified certain components of our director compensation program. From January 1, 2016 to June 20,
2016 (the “Period”), our non-employee members of the Board received as annual compensation for their services an $80,000
stipend paid in cash and $120,000 in equity awards in the form of RSU grants (the “Director Retainer Package”). Also, a former
director, pursuant to a transition and consulting agreement, dated May 31, 2015, as amended, received a stipend of $350,000 per
year during the consulting period (the "Consulting Fee"), the Director Retainer Package post-employment and a stipend of $100,000
per year (the “Chairman Fee”) for serving as the non-executive Chairman of the Board during the Period, and was granted 5,332
RSUs, which vested on May 28, 2016. During the Period, the then non-employee directors were each granted 12,060 RSUs with
an aggregate grant date fair value of $720,000, which is being recognized as an expense over the vesting period ending on May 28,
2017.
On June 20, 2016, the Board modified Board compensation and approved an increase in the cash component of the Director
Retainer Package from $80,000 to $110,000 with no changes to the equity portion of the package. Additional RSU grants of 11,331
were made on June 20, 2016 to each of the two new directors that joined the Board on that date. These grants had an aggregate
grant date fair value of $240,000 which is being recognized as expense over the vesting period ending May 28, 2017. Another
RSU grant of 8,727 was issued to another new director elected to the Board on August 30, 2016. This grant had an aggregate grant
date fair value of $120,000 which is also being recognized as expense over the vesting period ending May 28, 2017.
60
In connection with the election of two new directors on June 20, 2016, the non-executive Chairman resigned from the position
of non-executive Chairman and payment of the Consulting Fee and Chairman Fee to him for serving in that position was
discontinued. In connection with the resignation, the Board elected an incumbent director to serve as Chairman of the Board, and
the Governance and Nominating Committee approved an annual stipend of $330,000 for the new Chairman to serve in that capacity
in addition to the equity portion of the Director Retainer Package.
a
In August 2016, an additional director retired from the Board and the Compensation Committee approved the acceleration
of the vesting date of certain RSUs that were awarded in May 2016 from May 17, 2017 to August 30, 2016. In connection with
the resignation of an additional director on June 20, 2016, the Compensation Committee also accelerated the vesting date of the
RSUs that were received in May 2016 as part of the Director Retainer Package from May 17, 2017 to June 20, 2016. Additionally,
Mr. Conforti became our Interim CEO on June 20, 2016 and at that time became ineligible to receive the Director Retainer Package
as an employee director. Mr. Conforti forfeited the RSUs he received in May 2016 after being appointed Interim CEO. Lastly,
the Board formed a special ad hoc committee of five nonemployee directors at the beginning of 2016 to review, assess, and evaluate
certain strategic alternatives for the Company. That committee was instituted from January 2016 until August 2016. To compensate
the special committee members for the additional time and work they assumed in serving on the committee during the course of
2016, special cash stipends were approved by the Nominating and Governance Committee for each of the special committee
members. Two of the directors, including Mr. Conforti, received $500,000 each and three of the directors received $50,000 each.
Stock Options
Options granted under the Company's Plan generally vest over a three year period, with options exercisable at a rate of 33.3%
per annum beginning with the first anniversary on the date of the grant. These options were valued using the Black-Scholes pricing
model and the expenses associated with these options are amortized over the requisite vesting period.
During the year ended December 31, 2017, no stock options were granted from the Plan to employees, 2,739 stock options
were exercised by employees and 180,823 stock options were canceled, forfeited or expired. As of December 31, 2017, there were
794,014 stock options outstanding.
Share Award Related Compensation Expense
During the years ended December 31, 2017, 2016 and 2015, the Company recorded share award related compensation
expense pertaining to the award and option plans noted above within the consolidated statements of operations and comprehensive
income (loss) as indicated below (amounts in millions):
Merger, restructuring and transaction costs
General and administrative and property operating
Total expense
$
$
— $
6.4
6.4
$
$
9.5
4.6
14.1
$
4.0
10.1
14.1
For the Year Ended December 31,
2017
2016
2015
Distributions
During each of the years ended December 31, 2017 and 2016, the Board declared common share/unit dividends of $1.00
per common share/unit.
On February 20, 2018, the Board declared common share/unit dividends of $0.25 per common share. The dividend is
payable on March 15, 2018 to shareholders/unitholders of record on March 5, 2018.
Acquisitions and Dispositions
Buy-sell, marketing rights, and other exit mechanisms are common in real estate partnership agreements. Most of our
partners are institutional investors who have a history of direct investment in retail real estate. We and our partners in our joint
venture properties may initiate these provisions (subject to any applicable lock up or similar restrictions). If we determine it is in
our shareholders' best interests for us to purchase the joint venture interest and we believe we have adequate liquidity to execute
the purchase without hindering our cash flows, then we may initiate these provisions or elect to buy. If we decide to sell any of
our joint venture interests, we expect to use the net proceeds to reduce outstanding indebtedness or to reinvest in development,
redevelopment, or expansion opportunities.
y
r
Acquisitions. We pursue the acquisition of properties that meet our strategic criteria.
On March 2, 2017, the O'Connor Joint Venture I completed the acquisition of Pearlridge Uptown II (see details under
"Overview - Basis of Presentation - The O'Connor Joint Ventures").
61
Dispositions. We pursue the disposition of properties that no longer meet our strategic criteria or interests in properties to
generate proceeds for alternative business uses.
On January 12, 2018, we completed the sale of the first tranche of restaurant outparcels which consisted of 10 restaurant
outparcels and an allocated purchase price of approximately $13.7 million of the total purchase price (see details under "Overview
- Basis of Presentation - Outparcel Sale"). The net proceeds were used to fund future development and acquisitions and for general
corporate purposes.
On November 3, 2017, we completed the sale of Colonial Park Mall to an unaffiliated private real estate investor for a
purchase price of $15.0 million. The net proceeds were used for general corporate purposes.
On June 13, 2017, we sold 49% of our interest in Malibu Lumber Yard as part of the O'Connor Joint Venture II transaction
(see details under "Overview - Basis of Presentation - The O'Connor Joint Ventures").
On June 7, 2017, we completed the sale of Morgantown Commons, to a private real estate investor for a purchase price of
approximately $6.7 million. The net proceeds were used for general corporate purposes.
On May 16, 2017, we completed the sale of an 80,000 square foot vacant anchor parcel at Indian Mound Mall to a private
real estate investor for a purchase price of approximately $0.8 million. The net proceeds were used for general corporate purposes.
On May 12, 2017, we completed the transaction forming the O'Connor Joint Venture II with regard to the ownership and
operation of six of the Company's retail properties and certain related outparcels. Under the terms of the joint venture agreement,
we retained a 51% non-controlling interest and sold a 49% interest to O'Connor, the third party partner (see details under "Overview
- Basis of Presentation - The O'Connor Joint Ventures").
On February 21, 2017, we completed the sale of Gulf View Square and River Oaks Center to private real estate investors
for an aggregate purchase price of $42.0 million, which was classified as real estate held for sale on the consolidated balance sheet
as of December 31, 2016. The net proceeds from the transaction were used to reduce corporate debt.
On January 10, 2017, we completed the sale of Virginia Center Commons to a private real estate investor for a purchase
price of $9.0 million, which was classified as real estate held for sale on the consolidated balance sheet as of December 31, 2016.
The net proceeds from the transaction were used to reduce corporate debt.
In connection with the 2017 sales noted above, the Company recorded a net gain of $124.8 million, which is included in
gain (loss) on disposition of interest in properties, net in the consolidated statements of operations and comprehensive income
(loss) for the year ended December 31, 2017.
On November 10, 2016, we completed the sale of Richmond Town Square to a private real estate investor for a purchase
price of $7.3 million. The Company used the net proceeds to reduce the balance of corporate debt.
On August 19, 2016, the Company completed the sale of Knoxville Center to a private real estate investor (the "Buyer") for
a purchase price of $10.1 million. The sales price consisted of $3.9 million paid to the Company at closing and the issuance of a
promissory note for $6.2 million from the Buyer to the Company with an interest rate of 5.5% per annum. The note balance is due
on April 1, 2018. As of December 31, 2017, the Buyer was current on their interest payments. The net proceeds from the transactions
were used to reduce the balance outstanding under the Revolver.
f
On January 29, 2016, we completed the sale of Forest Mall and Northlake Mall to private real estate investors (the "Buyers")
for an aggregate purchase price of $30 million, which was classified as real estate held for sale on the accompanying consolidated
balance sheet as of December 31, 2015. The sales price consisted of $10 million paid to us at closing and the issuance of a
promissory note for $20 million from us to the Buyers with an interest rate of 6% per annum. On June 29, 2016, the Buyers repaid
$4.4 million of the promissory note balance and exercised a six-month extension option. The remaining $15.6 million note balance
was repaid in full on January 4, 2017. The proceeds from the transaction were used to reduce the balance outstanding under the
Facility.
In connection with the 2016 sales noted above, the Company recorded a $2.0 million net loss, which is included in gain
(loss) on disposition of interest in properties, net in the consolidated statements of operations and comprehensive income (loss)
for the year ended December 31, 2016.
On October 3, 2017, Valle Vista Mall was transitioned to the lender (see "Financing and Debt" above for further discussion).
Upon the ownership transfer, we reduced our debt by $40.0 million.
On December 29, 2016, June 9, 2016 and April 28, 2016, River Valley Mall, Merritt Square Mall and Chesapeake Square
were transitioned to the lenders, respectively (see "Financing and Debt" above for further discussion). Upon the ownership transfers,
we reduced our debt by $160.1 million.
62
Development Activity
New Development, Expansions and Redevelopments. We routinely incur costs related to construction for significant
redevelopment and expansion projects at our properties. We expect our share of development costs for calendar year 2018 related
to these activities to be approximately $125 to $150 million. Our estimated stabilized return, or yield, on invested capital typically
ranges between 8% and 11%.
tt
During the fourth quarter of 2016 we held our grand opening of our new approximately 400,000 square foot shopping center
in the Houston metropolitan area, Fairfield Town Center. The project features retailers such as H-E-B, Academy Sports, Marshall's,
Party City, Old Navy, and Ulta Cosmetics. In addition, a number of dining options are at the center such as Chipotle, PeiWei,
Whataburger, and Zoe's Kitchen. The project is performing very well with 95% of the space open as of December 31, 2017.
During the third quarter of 2017, we approved the final phase of this new development for an additional investment of approximately
$28 million, which will add an additional 130,000 SF of new GLA to accommodate the strong tenant demand at the project. The
new phase will include a theater, a value fashion apparel retailer as well as additional big box and small shop stores.
At Northwoods Mall in Peoria, Illinois, we have commenced our redevelopment of a former Macy’s store that closed in
March 2016. We purchased the store from Macy’s in January 2017. The redevelopment is anchored by a 56,000 square foot
Round 1 Entertainment, the first to the market, which opened in November 2017. Round 1 provides bowling entertainment as
well as food and adult beverages. The upper level of the former Macy's store will be occupied by The Room Place, a 62,000
square foot regional home furnishing store. In addition to Round 1 and The Room Place, we anticipate adding dining options and
new retail stores. The expected investment in this redevelopment is approximately $22 million with an anticipated yield of 8% -
9%. We anticipate completion of this project in 2018.
At Classen Curve in Oklahoma City, Oklahoma, two new multi-tenant buildings will be added at the open-air center to bring
new retailers to the fully leased center. The project will feature first-to-market Athleta, Evereve and Soft Surroundings, as well
as Board Room Salon for Men and Francesca’s. Other recent openings at the project include COS Bar and The Float Spa, and a
new Bassett Furniture store is under construction. Our pro-rata share of the investment is expected to be between $5.1 million
and $6.6 million with additional openings in 2018. The yield on this project is expected to be 10% - 12%.
At The Outlet Collection® | Seattle, in Auburn, Washington, we added a new Dave & Buster's, which opened in November
2017, to replace a Marshall’s store that closed in the first quarter of 2017. The investment in the anchor box replacement is expected
to be between $4.5 million and $5.5 million and the yield is expected to be approximately 9% - 11%.
At Pearlridge Center in Aiea, Hawaii (“Pearlridge”), we have commenced a $33 million, 18-month renovation project. The
project entails a refresh of the “Downtown” section of the center, with some new tenants including a new 9,100 square foot
Lindbergh men’s apparel store, an expanded and remodeled food court, new finishes and entrances. Architecturally, the
contemporary design will reflect the history of the area and take advantage of the natural lighting. In 2016, Hawaii Pacific Health
commenced construction of a state of the art cancer treatment center that opened in the fourth quarter of 2017. The funding for
the development will be shared pro-rata with our joint venture partner, resulting in our share of the investment of approximately
$17 million and the expected yield on the project is 6% - 8%. The redevelopment will come on line at various times beginning
in late 2017 and throughout 2018.
In addition at Pearlridge, we have also commenced construction of a new stand-alone 10,000 square foot Down To Earth
natural foods-and-products store, restaurant offerings including Pieology, which opened during the fourth quarter of 2017, Five
Guys Burger and Fries, which opened in January of 2018, and destination local restaurateurs, Uncle's Fish House and Gen Korean
Barbeque, as well as a new Bank of Hawaii branch, which opened in January 2018.
At Scottsdale Quarter in Scottsdale, Arizona, our most recent redevelopment effort involves the final phase of the significant
expansion of our initial development of the project. The first part of the expansion has been completed and consists of buildings
on the north and south parcels with tenancy including American Girl and Design Within Reach, as well as luxury apartment homes
and office space. The final component of the expansion will be comprised of approximately 300 new luxury apartment homes and
35,000 square feet of new street-level retail. The street-level retail and luxury apartment homes will have substantial amenities,
such as new on-site parking and roof-top terraces overlooking Scottsdale Quarter and the McDowell Mountains. Tenants will
begin opening in this final component in 2018.
At Great Lakes Mall in Mentor, Ohio, we have commenced redevelopment of a former Dillard’s Men’s Store. Dillard’s
made the decision earlier in 2017 to consolidate its department stores at Great Lakes Mall into a single renovated anchor space.
The redevelopment will be anchored by Round 1 Entertainment (see description above), as well as additional dining options and
new retailers at the property. We will invest approximately $15 million in this redevelopment with an expected yield of 7% - 9%.
63
At Markland Mall in Kokomo, Indiana, we have commenced work on our redevelopment of a former Sears department store
whose lease expired in July 2017. We will invest between $16 and $18 million in the project with an expected yield of 8% - 10%.
The redevelopment includes both the former Sears space as well as a former MC Sports store. We will be adding tenants that
further enhance the mix of offerings at the property with the addition of ALDI, Party City, PetSmart and Ross Dress for Less, as
well as additional small shop and outparcels. The project is expected to be completed in 2018.
At Cottonwood Mall in Albuquerque, New Mexico, we acquired the former Macy’s store for a planned redevelopment at
the property. We plan to replace the former department store with a mix of home furnishings and other big box retail. We will
invest between $20 million and $22 million in this redevelopment with an expected yield of 6% - 7%.
At Grand Central Mall in Parkersburg, West Virginia, we have plans to replace an Elder-Beerman with a new, first to market
H&M store. The remaining square footage will have exterior-only entrances and will likely be redeveloped for non-retail use that
will help densify the property and bring additional traffic to the center.
Capital Expenditures
The following table summarizes total consolidated capital expenditures on a cash basis for the year ended December 31,
2017 (in thousands):
New developments
Redevelopments and expansions
Tenant allowances
Operational capital expenditures
Total (1)
2017
5,596
66,325
26,919
35,377
134,217
$
$
(1) Excludes capitalized interest, wages and real estate taxes, as well as expenditures for certain equipment and fixtures,
commissions, and project costs, which are included in capital expenditures, net on the consolidated statement of cash flows.
64
Forward-Looking Statements
Certain statements made in this section or elsewhere in this report may be deemed "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-
looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it
is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety
of risks and uncertainties. Such factors include, but are not limited to: changes in asset quality and credit risk; ability to sustain
revenue and earnings growth; changes in political, economic or market conditions generally and the real estate and capital markets
specifically; the impact of increased competition; the availability of capital and financing; tenant or joint venture partner(s)
bankruptcies; the failure to increase enclosed retail store occupancy and same-store operating income; risks associated with
acquisitions, dispositions, development, expansion, leasing and management of properties; changes in market rental rates; trends
in the retail industry; relationships with anchor tenants; risks relating to joint venture properties; costs of common area maintenance;
competitive market forces; the level and volatility of interest rates; the rate of revenue increases as compared to expense increases;
the financial stability of tenants within the retail industry; the restrictions in current financing arrangements or the failure to comply
with such arrangements; the liquidity of real estate investments; the impact of changes to tax legislation and our tax positions;
failure to qualify as a real estate investment trust; the failure to refinance debt at favorable terms and conditions; loss of key
personnel; material changes in the dividend rates on securities or the ability to pay dividends on common shares or other securities;
possible restrictions on the ability to operate or dispose of any partially-owned properties; the failure to achieve earnings/funds
from operations targets or estimates; the failure to achieve projected returns or yields on development and investment properties
(including joint ventures); expected gains on debt extinguishment; changes in generally accepted accounting principles or
interpretations thereof; terrorist activities and international hostilities; the unfavorable resolution of legal or regulatory proceedings;
the impact of future acquisitions and divestitures; assets that may be subject to impairment charges; and significant costs related
to environmental issues. We discussed these and other risks and uncertainties under Part I, Item 1A. "Risk Factors" in this Annual
Report on Form 10-K and other reports and statements filed by WPG Inc. and WPG L.P. with the SEC. We undertake no duty or
obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or
otherwise.
ff
Non-GAAP Financial Measures
Industry practice is to evaluate real estate properties in part based on FFO, NOI and comparable NOI. We believe that these
non-GAAP measures are helpful to investors because they are widely recognized measures of the performance of REITs and
provide a relevant basis for our comparison among REITs. We also use these measures internally to measure the operating
performance of our portfolio.
We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts, or NAREIT,
as net income computed in accordance with GAAP:
•
•
•
•
•
•
excluding real estate related depreciation and amortization;
excluding gains and losses from extraordinary items and cumulative effects of accounting changes;
excluding gains and losses from the sales or disposals of previously depreciated retail operating properties;
excluding gains and losses upon acquisition of controlling interests in properties;
excluding impairment charges of depreciable real estate;
plus the allocable portion of FFO of unconsolidated entities accounted for under the equity method of accounting
based upon economic ownership interest.
We include in FFO gains and losses realized from the sale of land, marketable and non-marketable securities, and investment
holdings of non-retail real estate.
You should understand that our computation of these non-GAAP measures might not be comparable to similar measures
reported by other REITs and that these non-GAAP measures:
•
•
•
do not represent cash flow from operations as defined by GAAP;
should not be considered as alternatives to net income determined in accordance with GAAP as a measure of operating
performance; and
are not alternatives to cash flows as a measure of liquidity.
65
The following schedule reconciles total FFO to net income (loss) for the years ended December 31, 2017, 2016 and 2015
(in thousands, except share/unit and per share/unit amounts):
Net income (loss)
Less: Preferred dividends and distributions on preferred
operating partnership units
Adjustments to Arrive at FFO:
Real estate depreciation and amortization, including joint
venture impact
(Gain) loss on disposition of interests in properties, net
including impairment loss
Net (income) loss attributable to noncontrolling interest
holders in properties
Noncontrolling interests portion of depreciation and
amortization
FFO of the Operating Partnership (1)
FFO allocable to limited partners
FFO allocable to common shareholders/unitholders
Diluted earnings (loss) per share/unit
Adjustments to arrive at FFO per share/unit:
Depreciation and amortization from consolidated properties
and our share of real estate depreciation and amortization from
unconsolidated properties
Impairment loss, including loss (gain) on the sale of interests
in properties and other
Diluted FFO per share/unit
For the Year Ended December 31,
2017
231,593
$
2016
$
77,416
$
2015
(104,122)
(14,272)
(14,272)
(16,217)
292,748
311,038
352,000
(57,846)
24,066
143,817
(68)
(10)
18
(27)
452,128
70,837
381,291
0.98
1.32
$
$
(0.26)
2.04
$
(147)
398,091
61,865
336,226
0.29
1.41
0.10
1.80
$
$
$
(225)
375,271
58,844
316,427
(0.55)
1.61
0.65
1.71
$
$
$
Weighted average shares outstanding - basic
Weighted average limited partnership units outstanding
Weighted average additional dilutive securities outstanding (2)
Weighted average shares/units outstanding - diluted
186,829,385
34,808,890
337,508
221,975,783
185,633,582
34,304,109
803,805
220,741,496
184,195,769
34,303,804
537,483
219,037,056
(1)
FFO of the operating partnership increased $54.0 million for the year ended December 31, 2017 when compared to the year ended
December 31, 2016. During the year ended December 31, 2016, we incurred $29.6 million in merger and acquisition expenses
that were attributable to the management transition and exploration of strategic alternatives. We did not incur similar expenses
during the year ended December 31, 2017. Additionally, we recorded $56.0 million more on the gain on extinguishment of debt
net when comparing the year ended December 31, 2017 to the same period ended 2016. Gain on extinguishment of debt, net
recognized for the year ended December 31, 2017 consisted of the three following transactions: $21.2 million gain related to the
discounted payoff of the $87.3 million mortgage loan secured by Mesa Mall, a $41.6 million gain related to the discounted payoff ff
of the $99.7 million mortgage loan secured by Southern Hills Mall; and a $27.8 million gain related to the transition of Valle Vista
Mall to the mortgage lender pursuant to the terms of a deed-in-lieu of foreclosure agreement entered into by an affiliate of WPG
Inc. and the mortgage lender concerning the $40.0 million mortgage loan. During 2016 we recorded a $34.6 million gain on the
extinguishment of debt, net associated with the transitions of Chesapeake Square, Merritt Square Mall and River Valley Mall.
Offsetting these increases to FFO, was a $15.1 million decrease in FFO directly attributable to properties that were sold during
2016 and 2017. Additionally, we experienced $9.9 million less in FFO in 2017 directly related to the properties that were part of
the O'Connor Joint Venture II.
t
(2) The weighted average additional dilutive securities for the year ended December 31, 2015 are excluded for purposes of calculating
diluted earnings (loss) per share/unit because their effect would have been anti-dilutive.
66
We deem NOI and comparable NOI to be important measures for investors and management to use in assessing our operating
performance, as these measures enable us to present the core operating results from our portfolio, excluding certain non-cash,
corporate-level and nonrecurring items. Specifically, we exclude from operating income the following items in our calculations
of comparable NOI:
straight-line rents and fair value rent amortization;
•
• management fee allocation to promote comparability across periods; and
•
termination income, out-parcel sales and insurance proceeds, which are deemed to be outside of normal operating
results.
The following schedule reconciles comparable NOI to operating income and presents comparable NOI percent change for
the years ended December 31, 2017 and 2016 (in thousands):
Operating income
Depreciation and amortization
General and administrative and merger, restructuring and transaction costs
Impairment loss
Fee income
Management fee allocation
Pro-rata share of unconsolidated joint ventures in comp NOI
Property allocated corporate expense
Non-comparable properties and other (1)
NOI from sold properties
Termination income and outparcel sales
Straight-line rents
Ground lease adjustments for straight-line and fair market value
Fair market value & inducement adjustments to base rents
For the Year Ended December 31,
2017
144,806
$
2016
184,993
$
258,740
34,892
66,925
(7,906)
612
60,908
13,300
(8,573)
(2,636)
(3,783)
(2,122)
65
(7,290)
281,150
66,924
21,879
(6,709)
7,008
36,418
13,231
(9,195)
(27,313)
(2,761)
(928)
(15)
(9,874)
Comparable NOI
Comparable NOI percentage change
$
547,938
$
554,808
(1.2)%
(1) Represents an adjustment to remove the NOI amounts from properties not owned and operated in all periods presented, certain
non-recurring expenses (such as hurricane related expenses), as well as material insurance proceeds received in the periods
presented. Furthermore, Southern Hills Mall is removed as the management and leasing of the property was transferred to the
receiver during the fourth quarter of 2016. On October 17, 2017, and upon the discounted payoff of the mortgage loan, the
Company resumed leasing and management of the property.
67
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates, primarily LIBOR. We seek to limit the impact of interest rate
changes on earnings and cash flows and to lower the overall borrowing costs by closely monitoring our variable rate debt and
converting such debt to fixed rates when we deem such conversion advantageous. From time to time, we may enter into interest
rate swap agreements or other interest rate hedging contracts. While these agreements are intended to lessen the impact of rising
interest rates, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant
costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will
fail to qualify as highly effective cash flow hedges under GAAP guidance. As of December 31, 2017, $302.7 million (net of $3.8
million of debt issuance costs) of our aggregate consolidated indebtedness (10.4% of total consolidated indebtedness) was subject
to variable interest rates, excluding amounts outstanding under variable rate loans that have been hedged to fixed interest rates.
If LIBOR rates of interest on our variable rate debt fluctuated, our future earnings and cash flows would be impacted,
depending upon the current LIBOR rates and the existence of any derivative contracts currently in effect. Based upon our variable
rate debt balance as of December 31, 2017, a 50 basis point increase in LIBOR rates would result in a decrease in earnings and
cash flow of $1.5 million annually and a 50 basis point decrease in LIBOR rates would result in an increase in earnings and cash
flow of $1.5 million annually. This assumes that the amount outstanding under our variable rate debt remains at $302.7 million,
the balance as of December 31, 2017.
a
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company included in this report are listed in Part IV, Item 15 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Controls and Procedures of Washington Prime Group Inc.
Evaluation of Disclosure Controls and Procedures. WPG Inc. maintains disclosure controls and procedures (as defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) that are designed to provide reasonable
assurance that information required to be disclosed in the reports that WPG Inc. files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and
procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives
of disclosure controls and procedures are met.
Management of WPG Inc., with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of WPG Inc.'s disclosure controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the disclosure
controls and procedures of WPG Inc. were effective at a reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing
and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
f
As of December 31, 2017, management assessed the effectiveness of WPG Inc.'s internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:16)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)
(cid:11)(cid:21)(cid:19)(cid:20)(cid:22)(cid:12) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that, as of December 31, 2017, WPG Inc.’s internal control over
financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
68
Independent Registered Public Accounting Firm’s Report on Internal Control Over Financial Reporting. Ernst & Young
LLP, an independent registered public accounting firm, has audited our consolidated financial statements included in this Annual
Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-3, on the effectiveness of our internal
control over financial reporting.
Changes in Internal Control Over Financial Reporting. There have not been any other changes in our internal control
over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Controls and Procedures of Washington Prime Group, L.P.
Evaluation of Disclosure Controls and Procedures. WPG L.P. maintains disclosure controls and procedures (as defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) that are designed to provide reasonable
assurance that information required to be disclosed in the reports that WPG L.P. files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer of WPG
Inc., WPG L.P.'s general partner, as appropriate to allow timely decisions regarding required disclosures. Because of inherent
limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of disclosure controls and procedures are met.
Management of WPG L.P., with the participation of the Chief Executive Officer and Chief Financial Officer of WPG Inc.,
WPG L.P.'s general partner, evaluated the effectiveness of the design and operation of WPG L.P.'s disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of WPG Inc., WPG L.P.'s general
partner, concluded that, as of the end of the period covered by this report, WPG L.P.'s disclosure controls and procedures were
effective at a reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing
and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
f
As of December 31, 2017, management assessed the effectiveness of WPG L.P.'s internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:16)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)
(cid:11)(cid:21)(cid:19)(cid:20)(cid:22)(cid:12) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that, as of December 31, 2017, WPG L.P.’s internal control over
financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Independent Registered Public Accounting Firm’s Report on Internal Control Over Financial Reporting. Ernst & Young
LLP, an independent registered public accounting firm, has audited our consolidated financial statements included in this Annual
Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-10, on the effectiveness of our
internal control over financial reporting.
Changes in Internal Control Over Financial Reporting. There have not been any other changes in our internal control
over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
69
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2018
annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2018
annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2018
annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2018
annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2018
annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
70
Part IV
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements
Included herein at pages F-1 through F-52.
2. Financial Statement Schedules
The following financial statement schedule is included herein at pages F-53 through F-57:
Schedule III—Real Estate and Accumulated Depreciation
All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the
related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement
and, therefore, have been omitted.
71
3. Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K:
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
4.1
4.2
4.3
Exhibit Descriptions
Separation and Distribution Agreement by and among Simon Property Group, Inc., Simon Property Group, L.P.,
Washington Prime Group Inc. and Washington Prime Group, L.P., dated as of May 27, 2014 (incorporated by
reference to Form 8-K filed on May 29, 2014).
Purchase, Sale and Escrow Agreement, dated February 25, 2015, by and among WPG-OC Limited Partner, LLC,
WPG-OC General Partner, LLC, O'Connor Mall Partners, L.P. and Fidelity National Title Insurance Company
(incorporated by reference to Form 8-K filed on February 26, 2015).
Amendment No. 1 to Purchase, Sale and Escrow Agreement, dated May 29, 2015, by and among WPG-OC Limited
Partner, LLC, WPG-OC General Partner, LLC, O'Connor Mall Partners, L.P. and Fidelity National Title Insurance
Company (incorporated by reference to Form 10-Q filed on August 5, 2015).
Purchase, Sale and Escrow Agreement, dated November 2, 2016, by and among WPG-OC Limited Partner, LP,
WPG-OC General Partner, LLC, WPG-OC General Partner II, LLC, WPG-OC General Partner III, LLC, O’Connor
Mall Partners, L.P. and Fidelity National Title Insurance Company (incorporated by reference to Form 8-K filed on
November 8, 2016).
First Amendment to Purchase, Sale and Escrow Agreement, dated November 2, 2016, by and among WPG-OC New
Limited Partner, LP, WPG-OC General Partner, LLC, WPG-OC General Partner II, LLC, WPG-OC General Partner
III, LLC, O'Connor Mall Partners, L.P. and Fidelity National Title Insurance Company, dated as of January 4, 2017
(incorporated by reference to Form 10-Q filed July 27, 2017).
Second Amendment to Purchase, Sale and Escrow Agreement, dated November 2, 2016, by and among WPG-OC
New Limited Partner, LP, WPG-OC General Partner, LLC, WPG-OC General Partner II, LLC, WPG-OC General
Partner III, LLC, WPG Management Associates, Inc., WPG-OC Limited Partner II, LLC, O'Connor Mall Partners,
L.P., O'Connor Mall Parallel Partners, L.P. and Fidelity National Title Insurance Company, dated as of April 26,
2017 (incorporated by reference to Form 10-Q filed July 27, 2017).
Third Amendment to Purchase, Sale and Escrow Agreement, dated November 2, 2016, by and among WPG-OC
New Limited Partner, LP, WPG-OC General Partner, LLC, WPG-OC General Partner II, LLC, WPG-OC General
Partner III, LLC, WPG Management Associates, Inc., WPG-OC Limited Partner II, LLC, O'Connor Mall Partners,
L.P., O'Connor Mall Parallel Partners, L.P. and Fidelity National Title Insurance Company, dated as of May 11, 2017
(incorporated by reference to Form 10-Q filed July 27, 2017).
Amended and Restated Articles of Incorporation of Washington Prime Group Inc. (incorporated by reference to the
Form S 4 filed on October 28, 2014 (Commission File No. 333 199626)).
Amended and Restated Articles of Incorporation of WP Glimcher Inc. (as amended effective August 11, 2015)
(incorporated by reference to Form 8-K filed August 12, 2015).
Amended and Restated Articles of Incorporation for the Registrant (incorporated by reference to Form 8-K filed on
May 22, 2017).
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company Relating to Name
Change (incorporated by reference to Form 8-K filed on May 26, 2015).
Articles of Amendment to the Amended and Restated Articles of Incorporation of Washington Prime Group Inc.
relating to corporate name change (incorporated by reference to Form 8-K filed on September 2, 2016).
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Washington Prime Group Inc.
(incorporated by reference to Form 8-K filed on May 22, 2017).
Amended and Restated Bylaws of Washington Prime Group Inc. (incorporated by reference to Form 8 K filed on
January 22, 2015).
Amended and Restated Bylaws of WP Glimcher Inc. (n/k/a Washington Prime Group Inc.), effective August 19,
2016 (incorporated by reference to Form 8-K filed on August 19, 2016).
Amended and Restated Bylaws of Washington Prime Group Inc., effective August 30, 2016 (incorporated by
reference to Form 8-K filed on September 2, 2016).
Amended and Restated Bylaws of Washington Prime Group Inc. (incorporated by reference to Form 10-Q filed
August 5, 2015).
Indenture, dated as of March 24, 2015, between Washington Prime Group, L.P. and U.S. Bank National Association,
as Trustee (incorporated by reference to Form 8-K filed March 26, 2015).
First Supplemental Indenture, dated as of March 24, 2015, between Washington Prime Group, L.P. and U.S. Bank
National Association, as Trustee (incorporated by reference to Form 8-K filed March 26, 2015).
Second Supplemental Indenture, dated as of August 4, 2017, between Washington Prime Group, L.P. and U.S. Bank
National Association, as Trustee (incorporated by reference to Form 8-K August 4, 2017).
72
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Registration Rights Agreement, dated as of March 24, 2015, by and among Washington Prime Group, L.P. and
Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBS Securities Inc., as representatives of the initial
purchasers named therein (incorporated by reference to Form 8-K filed March 26, 2015).
* Glimcher Realty Trust Amended and Restated 2004 Incentive Compensation Plan (incorporated by reference to S-8
filed January 15, 2015).
* Glimcher Realty Trust 2012 Incentive Compensation Plan (incorporated by reference to S-8 filed January 15, 2015).
* Washington Prime Group, L.P. 2014 Stock Incentive Plan (incorporated by reference to Form 8 K filed May 29,
2014).
Articles of Amendment of Washington Prime Group Inc. setting forth the Terms of Series H Cumulative Redeemable
Preferred Stock (incorporated by reference to Form 8 A filed January 14, 2015).
Articles of Amendment of Washington Prime Group Inc. setting forth the Terms of Series I Cumulative Redeemable
Preferred Stock (incorporated by reference to Form 8 A filed January 14, 2015).
Amended and Restated Limited Partnership Agreement of Washington Prime Group, L.P. (incorporated by reference
to Form 8 K filed May 29, 2014).
Amendment No. 2 to Amended and Restated Limited Partnership Agreement of Washington Prime Group, L.P. dated
as of January 14, 2015, setting forth the Terms of Series H Preferred Units (incorporated by reference to Form 10 K
filed February 26, 2015).
Amendment No. 3 to Amended and Restated Limited Partnership Agreement of Washington Prime Group, L.P. dated
as of January 14, 2015, setting forth the Terms of Series I Preferred Units (incorporated by reference to Form 10 K
filed February 26, 2015).
Amendment No. 4 to Amended and Restated Limited Partnership Agreement of Washington Prime Group, L.P. dated
as of January 14, 2015, setting forth the Terms of Series I 1Preferred Units (incorporated by reference to Form 10 K
filed February 26, 2015).
Senior Secured Term Loan Agreement, dated as of June 8, 2016, by and among Washington Prime Group, L.P.,
WTM Glimcher, LLC, The Huntington National Bank, PNC Bank, National Association, U.S. Bank National
Association, and several lenders from time to time (relates to mortgage loan for Weberstown Mall) (incorporated
by reference to Form 10 Q filed on August 4, 2016).
Term Loan Promissory Note, dated June 8, 2016 (The Huntington National Bank) (relates to mortgage loan for
Weberstown Mall) (incorporated by reference to Form 10 Q filed on August 4, 2016).
Term Loan Promissory Note, dated June 8, 2016 (U.S. Bank National Association) (relates to mortgage loan for
Weberstown Mall) (incorporated by reference to Form 10 Q filed on August 4, 2016).
Term Loan Promissory Note, dated June 8, 2016 (PNC Bank, National Association) (relates to mortgage loan for
Weberstown Mall) (incorporated by reference to Form 10 Q filed on August 4, 2016).
Environmental Indemnity Agreement, dated June 8, 2016, by Washington Prime Group, L.P. and WTM Glimcher,
LLC to and for benefit of The Huntington National Bank and other lenders under Senior Secured Term Loan
Agreement (relates to mortgage loan for Weberstown Mall) (incorporated by reference to Form 10 Q filed on August
4, 2016).
Collateral Assignment of Membership Interest Agreement, dated June 8, 2016, by Weberstown Mall, LLC to The
Huntington National Bank and other lenders under Senior Secured Term Loan Agreement (relates to mortgage loan
for Weberstown Mall) (incorporated by reference to Form 10 Q filed on August 4, 2016).
Purchase Agreement, dated as of March 17, 2015, by and between Washington Prime Group, L.P. and Citigroup
Global Markets Inc., J.P. Morgan Securities LLC and RBS Securities Inc., as representatives of the initial purchasers
named therein, relating to 2.850% Senior Notes due 2020 (incorporated by reference to Form 8-K filed March 23,
2015).
Amended and Restated Revolving Credit and Term Loan Agreement, dated January 22, 2018 (incorporated by
reference to Form 8-K January 22, 2018).
Purchase and Sale Agreement, dated as of September 16, 2014, by and between Washington Prime Group, L.P. and
Simon Property Group, L.P. (attached as Annex B to the proxy statement/prospectus included in the Form S 4 filed
October 28, 2014 (Commission File No. 333 199626)).
First Amendment to Purchase and Sale Agreement, dated as of January 15, 2015, by and between Washington Prime
Group, L.P. and Simon Property Group, L.P. (incorporated by reference to Form 10 K filed February 26, 2015).
Transition Services Agreement by and among Simon Property Group, Inc., Simon Property Group, L.P., Washington
Prime Group Inc. and Washington Prime Group, L.P. dated May 28, 2014 (incorporated by reference to Form 8 K
filed May 29, 2014).
Tax Matters Agreement by and among Simon Property Group, Inc., Simon Property Group, L.P., Washington Prime
Group Inc. and Washington Prime Group, L.P. dated May 28, 2014 (incorporated by reference to Form 8 K filed
May 29, 2014).
Employee Matters Agreement by and among Simon Property Group, Inc., Simon Property Group, L.P., Washington
Prime Group Inc. and Washington Prime Group, L.P. dated May 28, 2014 (incorporated by reference to Form 8 K
filed May 29, 2014).
73
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
Form of Indemnification Agreement between Washington Prime Group Inc. and each of its executive officers and
directors (incorporated by reference to Amendment No. 3 to Form 10 filed April 21, 2014).
* Separation Agreement and General Release by and between WP Glimcher Inc. and Michael P. Glimcher, dated as
of June 20, 2016 (incorporated by reference to Form 8-K filed on June 24, 2016).
* Resignation and General Release by and between WP Glimcher Inc. and Niles C. Overly, dated as of June 20, 2016
(incorporated by reference to Form 8-K filed on June 24, 2016).
* Agreement by and between WP Glimcher Inc. and Louis G. Conforti, dated as of June 20, 2016 (incorporated by
reference to Form 8-K filed on June 24, 2016).
* Employment Agreement, dated October 6, 2016, by and between Washington Prime Group Inc. and Louis G. Conforti
(incorporated by reference to Form 8-K filed on October 11, 2016).
*
Employee Restricted Stock Unit Award Agreement, dated October 6, 2016, among Washington Prime Group Inc.,
Washington Prime Group, L.P. and Louis G. Conforti (incorporated by reference to Form 8-K filed on October 11,
2016).
* Description of Terms of 2015 Annual LTIP Unit Awards (incorporated by reference to Form 10 Q filed on May 7,
2015).
* Terms and Conditions of the Grant of Special Performance LTIP Units to as it pertains to Mr. Mark E. Yale and Ms.
Melissa A. Indest (incorporated by reference to Form 10 Q filed on May 7, 2015).
* Amended and Restated Employment Agreement, dated January 31, 2017, by and between Washington Prime Group
Inc. and Mark E. Yale (incorporated by reference to Form 8-K filed on February 2, 2017).
* Amended and Restated Employment Agreement, dated January 31, 2017, by and between Washington Prime Group
Inc. and Keric M. Knerr (incorporated by reference to Form 8-K filed on February 2, 2017).
* Amended and Restated Employment Agreement, dated January 31, 2017, by and between Washington Prime Group
Inc. and Robert P. Demchak (incorporated by reference to Form 8-K filed on February 2, 2017).
* Amended and Restated Severance Benefits Agreement, dated January 31, 2017, by and between Washington Prime
Group Inc. and Lisa A. Indest (incorporated by reference to Form 8-K filed on February 2, 2017).
* Conditional Offer of Employment with Washington Prime Group Inc. by and between Washington Prime Group Inc.
and Lisa A. Indest, dated as of January 9, 2015 (incorporated by reference to Form 8 K filed on January 22, 2015).
* General Release and Amendment to Employment Agreement, dated October 13, 2017, by and between Washington
Prime Group Inc. and Keric M. Knerr (incorporated by reference to Form 8-K filed on October 16, 2017).
* Employment Agreement, dated November 2, 2017, by and between Washington Prime Group Inc. and Gregory E.
Zimmerman (incorporated by reference to Form 8-K filed on November 8, 2017).
* Employment Agreement, dated November 2, 2017, by and between Washington Prime Group Inc. and Paul
Ajdaharian (incorporated by reference to Form 8-K filed on November 8, 2017).
* Employment Agreement, dated November 2, 2017, by and between Washington Prime Group Inc. and Armand
Mastropietro (incorporated by reference to Form 8-K filed on November 8, 2017).
* First Amendment to the Amended and Restated Employment Agreement between Washington Prime Group Inc.
and Robert P. Demchak, dated February 21, 2017 (incorporated by reference to Form 10 Q filed on April 27, 2017).
*
*
*
*
*
*
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Michael P. Glimcher, dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards) (incorporated
by reference to Form 10 Q filed on May 6, 2016).
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Mark E. Yale, dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards) (incorporated by
reference to Form 10 Q filed on May 6, 2016).
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Mark S. Ordan dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards) (incorporated
by reference to Form 10 Q filed on May 6, 2016).
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Melissa A. Indest, dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards) (incorporated
by reference to Form 10 Q filed on May 6, 2016).
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Keric M. “Butch” Knerr, dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards)
(incorporated by reference to Form 10 Q filed on May 6, 2016).
Series 2015B LTIP Unit Award Agreement by and among WP Glimcher Inc., Washington Prime Group, L.P., and
Thomas J. Drought, Jr., dated as of February 25, 2016 (relates to LTIP Unit award for 2015 annual awards)
(incorporated by reference to Form 10 Q filed on May 6, 2016).
* Form of Certificate of Designation of Series 2015B LTIP Units of Washington Prime Group, L.P. (incorporated by
reference to Form 10 Q filed on May 6, 2016).
74
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
12.1
12.2
21.1
23.1
23.2
31.1
31.2
31.3
31.4
32.1
32.2
* Form of Series 2014 Inducement LTIP Unit Award Agreement, dated as of June 25, 2014 (incorporated by reference
to Form 8 K filed June 27, 2014).
* Certificate of Designation of Series 2014 Inducement LTIP Units of Washington Prime Group, L.P. (incorporated
by reference to Form 8 K filed on June 27, 2014).
* Certificate of Designation of Series 2014B LTIP Units of Washington Prime Group, L.P. (incorporated by reference
to Form 8 K filed on August 28, 2014).
* Certificate of Designation of Series 2015A LTIP Units of Washington Prime Group, L.P. (incorporated by reference
to Form 10 Q filed on May 7, 2015).
* Form of Non Employee Director Restricted Stock Unit Award Agreement (incorporated by reference to Form 8 K
filed on August 8, 2014).
* Form of Series 2014B LTIP Unit Award Agreements with Officers (incorporated by reference to Form 8 K filed on
August 28, 2014).
* Form of Series 2015A LTIP Unit Award Agreements with Executive Officers Other Than EVP, Legal & Compliance
(incorporated by reference to Form 10 Q filed on May 7, 2015).
* Form Employee Restricted Stock Unit Award Agreement 2017 (incorporated by reference to Form 10 Q filed on
April 27, 2017).
* Form Employee Restricted Stock Unit Award Agreement (Employee with Severance Agreement) (incorporated by
reference to Form 10 Q filed on April 27, 2017).
* Form Employee Restricted Stock Unit Award Agreement (Employee with Employment Agreement) (incorporated
by reference to Form 10 Q filed on April 27, 2017).
* Form Employee Performance Share Unit Award Agreement (Employee with Employment Agreement) (incorporated
by reference to Form 10 Q filed on April 27, 2017).
* Form Employee Performance Share Unit Award Agreement (Employee without Employment Agreement)
(incorporated by reference to Form 10 Q filed on April 27, 2017).
** Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends for Washington
Prime Group Inc.
** Computation of Ratios of Earnings to Fixed Charges for Washington Prime Group, L.P.
** List of Subsidiaries
** Consent of Ernst & Young LLP for Washington Prime Group Inc.
** Consent of Ernst & Young LLP for Washington Prime Group, L.P.
** Certification by the Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group Inc.
** Certification by the Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group Inc.
Certification by the Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group,
L.P.
Certification by the Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group,
L.P.
**
**
** Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group Inc.
** Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Washington Prime Group, L.P.
101.INS ** XBRL Instance Document
101.SCH ** XBRL Taxonomy Extension Schema Document
101.CAL ** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB ** XBRL Taxonomy Extension Label Linkbase Document
101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF ** XBRL Taxonomy Extension Definition Linkbase Document
*
**
Compensatory plans or arrangements required to be filed pursuant to Item 15(b) of Form 10-K.
Filed electronically herewith.
Item 16. Form 10-K Summary
None.
75
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WASHINGTON PRIME GROUP INC.
WASHINGTON PRIME GROUP, L.P.
by: Washington Prime Group Inc., its sole general
partner
By:
/s/ LOUIS G. CONFORTI
Louis G. Conforti
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
(cid:11)(cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:12)
Dated: February 22, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ ROBERT J. LAIKIN
Robert J. Laikin
/s/ LOUIS G. CONFORTI
Louis G. Conforti
/s/ J. TAGGART BIRGE
J. Taggart Birge
/s/ JOHN J. DILLON III
John J. Dillon III
/s/ JOHN F. LEVY
John F. Levy
Chairman of the Board of Directors
February 22, 2018
Chief Executive Officer and Director
(Principal Executive Officer)
Director
Director
Director
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
/s/ JACQUELYN R. SOFFER
Director
February 22, 2018
Jacquelyn R. Soffer
/s/ SHERYL G. VON BLUCHER
Sheryl G. von Blucher
Director
February 22, 2018
/s/ MARK E. YALE
Mark E. Yale
/s/ MELISSA A. INDEST
Melissa A. Indest
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
February 22, 2018
Senior Vice President, Finance and Chief
Accounting Officer (Principal Accounting
Officer)
February 22, 2018
76
WASHINGTON PRIME GROUP INC. AND WASHINGTON PRIME GROUP, L.P.
INDEX TO FINANCIAL STATEMENTS
Financial Statements for Washington Prime Group Inc.:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years
ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Financial Statements for Washington Prime Group, L.P.:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years
ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Schedule III—Real Estate and Accumulated Depreciation
Notes to Schedule III
Page
Number
F-2
F-4
F-5
F-6
F-7
F-9
F-11
F-12
F-13
F-14
F-16
F-53
F-57
F-1
Report of Independent Registered Public Accounting Firm
The Shareholders and the Board of Directors of Washington Prime Group Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Washington Prime Group Inc. (the "Company") as of
December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income (loss), equity and cash
flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule
listed in the Index to Financial Statements on Page F-1 (collectively referred to as the "consolidated financial statements"). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework), and our report dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2013.
Indianapolis, Indiana
February 22, 2018
F-2
Report of Independent Registered Public Accounting Firm
The Shareholders and the Board of Directors of Washington Prime Group Inc.:
Opinion on Internal Control over Financial Reporting
We have audited Washington Prime Group Inc.’s internal control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Washington Prime Group Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
k
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 22, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablea
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
t
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 22, 2018
F-3
Washington Prime Group Inc.
Consolidated Balance Sheets
(dollars in thousands, except share and par value amounts)
2017
December 31,
2016
ASSETS:
Investment properties at cost
Less: accumulated depreciation
Cash and cash equivalents
Tenant receivables and accrued revenue, net
Real estate assets held-for-sale
Investment in and advances to unconsolidated entities, at equity
Deferred costs and other assets
Total assets
LIABILITIES:
Mortgage notes payable
Notes payable
Unsecured term loans
Revolving credit facility
Accounts payable, accrued expenses, intangibles, and deferred revenues
Distributions payable
Cash distributions and losses in unconsolidated entities, at equity
Total liabilities
Redeemable noncontrolling interests
EQUITY:
Stockholders' Equity:
Series H Cumulative Redeemable Preferred Stock, $0.0001 par value, 4,000,000
shares issued and outstanding as of December 31, 2017 and 2016
Series I Cumulative Redeemable Preferred Stock, $0.0001 par value, 3,800,000
shares issued and outstanding as of December 31, 2017 and 2016
Common stock, $0.0001 par value, 350,000,000 shares authorized,
185,791,421 issued and outstanding as of December 31, 2017 and 300,000,000
shares authorized, 185,427,411 issued and outstanding as of December 31, 2016
Capital in excess of par value
Accumulated deficit
Accumulated other comprehensive income
Total stockholders' equity
Noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interests and equity
$
5,807,760
$
2,139,620
3,668,140
52,019
90,314
—
451,839
189,095
4,451,407
1,157,082
979,372
606,695
154,460
264,998
2,992
15,421
3,181,020
3,265
$
$
6,294,628
2,122,572
4,172,056
59,353
99,967
50,642
458,892
266,556
5,107,466
1,618,080
247,637
1,334,522
306,165
309,178
2,992
15,421
3,833,995
10,660
104,251
104,251
98,325
98,325
19
1,240,483
(350,594)
6,920
1,099,404
167,718
1,267,122
4,451,407
19
1,232,638
(346,706)
4,916
1,093,443
169,368
1,262,811
5,107,466
$
$
$
$
The accompanying notes are an integral part of these statements.
F-4
Washington Prime Group Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars in thousands, except per share amounts)
REVENUE:
Minimum rent
Overage rent
Tenant reimbursements
Other income
Total revenues
EXPENSES:
Property operating
Depreciation and amortization
Real estate taxes
Advertising and promotion
Provision for credit losses
General and administrative
Merger, restructuring and transaction costs
Ground rent
Impairment loss
Total operating expenses
OPERATING INCOME
Interest expense, net
Gain on extinguishment of debt, net
Income and other taxes
Income (loss) from unconsolidated entities
INCOME (LOSS) BEFORE GAIN (LOSS) ON DISPOSITION OF
INTERESTS IN PROPERTIES, NET
Gain (loss) on disposition of interests in properties, net
NET INCOME (LOSS)
Net income (loss) attributable to noncontrolling interests
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
Less: Preferred share dividends
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED
$
0.98
COMPREHENSIVE INCOME (LOSS):
Net income (loss)
Unrealized income on interest rate derivative instruments
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income (loss) attributable to common shareholders
$ 231,593
2,401
233,994
34,927
$ 199,067
The accompanying notes are an integral part of these statements.
F-5
2017
2016
2015
$ 516,386
9,115
$ 572,781
12,882
$ 623,113
14,040
208,290
24,331
758,122
146,529
258,740
89,617
9,107
5,068
34,892
—
2,438
66,925
613,316
236,510
21,302
843,475
166,690
281,150
102,638
10,375
4,508
37,317
29,607
4,318
21,879
658,482
259,774
24,429
921,356
197,287
332,469
109,548
11,635
2,022
48,154
31,653
6,874
147,979
887,621
144,806
(126,541)
90,579
(3,417)
1,395
184,993
(136,225)
34,612
(2,232)
(1,745)
33,735
(139,923)
—
(849)
(1,247)
106,822
124,771
231,593
34,530
197,063
(14,032)
$ 183,031
79,403
(1,987)
77,416
10,285
67,131
(14,032)
53,099
(108,284)
4,162
(104,122)
(18,825)
(85,297)
(15,989)
$ (101,286)
0.29
$
(0.55)
77,416
3,801
81,217
10,886
70,331
$ (104,122)
2,037
(102,085)
(18,504)
(83,581)
$
$
$
$
$
Washington Prime Group Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$ 231,593
$
77,416
$ (104,122)
For the Year Ended December 31,
2017
2016
2015
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization, including fair value rent, fair value debt,
deferred financing costs and equity-based compensation
Gain on extinguishment of debt, net
(Gain) loss on disposition of interests in properties and outparcels, net
Impairment loss
Provision for credit losses
(Income) loss from unconsolidated entities
Distributions of income from unconsolidated entities
Changes in assets and liabilities:
Tenant receivables and accrued revenue, net
Deferred costs and other assets
Accounts payable, accrued expenses, deferred revenues and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
Capital expenditures, net
Restricted cash reserves for future capital expenditures, net
Net proceeds from disposition of interest in properties and outparcels
Investments in unconsolidated entities
Distributions of capital from unconsolidated entities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to noncontrolling interest holders in properties
Redemption of limited partner units/preferred shares
Change in lender-required restricted cash reserves on mortgage loans
Net proceeds from issuance of common shares, including common stock plans
Distributions to redeemable noncontrolling interest
Purchase of redeemable noncontrolling interest
Distributions on common and preferred shares/units
Proceeds from issuance of debt, net of transaction costs
Repayments of debt
Net cash (used in) provided by financing activities
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
260,908
(90,579)
(125,063)
66,925
5,068
(1,395)
1,873
468
(24,325)
2,039
327,512
—
(147,329)
886
224,357
(50,911)
73,289
100,292
(114)
(251)
(3,373)
13
—
(6,830)
(236,152)
1,293,322
(1,481,753)
(435,138)
(7,334)
59,353
285,632
(34,612)
1,987
21,879
4,508
1,745
272
(14,790)
(22,181)
(32,058)
289,798
—
(173,593)
(1,989)
22,653
(11,631)
38,618
(125,942)
—
(6)
(3,021)
512
(24)
(339)
(235,092)
206,740
(189,526)
(220,756)
(56,900)
116,253
329,895
—
(4,162)
147,979
2,022
1,247
223
(1,576)
(23,846)
(36,897)
310,763
(963,144)
(160,512)
(2,845)
431,823
(15,401)
4,597
(705,482)
(8)
(118,048)
(898)
1,899
—
—
(228,706)
2,826,258
(2,078,293)
402,204
7,485
108,768
$
52,019
$
59,353
$ 116,253
The accompanying notes are an integral part of these statements.
F-6
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F
Report of Independent Registered Public Accounting Firm
The Partners of Washington Prime Group, L.P.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Washington Prime Group L.P. (the Partnership) as of
December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income (loss), equity and cash
flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule
listed in the Index to Financial Statements on Page F-1 (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework), and our report dated February 22, 2018 expressed an unqualified opinion thereon.
k
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion
on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Partnership’s auditor since 2015.
Indianapolis, Indiana
February 22, 2018
F-9
Report of Independent Registered Public Accounting Firm
The Partners of Washington Prime Group, L.P.:
Opinion on Internal Control over Financial Reporting
We have audited Washington Prime Group L.P.’s internal control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Washington Prime Group L.P. (the “Partnership”)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the
COSO criteria.
k
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2017 consolidated financial statements of the Partnership and our report dated February 22, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
f
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablea
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
t
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 22, 2018
F-10
Washington Prime Group, L.P.
Consolidated Balance Sheets
(dollars in thousands, except unit amounts)
December 31,
2017
December 31,
2016
ASSETS:
Investment properties at cost
Less: accumulated depreciation
Cash and cash equivalents
Tenant receivables and accrued revenue, net
Real estate assets held-for-sale
Investment in and advances to unconsolidated entities, at equity
Deferred costs and other assets
Total assets
LIABILITIES:
Mortgage notes payable
Notes payable
Unsecured term loans
Revolving credit facility
Accounts payable, accrued expenses, intangibles, and deferred revenues
Distributions payable
Cash distributions and losses in unconsolidated entities, at equity
Total liabilities
Redeemable noncontrolling interests
EQUITY:
Partners' Equity:
General partner
Preferred equity, 7,800,000 units issued and outstanding as of December 31, 2017
and 2016
Common equity, 185,791,421 and 185,427,411 units issued and outstanding as of
December 31, 2017 and 2016, respectively
Total general partners' equity
Limited partners, 34,760,026 and 35,127,735 units issued and outstanding as of
December 31, 2017 and 2016, respectively
Total partners' equity
Noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interests and equity
$
$
$
$
5,807,760
$
2,139,620
3,668,140
52,019
90,314
—
451,839
189,095
4,451,407
1,157,082
979,372
606,695
154,460
264,998
2,992
15,421
3,181,020
3,265
$
$
6,294,628
2,122,572
4,172,056
59,353
99,967
50,642
458,892
266,556
5,107,466
1,618,080
247,637
1,334,522
306,165
309,178
2,992
15,421
3,833,995
10,660
202,576
202,576
896,828
1,099,404
166,660
1,266,064
1,058
1,267,122
4,451,407
890,867
1,093,443
168,264
1,261,707
1,104
1,262,811
5,107,466
$
The accompanying notes are an integral part of these statements.
F-11
Washington Prime Group, L.P.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars in thousands, except per unit amounts)
REVENUE:
Minimum rent
Overage rent
Tenant reimbursements
Other income
Total revenues
EXPENSES:
Property operating
Depreciation and amortization
Real estate taxes
Advertising and promotion
Provision for credit losses
General and administrative
Merger, restructuring and transaction costs
Ground rent
Impairment loss
Total operating expenses
OPERATING INCOME
Interest expense, net
Gain on extinguishment of debt, net
Income and other taxes
Income (loss) from unconsolidated entities
INCOME (LOSS) BEFORE GAIN (LOSS) ON DISPOSITION OF
INTERESTS IN PROPERTIES, NET
Gain (loss) on disposition of interests in properties, net
NET INCOME (LOSS)
Net income attributable to noncontrolling interests
NET INCOME (LOSS) ATTRIBUTABLE TO UNITHOLDERS
Less: Preferred unit distributions
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS:
General partner
Limited partners
Net income (loss) attributable to common unitholders
EARNINGS (LOSS) PER COMMON UNIT, BASIC AND DILUTED
COMPREHENSIVE INCOME (LOSS):
Net income (loss)
Unrealized income on interest rate derivative instruments
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to unitholders
2017
2016
2015
$ 516,386
9,115
208,290
24,331
758,122
$ 572,781
12,882
236,510
21,302
843,475
$ 623,113
14,040
259,774
24,429
921,356
146,529
258,740
89,617
9,107
5,068
34,892
—
2,438
66,925
613,316
144,806
(126,541)
90,579
(3,417)
1,395
166,690
281,150
102,638
10,375
4,508
37,317
29,607
4,318
21,879
658,482
184,993
(136,225)
34,612
(2,232)
(1,745)
197,287
332,469
109,548
11,635
2,022
48,154
31,653
6,874
147,979
887,621
33,735
(139,923)
—
(849)
(1,247)
106,822
124,771
231,593
68
231,525
(14,272)
$ 217,253
$ 183,031
34,222
$ 217,253
$
0.98
$ 231,593
2,401
233,994
68
$ 233,926
$
$
$
$
$
$
79,403
(1,987)
77,416
11
77,405
(14,272)
63,133
(108,284)
4,162
(104,122)
286
(104,408)
(16,218)
$ (120,626)
53,099
10,034
63,133
$ (101,515)
(19,111)
$ (120,626)
0.29
$
(0.55)
77,416
3,801
81,217
11
81,206
$ (104,122)
2,037
(102,085)
286
$ (102,371)
The accompanying notes are an integral part of these statements.
F-12
Washington Prime Group, L.P.
Consolidated Statements of Cash Flows
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization, including fair value rent, fair value debt,
deferred financing costs and equity-based compensation
Gain on extinguishment of debt, net
(Gain) loss on disposition of interests in properties and outparcels, net
Impairment loss
Provision for credit losses
(Income) loss from unconsolidated entities
Distributions of income from unconsolidated entities
Changes in assets and liabilities:
Tenant receivables and accrued revenue, net
Deferred costs and other assets
Accounts payable, accrued expenses, deferred revenues and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
Capital expenditures, net
Restricted cash reserves for future capital expenditures, net
Net proceeds from disposition of interest in properties and outparcels
Investments in unconsolidated entities
Distributions of capital from unconsolidated entities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to noncontrolling interest holders in properties
Redemption of limited partner/preferred units
Change in lender-required restricted cash reserves on mortgage loans
Net proceeds from issuance of common units, including equity-based
compensation plans
Distributions to redeemable noncontrolling interest
Purchase of redeemable noncontrolling interest
Distributions to unitholders, net
Proceeds from issuance of debt, net of transaction costs
Repayments of debt
Net cash (used in) provided by financing activities
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
For the Year Ended December 31,
2017
2016
2015
$ 231,593
$
77,416
$ (104,122)
260,908
(90,579)
(125,063)
66,925
5,068
(1,395)
1,873
468
(24,325)
2,039
327,512
—
(147,329)
886
224,357
(50,911)
73,289
100,292
285,632
(34,612)
1,987
21,879
4,508
1,745
272
(14,790)
(22,181)
(32,058)
289,798
—
(173,593)
(1,989)
22,653
(11,631)
38,618
(125,942)
329,895
—
(4,162)
147,979
2,022
1,247
223
(1,576)
(23,846)
(36,897)
310,763
(963,144)
(160,512)
(2,845)
431,823
(15,401)
4,597
(705,482)
(114)
(251)
(3,373)
—
(6)
(3,021)
(8)
(118,048)
(898)
13
—
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(236,152)
1,293,322
(1,481,753)
(435,138)
(7,334)
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512
(24)
(339)
(235,092)
206,740
(189,526)
(220,756)
(56,900)
116,253
1,899
—
—
(228,706)
2,826,258
(2,078,293)
402,204
7,485
108,768
$
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$
59,353
$ 116,253
The accompanying notes are an integral part of these statements.
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F
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands, except share, unit and per share amounts and
where indicated as in millions or billions)
1. Organization
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 Internal Revenue Code of 1986, as amended (the "Code"). WPG
will generally qualify as a REIT for U.S. federal income tax purposes as long as it continues to distribute not less than 90% of
REIT taxable income and satisfy certain other requirements. WPG 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. 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 December 31, 2017, our assets consisted of material interests in 108 shopping centers in the United
States, consisting of open air properties and enclosed retail properties, comprised of approximately 59 million square feet (unaudited)
of gross leasable area ("GLA").
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, offering property operating services to our tenants and others, including energy, waste
handling and facility services, and reimbursements from tenants for certain recoverable expenditures such as property operating,
real estate taxes, repair and maintenance, and advertising and promotional expenditures.
We seek to enhance the performance of our properties and increase our revenues by, among other things, securing leases of
anchor and inline tenant spaces, re-developing or renovating existing properties to increase the leasable square footage, and
increasing the productivity of occupied locations through aesthetic upgrades, re-merchandising and/or changes to the retail use of
the space.
The Merger
On January 15, 2015, the Company acquired Glimcher Realty Trust ("GRT"), pursuant to a definitive agreement and plan
of merger with GRT and certain affiliated parties of each dated September 16, 2014, (the "Merger Agreement"), in a stock and
cash transaction valued at approximately $4.2 billion, including the assumption of debt (the "Merger"). Prior to the Merger, GRT
was a Maryland REIT engaged in the ownership, management, acquisition and development of retail properties, including mixed-
use, open-air and enclosed regional retail properties as well as outlet centers. As of December 31, 2014, GRT owned material
interests in and managed 25 properties with total GLA of approximately 17.2 million square feet (unaudited), including the two
properties sold to Simon Property Group ("SPG") concurrent with the Merger noted below. Prior to the Merger, GRT's common
shares were listed on the New York Stock Exchange ("NYSE") under the symbol "GRT."
In the Merger, GRT's common shareholders received, for each GRT common share, $14.02 consisting of $10.40 in cash and
0.1989 of a share of WPG Inc.'s common stock valued at $3.62 per GRT common share, based on the closing price of WPG Inc.'s
common stock on the Merger closing date. Approximately 29.9 million shares of WPG Inc.'s common stock were issued to GRT
shareholders in the Merger, and WPG L.P. issued to WPG Inc. a like number of common units as consideration for the common
shares issued. Additionally, included in the consideration were operating partnership units held by limited partners and preferred
stock as noted below. In connection with the closing of the Merger, an indirect subsidiary of WPG L.P. was merged into GRT's
operating partnership. In the Merger, we acquired 23 shopping centers comprised of approximately 15.8 million square feet
(unaudited) of GLA and assumed additional mortgages on 14 properties with a fair value of approximately $1.4 billion. Prior to
the Merger, the Company was comprised of approximately 53 million square feet (unaudited) of GLA. The combined company
was renamed WP Glimcher Inc. in May 2015 upon receiving shareholder approval.
In the Merger, the preferred stock of GRT was converted into preferred stock of WPG Inc., and WPG L.P. issued to WPG
Inc. preferred units as consideration for the preferred shares issued. Additionally, each outstanding unit of GRT's operating
partnership held by limited partners was converted into 0.7431 of a unit of WPG L.P. Further, each outstanding stock option in
respect of GRT common stock was converted into a WPG Inc. option, and certain other GRT equity awards were assumed by WPG
Inc. and converted into equity awards in respect of WPG Inc.'s common shares.
F-16
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Concurrent with the closing of the Merger, GRT completed a transaction with SPG under which affiliates of SPG acquired
Jersey Gardens in Elizabeth, New Jersey, and University Park Village in Fort Worth, Texas, properties previously owned by affiliates
of GRT, for an aggregate purchase price of $1.09 billion, including SPG's assumption of approximately $405.0 million of associated
mortgage indebtedness (the "Property Sale").
The cash portion of the Merger consideration was funded by the Property Sale and draws under the Bridge Loan (see Note 6
- "Indebtedness"). During the year ended December 31, 2015, the Company incurred $31.7 million of costs related to the Merger,
which are included in merger, restructuring and transaction costs in the consolidated statements of operations and comprehensive
income (loss).
Leadership Changes and Corporate Name Change
2015 Activityy
On June 1, 2015, the Company announced a management transition plan through which Mr. Mark S. Ordan, the then Executive
Chairman of the WPG Inc. Board of Directors (the "Board"), transitioned to serve as an active non-executive Chairman of the
Board and provide consulting services to the Company under a Transition and Consulting Agreement, effective as of January 1,
2016 (see "2016 Activity" below for subsequent matters related to Mr. Ordan). Additionally, the Company reduced staff formerly
located in its Bethesda, Maryland-based transition operations group led by Mr. C. Marc Richards, the Company’s then Executive
Vice President and Chief Administrative Officer, who departed the Company on January 15, 2016. Other senior executives from
the Bethesda office who departed the Company at the end of 2015 were Mr. Michael J. Gaffney, then Executive Vice President,
Head of Capital Markets (who served as a consultant to the Company through March 31, 2016), and Ms. Farinaz S. Tehrani, then
Executive Vice President, Legal and Compliance. During the year ended December 31, 2015, the Company incurred $8.6 million
of related severance costs, consisting of $4.6 million in cash severance and approximately $4.0 million in non-cash stock
compensation charges, which are included in the total merger, restructuring and transactions costs disclosed above. Finally, in
addition to our headquarters in Columbus, Ohio, the Company opened a new leasing, management and operations office
in Indianapolis, Indiana, in December 2015.
2016 Activityy
On June 20, 2016, the Company announced the following leadership changes: (1) the resignation of Mr. Michael P. Glimcher
as the Company’s Chief Executive Officer and Vice Chairman of the Board; (2) the appointment of Mr. Louis G. Conforti, a current
Board member, as Interim Chief Executive Officer; (3) the resignation of Mr. Mark S. Ordan as non-executive Chairman of the
Board; and (4) the resignation of Mr. Niles C. Overly from the Board. In July of 2016, the Company terminated some additional
executive and non-executive personnel as part of an effort to reduce overhead costs. On October 6, 2016, the Company announced
that Mr. Conforti would serve as the Company's Chief Executive Officer for a term ending December 31, 2019, subject to early
termination clauses and automatic renewals pursuant to his employment agreement.
In connection with and as part of the aforementioned management changes, the Company recorded a charge of $29.6 million
during the year ended December 31, 2016, of which $25.5 million related to severance and restructuring-related costs, including
$9.5 million of non-cash stock compensation for accelerated vesting of equity incentive awards, and $4.1 million related to fees
and expenses incurred in connection with the Company's investigation of various strategic alternatives, which costs are included
in merger, restructuring and transaction costs in the accompanying consolidated statements of operations and comprehensive
income (loss). During WPG Inc.'s annual meeting of shareholders on August 30, 2016, the common shareholders approved a
proposal to change WPG Inc.'s name back to Washington Prime Group Inc.
2017 Activityy
On September 28, 2017, Mr. Keric M. "Butch" Knerr, Executive Vice President and Chief Operating Officer, informed the
Company of his resignation. Mr. Knerr's final day of employment was October 13, 2017. There were no severance payments or
accelerated vesting of stock compensation benefits in connection with his resignation.
2. Basis of Presentation and Principles of Consolidation and Combination
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 December 31, 2017 and 2016 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.
F-17
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
General
These consolidated financial statements reflect the consolidation of properties that are wholly owned or properties in which
we own less than a 100% interest but that we control. Control of a property is demonstrated by, among other factors, our ability
to refinance debt and sell the property without the consent of any other unaffiliated partner or owner, and the inability of any other
unaffiliated partner or owner to replace us.
nn
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. As of December 31, 2017, we have two
VIEs which consist of our interest in WPG L.P. and undeveloped land, respectively.
There have been no changes during the year ended December 31, 2017 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 year ended
December 31, 2017, we did not provide financial or other support to a previously identified VIE that we were not previously
contractually obligated to provide.
Investments in partnerships and joint ventures represent our noncontrolling ownership interests in properties. We account
for these investments using the equity method of accounting. We initially record these investments at cost and we subsequently
adjust for net equity in income or loss, which we allocate in accordance with the provisions of the applicable partnership or joint
venture agreement and cash contributions and distributions, if applicable. The allocation provisions in the partnership or joint
venture agreements are not always consistent with the legal ownership interests held by each general or limited partner or joint
venture investee primarily due to partner preferences. We separately report investments in joint ventures for which accumulated
distributions have exceeded investments in and our share of net income from the joint ventures within cash distributions and losses
in unconsolidated entities, at equity in the consolidated balance sheets. The net equity of certain joint ventures is less than zero
because of financing or operating distributions that are usually greater than net income, as net income includes non-cash charges
for depreciation and amortization, and WPG has committed to or intends to fund the venture.
a
As of December 31, 2017, our assets consisted of material interests in 108 shopping centers. The consolidated financial
statements as of that date reflect the consolidation of 91 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
13 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.
We allocate net operating results of WPG L.P. to third parties and to WPG Inc. based on the partners' respective weighted
average ownership interests in WPG L.P. Net operating results of WPG L.P. attributable to third parties are reflected in net income
attributable to noncontrolling interests. WPG Inc.'s weighted average ownership interest in WPG L.P. was 84.3%, 84.1% and
84.1% for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, WPG Inc.'s
ownership interest in WPG L.P. was 84.3% and 84.1%, respectively. We adjust the noncontrolling limited partners' interests at thet
end of each period to reflect their interest in WPG L.P.
3.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash
equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents generally consist of commercial
paper, bankers' acceptances, repurchase agreements, and money market deposits or securities. Financial instruments that potentially
subject us to concentrations of credit risk include our cash and cash equivalents and our tenant receivables. We place our cash and
cash equivalents with institutions with high credit quality. However, at certain times, such cash and cash equivalents may be in
excess of FDIC and SIPC insurance limits.
h
F-18
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Investment Properties
We record investment properties at fair value when acquired. Investment properties include costs of acquisitions;
development, predevelopment, and construction (including allocable salaries and related benefits); tenant allowances and
improvements; and interest and real estate taxes incurred during construction. We capitalize improvements and replacements from
repair and maintenance when the repair and maintenance extends the useful life, increases capacity, or improves the efficiency of
the asset. All other repair and maintenance items are expensed as incurred. We capitalize interest on projects during periods of
construction until the projects are ready for their intended purpose based on interest rates in place during the construction period.
Capitalized interest for the years ended December 31, 2017, 2016 and 2015 was $1,521, $2,640 and $1,781, respectively.
We record depreciation on buildings and improvements utilizing the straight-line method over an estimated original useful
life, which is generally five to 40 years. We review depreciable lives of investment properties periodically and we make adjustments
when necessary to reflect a shorter economic life. We amortize tenant allowances and tenant improvements utilizing the straight-
line method over the term of the related lease or occupancy term of the tenant, if shorter. We record depreciation on equipment
and fixtures utilizing the straight-line method over three to ten years.
tt
We review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances
indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not limited
to, declines in a property's cash flows, ending occupancy, estimated market values or our decision to dispose of a property before
the end of its estimated useful life. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of
changes in circumstances. We measure any impairment of investment property when the estimated undiscounted operating income
before depreciation and amortization plus its residual value is less than the carrying value of the property. To the extent impairment
has occurred, we charge to expense the excess of carrying value of the property over its estimated fair value. We estimate fair value
using unobservable data such as operating income, estimated capitalization rates, leasing prospects and local market information.
We may decide to dispose properties that are held for use and the consideration received from these property dispositions may
differ from their carrying values. We also review our investments, including investments in unconsolidated entities, if events or
circumstances change indicating that the carrying amount of our investments may not be recoverable. We will record an impairment
charge if we determine that a decline in the fair value of the investments in unconsolidated entities is other-than-temporary. Changes
in economic and operating conditions that occur subsequent to our review of recoverability of investment property and other
investments in unconsolidated entities could impact the assumptions used in that assessment and could result in future charges to
earnings if assumptions regarding those investments differ from actual results. See the "Impairment" section within Note 4 -
"Investment in Real Estate" for a discussion of recent impairments.
ff
r
Investments in Unconsolidated Entities
Joint ventures are common in the real estate industry. We use joint ventures to finance properties, develop new properties,
and diversify our risk in a particular property or portfolio of properties. We held material unconsolidated joint venture ownership
interests in 13 properties and six properties as of December 31, 2017 and 2016, respectively (see Note 5 - "Investment in
Unconsolidated Entities, at Equity").
Certain of our joint venture properties are subject to various rights of first refusal, buy-sell provisions, put and call rights,
or other sale or marketing rights for partners which are customary in real estate joint venture agreements and the industry. We and
our partners in these joint ventures may initiate these provisions (subject to any applicable lock up or similar restrictions), which
may result in either the sale of our interest or the use of available cash or borrowings to acquire the joint venture interest from our
partner.
Fair Value Measurements
The Company measures and discloses its fair value measurements in accordance with Accounting Standards Codification
("ASC") Topic 820 - “Fair Value Measurement” (“Topic 820”). Topic 820 guidance emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified
within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).
F-19
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The fair value hierarchy, as defined by Topic 820, contains three levels of inputs that may be used to measure fair value as
follows:
• Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company
has the ability to access.
• Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly such as interest rates, foreign exchange rates, and yield curves, that are observable at
commonly quoted intervals.
• Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity's own
assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level
input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular
rr
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Note 6 - "Indebtedness" includes a discussion of the fair value of debt measured using Level 1 and Level 2 inputs. Note 4 -
"Investment in Real Estate" includes a discussion of the fair value inputs used in our impairment analyses, using Level 3 inputs,
primarily. Level 3 inputs include our estimations of net operating results of the property, capitalization rates and discount rates.
The Company has derivatives that must be measured under the fair value standard (see Note 7 - "Derivative Financial
Instruments"). The Company currently does not have any non-financial assets and non-financial liabilities that are required to be
measured at fair value on a recurring basis.
Purchase Accounting Valuation
We record the total consideration of acquisitions, including transaction costs as permitted under Accounting Standards Update
("ASU ") 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," (see below for further discussion)
and any excess investment in unconsolidated entities to the various components of the acquisition based upon the fair value of
each component which may be derived from various Level 2 and Level 3 inputs. Level 3 inputs include our estimations of net
operating results of the property, capitalization rates and discount rates. Also, we may utilize third party valuation specialists.
These components typically include buildings, land and intangibles related to in-place leases and we estimate:
•
•
•
•
the fair value of land and related improvements and buildings on an as-if-vacant basis;
the market value of in-place leases based upon our best estimate of current market rents and amortize the resulting market
rent adjustment into revenues;
the value of costs to obtain tenants, including tenant allowances and improvements and leasing commissions; and
the value of revenue and recovery of costs foregone during a reasonable lease-up period, as if the space was vacant.
The fair value of buildings is depreciated over the estimated remaining life of the acquired buildings or related improvements.
We amortize tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying
leases. We also estimate the value of other acquired intangible assets, if any, which are amortized over the remaining life of the
underlying related intangibles.
Use of Estimates
We prepared the accompanying consolidated financial statements in accordance with GAAP. This requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements, and revenues and expenses during the reported period. Our actual results could differ from
these estimates.
Segment Disclosure
Our primary business is the ownership, development and management of retail real estate. We have aggregated our operations,
including enclosed retail properties and 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.
F-20
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with
Customers (Topic 606)." ASU 2014-09 revises GAAP by offering a single comprehensive revenue recognition standard instead
of numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for
economically similar transactions. This new standard is effective for the Company as of January 1, 2018 and impacts revenue
streams consisting of fees earned from management, development and leasing services provided to joint ventures in which we
own an interest and other ancillary income earned from our properties. In 2017, these revenues were approximately 2.5% of
consolidated revenue. Fee income earned from our joint ventures for management and development services and other ancillary
property income will generally be recognized in a manner consistent with our current measurement and patterns of recognition
whereas we will fully recognize leasing service fee revenue upon lease execution. We will adopt the standard effective January
1, 2018, using the modified retrospective approach, which will require an immaterial cumulative effect adjustment as of the date
of adoption to the opening balance of retained earnings. We expect an immaterial impact to our net income on an ongoing basis
due to the aforementioned changes in patterns of recognition.
In February 2017, the FASB issued guidance that clarified the scope of ASC 610-20, "Other Income - Gains and Losses from
the Derecognition of Nonfinancial Assets," which was finalized in conjunction with ASU 2014-09. ASC 610-20 applies to the
sale, transfer and derecognition of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales,
and eliminates the guidance specific to real estate in ASC 360-20. The guidance is effective as of January 1, 2018. With respect
to full disposals, the recognition pattern did not change from our current measurement and pattern of recognition. With respect tot
partial sales of real estate to joint ventures such as the O'Connor Joint Venture II, as defined below (see Note 5 - "Investment in
Unconsolidated Entities, at Equity"), the new guidance requires us to recognize a full gain where an equity investment was retained,
resulting in a basis difference as we are required to measure our retained equity interest at fair value, whereas the joint venture
may measure the assets received at carryover basis. We will adopt the standard effective January 1, 2018, using the modified
retrospective approach.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
changes to lessor accounting. It is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years, with early adoption permitted. The new leases standard requires a modified retrospective transition approach
for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In January
2018, the FASB issued a proposed amendment that would provide an entity the optional transition method to initially account for
the impact of the adoption ASU 2016-02 with a cumulative adjustment to retained earnings on January 1, 2019 (the effective date
of the ASU), rather than January 1, 2017, which would eliminate the need to restate amounts presented prior to January 1, 2019.
From a lessee perspective, the Company currently has four material ground leases and two material office leases that, under the
new guidance, will result in the recognition of a lease liability and corresponding right-of-use asset.
t
From a lessor perspective, the new guidance remains mostly similar to current rules, though contract consideration will now
be allocated between lease and non-lease components. Non-lease component allocations will be recognized under ASU 2014-09,
and we expect that this will result in a different pattern of recognition for certain non-lease components, including for fixed common-
area ("CAM") revenues. However, the FASB's proposed amendment to ASU 2016-02 referred to above would also allow lessors
to elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their relative
standalone selling prices. If adopted, this practical expedient will allow lessors to elect a combined single lease component
presentation if (i) the timing and pattern of the revenue recognition of the combined single lease component is the same, and (ii)
the combined single component would be classified as an operating lease. In addition, ASU 2016-02 limits the capitalization of
leasing costs to initial direct costs, which will likely result in a reduction to our capitalized leasing costs and an increase to general
and administrative expenses, though the amount of such changes is highly dependent upon the leasing compensation structures in
place at the time of adoption. For the year ended December 31, 2017, the Company deferred $16.9 million of internal leasing costs.
We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.
d
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)." ASU 2016-15 is intended to reduce
diversity in practice in how certain transactions are classified in the statement of cash flows. It is effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years with early adoption permitted. Additionally, in
November 2016, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue 16-A "Restricted Cash," requiring that
a statement of cash flows explain the change during the period in total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash would be included with
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of
cash flows. This guidance is also effective for fiscal years beginning after December 15, 2017, including interim periods.
d
a
F-21
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
These new standards require a retrospective transition approach. The Company has $18.2 million and $29.2 million of restricted
cash on its consolidated balance sheets as of December 31, 2017 and 2016, respectively, whose cash flow statement classification
will change to align with the new guidance upon adoption of the EITF. We adopted the standards effective January 1, 2018.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a
Business," that provides guidance to assist entities with evaluating when a set of transferred assets and activities (set) is a business.
The new guidance requires an acquirer to determine if substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of assets; if so, the set of transferred assets and activities is not a business. The new guidance
is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early
adoption permitted and will be applied on a prospective basis for transactions that occur within the period of adoption. We adopted
this standard early and applied it prospectively as of January 1, 2017, as permitted under the standard, and anticipate subsequent
property acquisitions to be accounted for under asset acquisition accounting rather than business combination accounting, resulting
in capitalization of transactions costs rather than expensing of said costs.
a
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities," to better align the results of hedge accounting with an entity's risk management activities. The new guidance
aims to reduce complexity in fair value hedges of interest rate risk and eliminates the requirement to separately measure and report
hedge ineffectiveness, generally requiring the entire change in the fair value of the hedging instrument to be presented in the same
income statement line as the hedged item. The new guidance is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, and requires a cumulative-effect adjustment to the balance sheet as of the
beginning of the fiscal year of adoption, with early adoption permitted in any interim period or fiscal year before the effective
date. The updated presentation and disclosure guidance is required only on a prospective basis. The Company is currently evaluating
the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
Deferred Costs and Other Assets
Deferred costs and other assets include the following as of December 31, 2017 and 2016:
Deferred lease costs and corporate improvements, net
In-place lease intangibles, net
Acquired above market lease intangibles, net
Mortgage and other escrow deposits
Prepaids, notes receivable and other assets, net
2017
2016
79,079
46,627
24,254
18,182
20,953
189,095
$
$
90,922
70,907
34,337
29,160
41,230
266,556
$
$
On January 4, 2017, the Company received the remaining $15.6 million outstanding on the promissory note receivable related
to the January 29, 2016 sale of Forest Mall, located in Fond Du Lac, Wisconsin, and Northlake Mall, located in Atlanta Georgia
(see Note 4 - "Investment in Real Estate" for details).
During the year ended December 31, 2017, the Company extended the maturity of the $5.3 million outstanding on the
promissory note receivable related to the August 19, 2016 sale of Knoxville Center, located in Knoxville, Tennessee (see Note 4
- "Investment in Real Estate" for details), to April 1, 2018. As of December 31, 2017, the Buyer was current on their principal
and interest payments.
F-22
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Deferred Lease Costs and Corporate Improvements
Our deferred lease costs consist of salaries and related benefits, including fees charged by SPG in conjunction with the 2014
spin-off (see Note 11- "Related Party Transactions" for further details), for salaries and related benefits incurred in connection
with lease originations, and fees paid to third party brokers. We record amortization of deferred leasing costs on a straight-line
basis over the terms of the related leases. Details of deferred lease costs and corporate improvements as of December 31, 2017
and 2016 are as follows:
Deferred lease costs
Corporate improvements
Accumulated amortization
Deferred lease costs and corporate improvements, net
2017
143,667
5,324
(69,912)
79,079
$
$
2016
149,208
4,085
(62,371)
90,922
$
$
Amortization of deferred leasing costs is a component of depreciation and amortization expense. The accompanying
consolidated statements of operations include amortization expense of $24.8 million, $25.0 million, and $27.2 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
Revenue Recognition
We, as a lessor, retain substantially all of the risks and benefits of ownership of the investment properties and account for
our leases as operating leases. We generally accrue minimum rents on a straight-line basis over the terms of their respective leases.
A large number of our retail tenants are also required to pay overage rents based on sales over a stated base amount during the
lease year. We recognize overage rents only when each tenant's sales exceed the applicable sales threshold as defined in their lease.
We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease
or occupancy term of the tenant, if shorter.
A substantial portion of our leases require the tenant to reimburse us for a substantial portion of our operating expenses,
including CAM, real estate taxes and insurance. This significantly reduces our exposure to increases in costs and operating expenses
resulting from inflation. Such property operating expenses typically include utility, insurance, security, janitorial, landscaping,
food court and other administrative expenses. As of December 31, 2017 the vast majority of our shopping center leases receive a
fixed payment from the tenant for the CAM component which is recorded as revenue when earned. When not reimbursed by the
fixed CAM component, CAM expense reimbursements 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 also receive escrow payments for these reimbursements from substantially all our non-fixed CAM tenants and monthly
fixed CAM payments throughout the year. We recognize differences between estimated recoveries and the final billed amounts in
the subsequent year. These differences were not material in any period presented. Our advertising and promotional costs are
expensed as incurred.
Allowance for Credit Losses
We record a provision for credit losses based on our judgment of a tenant's creditworthiness, ability to pay and probability
of collection. In addition, we also consider the retail sector in which the tenant operates and our historical collection experience
in cases of bankruptcy, if applicable. Accounts are written off when they are deemed to be no longer collectible. The activity in
the allowance for credit losses during the years ended December 31, 2017, 2016 and 2015 is as follows:
y
Balance, beginning of year
Provision for credit losses
Accounts deconsolidated upon joint venture formation (see Note 5)
Accounts written off, net of recoveries, and other
Balance, end of year
$
$
8,578
5,068
(1,271)
(4,508)
7,867
$
$
4,222
4,508
—
(152)
8,578
$
$
4,570
2,022
(1,997)
(373)
4,222
For the Year Ended December 31,
2017
2016
2015
F-23
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Income and Other Taxes
WPG Inc. has elected to be taxed as a REIT under Sections 856 through 860 of the Code and applicable Treasury regulations
relating to REIT qualification. In order to maintain REIT status, the regulations require the entity to distribute at least 90% of
taxable income to its owners and meet certain other asset and income tests as well as other requirements. WPG Inc. intends to
continue to adhere to these requirements and maintain its REIT status and that of its REIT subsidiaries. As a REIT, WPG Inc. will
generally not be liable for federal corporate income taxes as long as it continues to distribute in excess of 100% of its taxable
income. Thus, we made no provision for federal income taxes on WPG Inc. in the accompanying consolidated financial statements.
If WPG Inc. fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it failed to qualify.
If WPG Inc. loses its REIT status it could not elect to be taxed as a REIT for four years unless its failure to qualify was due to
reasonable cause and certain other conditions were satisfied.
We have also elected taxable REIT subsidiary ("TRS") status for some of WPG Inc.'s subsidiaries. This enables us to provide
services that would otherwise be considered impermissible for REITs and participate in activities that do not qualify as "rents from
real property." For the years ended December 31, 2017, 2016 and 2015, we recorded federal income tax (benefits) provisions of
$(87), $227, and $447, respectively, related to the taxable income generated by the TRS entities, which is included in income and
other taxes in the accompanying consolidated statements of operations and comprehensive income (loss). For these entities, deferred
tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets
and liabilities at the enacted tax rates to be in effect when the temporary differences reverse. There was no deferred tax assets or
liabilities for the year ended December 31, 2017 as a result of federal and state net operating loss carryovers. As of December 31,
2016, the TRS had a deferred tax asset before valuation allowances $673 as a result of federal and state net operating loss carryovers.
a
rr
f
A valuation allowance for deferred tax assets is provided if we believe all or some portion of the deferred tax asset may not
be realized. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change
in our judgment about the realizability of the related deferred tax asset is included in income. There was no valuation allowance
as of December 31, 2017 as the TRS did not have any net operating loss carryovers. As of December 31, 2016, the TRS valuation
allowance for federal and state net operating loss carryovers was $367. As of December 31, 2017 and 2016, the TRS had a net
deferred tax assets of $0 and $306, respectively, related to net operating loss carryovers.
aa
We are also subject to certain other taxes, including state and local taxes and franchise taxes, which are included in income
and other taxes in the accompanying consolidated statements of operations and comprehensive income (loss).
For federal income tax purposes, the cash distributions paid to WPG Inc.'s common and preferred shareholders may be
characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization
of distributions which could result in differences between cash basis and tax basis distribution amounts.
F-24
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The following characterizes distributions paid per common and preferred share on a tax basis for the years ended December
31, 2017, 2016 and 2015:
Common shares
Ordinary income
Capital gain
Non-dividend distributions
Series G Preferred Shares (1)
Ordinary income
Non-dividend distributions (2)
Series H Preferred Shares (1)
Ordinary income
Capital gain
Series I Preferred Shares (1)
Ordinary income
Capital gain
2017
2016
2015
$
%
$
%
$
%
$ 0.4306
43.06% $ 0.6128
61.28% $ 1.0000
100.00%
0.5694
—
$ 1.0000
56.94%
—%
—
0.3872
100.00% $ 1.0000
—%
38.72%
—
—
100.00% $ 1.0000
—%
—%
100.00%
$
$
—
—
—
N/A
N/A
N/A
$
$
—
—
—
N/A
N/A
N/A
$ 0.5868
$25.0000
2.29%
97.71%
$25.5868
100.00%
$ 1.0093
1.3347
$ 2.3440
43.06% $ 1.4064
—
56.94%
100.00% $ 1.4064
100.00% $ 1.8752
—
100.00% $ 1.8752
—%
100.00%
—%
100.00%
$ 0.9251
1.2234
$ 2.1485
43.06% $ 1.2891
—
56.94%
100.00% $ 1.2891
100.00% $ 1.7188
—
100.00% $ 1.7188
—%
100.00%
—%
100.00%
(1) Shares issued in conjunction with the Merger on January 15, 2015.
(2) Shares redeemed in full on April 15, 2015.
Noncontrolling Interests for WPG Inc.
Details of the carrying amount of WPG Inc.'s noncontrolling interests are as follows as of December 31, 2017 and 2016:
Limited partners' interests in WPG L.P.
Noncontrolling interests in properties
Total noncontrolling interests
2017
166,660
1,058
167,718
$
$
2016
168,264
1,104
169,368
$
$
Net income attributable to noncontrolling interests (which includes limited partners' interests in WPG L.P. and noncontrolling
interests in consolidated properties) is a component of consolidated net income of WPG Inc.
Redeemable Noncontrolling Interests for WPG Inc.
At December 31, 2016, redeemable noncontrolling interests represented the underlying equity held by unaffiliated third
parties in the consolidated joint venture entity that owned Arbor Hills, located in Ann Arbor, Michigan (the "Arbor Hills Venture")
and the consolidated joint venture the (the "Oklahoma City Properties Venture") that owned 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," collectively), as well as the outstanding WPG L.P. 7.3% Series I-1 Preferred Units (the "Series I-1
Preferred Units"). The unaffiliated third parties have, at their option, the right to have their equity purchased by the Company
subject to the satisfaction of certain conditions.
u
F-25
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
During the year ended December 31, 2017, but prior to the completion of the O'Connor Joint Venture II transaction (see
Note 5 - "Investment in Unconsolidated Entities, at Equity" for further details), the Company purchased all of the redeemable
noncontrolling interest equity owned by the unaffiliated third parties in both the Arbor Hills Venture and the Oklahoma City
Properties Venture. As of December 31, 2017, the only remaining redeemable noncontrolling interests relate to the outstanding
Series I-1 Preferred Units.
4.
Investment in Real Estate
Summary
Investment properties consisted of the following as of December 31, 2017 and 2016:
Land
Buildings and improvements
Total land, buildings and improvements
Furniture, fixtures and equipment
Investment properties at cost
Less: accumulated depreciation
Investment properties at cost, net
$
2017
807,202
4,908,794
5,715,996
91,764
5,807,760
2,139,620
$ 3,668,140
$
2016
905,960
5,299,427
6,205,387
89,241
6,294,628
2,122,572
$ 4,172,056
Construction in progress included above
$
46,046
$
49,214
Real Estate Acquisitions and Dispositions
We acquire interests in properties to generate both current income and long-term appreciation in value. We acquire interests
in individual properties or portfolios of retail real estate companies that meet our investment criteria and sell properties which no
longer meet our strategic criteria. Unless otherwise noted below, gains and losses on these transactions are included in gain (loss)
on sale of interests in properties, net in the accompanying consolidated statements of operations and comprehensive income (loss).
No acquisition activity occurred during the years ended December 31, 2017 and 2016. Acquisition activity for the year ended
December 31, 2015 (including the Merger) and disposition activity for the years ended December 31, 2017, 2016 and 2015 is
highlighted as follows:
2015 Acquisitions
On January 13, 2015, we acquired Canyon View Marketplace, a shopping center located in Grand Junction, Colorado, for
$10.0 million including the assumption of an existing mortgage with a principal balance of $5.5 million. The purchase price was
substantially comprised of the fair value of the acquired investment property. The source of funding for the acquisition was cash
on hand.
F-26
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
On January 15, 2015, we acquired 23 properties in the Merger (see Note 1 - "Organization"). We reflected the assets and
liabilities of the properties acquired in the Merger at the estimated fair value on the January 15, 2015 acquisition date. The following
table summarizes the fair value allocation for the acquisition, which was finalized during the three months ended March 31, 2016
and did not result in any material change from the estimated fair values disclosed in the 2015 Form 10-K:
Investment properties
Cash and cash equivalents (1)
Tenant accounts receivable
Investment in and advances to unconsolidated real estate entities
Deferred costs and other assets (including intangibles)
Accounts payable, accrued expenses, intangibles, and deferred revenue
Distributions payable
Redeemable noncontrolling interests, including preferred units
Total assets acquired and liabilities assumed
Fair value of mortgage notes payable assumed
Net assets acquired
Less: Common shares issued
Less: Preferred shares issued
Less: Common operating partnership units issued to limited partners
Less: Cash and cash equivalents acquired
Net cash paid for acquisition
$ 3,091,410
547,294
14,311
21,994
370,079
(289,551)
(2,658)
(5,795)
3,747,084
(1,356,389)
2,390,695
(535,490)
(319,960)
(29,482)
(547,294)
958,469
$
(1)
Includes the proceeds from the Property Sale, net of the repayment of the $155.0 million balance on the GRT credit
facility.
2017 Dispositions
On November 3, 2017, we completed the sale of Colonial Park Mall, located in Harrisburg, Pennsylvania, to an unaffiliated
private real estate investor for a purchase price of $15.0 million. The net proceeds were used for general corporate purposes.
On June 13, 2017, we sold 49% of our interest in Malibu Lumber Yard, located in Malibu, California, as part of the O'Connor
Joint Venture II transaction (as defined below and as discussed in in Note 5 - "Investment in Unconsolidated Entities, at Equity").
tt
On June 7, 2017, we completed the sale of Morgantown Commons, located in Morgantown, West Virginia, to an unaffiliated
private real estate investor for a purchase price of approximately $6.7 million. The net proceeds were used for general corporate
purposes.
On May 16, 2017, we completed the sale of an 80,000 square foot (unaudited) vacant anchor parcel at Indian Mound Mall,
located in Heath, Ohio, to an unaffiliated private real estate investor for a purchase price of approximately $0.8 million. The net
proceeds were used for general corporate purposes.
On May 12, 2017, we completed the transaction with regard to the ownership and operation of six of the Company's retail
properties and certain related outparcels (the "O'Connor Joint Venture II" as discussed in Note 5 - "Investment in Unconsolidated
Entities, at Equity").
On February 21, 2017, we completed the sale of Gulf View Square, located in Port Richey, Florida, and River Oaks Center,
located in Chicago, Illinois, to unaffiliated private real estate investors for an aggregate purchase price of $42.0 million, which
was classified as real estate held for sale on the accompanying consolidated balance sheet as of December 31, 2016. The net
proceeds from the transaction were used to reduce corporate debt.
On January 10, 2017, we completed the sale of Virginia Center Commons, located in Glen Allen, Virginia, to an unaffiliated
private real estate investor for a purchase price of $9.0 million, which was classified as real estate held for sale on the accompanying
consolidated balance sheet as of December 31, 2016. The net proceeds from the transaction were used to reduce corporate debt.
In connection with the 2017 dispositions noted above, the Company recorded a net gain of $124.8 million which is included
in gain (loss) on disposition of interests in properties, net in the accompanying consolidated statements of operations and
comprehensive income (loss) for the year ended December 31, 2017.
F-27
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
On October 3, 2017, Valle Vista Mall, located in Harlingen, Texas, was transitioned to the lender (see Note 6 - "Indebtedness"
for further discussion).
2016 Dispositions
On November 10, 2016, we completed the sale of Richmond Town Square, located in Cleveland, Ohio, to a private real
estate investor for a purchase price of $7.3 million. The net proceeds from the transaction were used to reduce the balance of
corporate debt.
On August 19, 2016, the Company completed the sale of Knoxville Center to a private real estate investor (the "Buyer") for
a purchase price of $10.1 million. The sales price consisted of $3.9 million paid to the Company at closing and the issuance of af
promissory note for $6.2 million from the Buyer to the Company with an interest rate of 5.5% per annum (see Note 3 - "Summary
of Significant Accounting Policies" for further discussion). The net proceeds from the transaction were used to reduce the balance
outstanding under the Facility (see Note 6 - "Indebtedness"). As of December 31, 2017, the Buyer was current on their principal
and interest payments.
aa
On January 29, 2016, we completed the sale of Forest Mall and Northlake Mall to private real estate investors (the "Buyers")
for an aggregate purchase price of $30 million. The sales price consisted of $10 million paid to us at closing and the issuance of
a promissory note for $20 million from us to the Buyers with an interest rate of 6% per annum. On June 29, 2016, the Buyers
repaid $4.4 million of the promissory note balance and exercised a six-month extension option (see Note 3 - "Summary of Significant
Accounting Policies" for further discussion). The remaining proceeds were paid in full on January 4, 2017. The net proceeds
from the transaction were used to reduce the balance outstanding under the Facility (see Note 6 - "Indebtedness").
In connection with the 2016 dispositions noted above, the Company recorded a net loss of $2.0 million, which is included
in gain (loss) on disposition of interests in properties, net in the accompanying consolidated statements of operations and
comprehensive income (loss) for the year ended December 31, 2016.
On December 29, 2016, June 9, 2016 and April 28, 2016, River Valley Mall, located in Lancaster, Ohio, Merritt Square Mall,
located in Merritt Island, Florida, and Chesapeake Square, located in Chesapeake, Virginia, were transitioned to the lenders,
respectively (see Note 6 - "Indebtedness" for further discussion).
2015 Dispositions
On June 1, 2015, we completed the transaction with regard to the ownership and operation of five of our enclosed retail
properties and certain related out-parcels (the "O'Connor Joint Venture I" as discussed in Note 5 - "Investment in Unconsolidated
Entities, at Equity"). The Company recorded a gain of $4.2 million, which is included in gain (loss) on disposition of interests in
properties, net in the accompanying consolidated statements of operations and comprehensive income (loss) for the year ended
December 31, 2015.
Intangible Assets and Liabilities Associated with Acquisitions
Intangible assets and liabilities, which were recorded at the respective acquisition dates, are associated with the Company's
acquisitions of properties at fair value. The gross intangibles recorded as of their respective acquisition date are comprised of an
asset for acquired above-market leases in which the Company is the lessor, a liability for acquired below-market leases in which
the Company is the lessor, and an asset for in-place leases.
d
The following table denotes the gross carrying values of the respective intangibles as of December 31, 2017 and 2016:
Intangible Asset/Liability
Above-market leases - Company is lessor
Below-market leases - Company is lessor
Above-market lease - Company is lessee
In-place leases
Balance as of
December 31, 2017
51,315
$
$
124,475
$
December 31, 2016
56,192
$
145,064
$
2,536
— $
$
120,159
$
134,516
The intangibles related to above and below-market leases in which the Company is the lessor are amortized to minimum
rents on a straight-line basis over the estimated life of the lease, with amortization as a net increase to minimum rents in the amounts
of $7,323, $9,930, and $17,863 for the years ended December 31, 2017, 2016 and 2015, respectively.
F-28
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The above-market lease in which the Company is the lessee is amortized to ground rent expense over the life of the non-
cancelable lease term, with amortization as a decrease in the amount of $35, $78, and $75 for the years ended December 31, 2017,
2016 and 2015, respectively. In-place leases are amortized to depreciation and amortization expense over the life of the leases to
which they pertain, with such amortization of $18,457, $24,269, and $43,941 for the years ended December 31, 2017, 2016 and
2015, respectively.
The table below identifies the types of intangible assets and liabilities, their location on the consolidated balance sheets, their
weighted average amortization period, and their book value, which is net of accumulated amortization, as of December 31, 2017
and 2016:
t
Intangible
Asset/Liability
Above-market leases - Company is lessor
Below-market leases - Company is lessor
Above-market lease - Company is lessee
In-place leases
Location on the
Consolidated Balance Sheets
Deferred costs and other assets
Accounts payable, accrued expenses,
intangibles and deferred revenues
Accounts payable, accrued expenses,
intangibles and deferred revenues
Deferred costs and other assets
Balance as of
Weighted
Average
Remaining
Amortization
(in years)
7.4
December 31,
2017
24,254
$
December 31,
2016
34,337
$
13.7
—
10.6
$
$
$
77,870
$
104,540
— $
$
46,627
2,383
70,907
The future net amortization of intangibles as an increase (decrease) to net income as of December 31, 2017 is as follows:
2018
2019
2020
2021
2022
Thereafter
Impairment
Above/Below-Market Leases-Lessor
3,902
$
4,237
4,454
4,559
4,054
32,410
53,616
$
$
$
In-place Leases
Total Net Intangible Amortization
(10,324) $
(8,662)
(6,611)
(3,183)
(2,487)
(15,360)
(46,627) $
(6,422)
(4,425)
(2,157)
1,376
1,567
17,050
6,989
During the fourth quarter of 2017, a major anchor tenant of Rushmore Mall, located in Rapid City, South Dakota, informed
us of their intention to close their store at the property. The impending closure was deemed a triggering event and, therefore, we
evaluated this property in conjunction with our quarterly impairment review and preparation of our financial statements for the
year ended December 31, 2017. We compared the estimated fair value of $37.5 million to the related carrying value of $75.0
million, which resulted in the recording of an impairment charge of approximately $37.5 million in the consolidated statements
of operations and comprehensive income (loss) for the year ended December 31, 2017.
On November 3, 2017, the Company completed the sale of Colonial Park Mall for $15.0 million. We compared the fair
value measurement of the property to its relative carrying value, which resulted in the recording of an impairment charge of
approximately $20.9 million in the accompanying consolidated statements of operations and comprehensive income (loss) for
the year ended December 31, 2017. The impairment charge was due to the change in facts and circumstances when we decided
to hold the asset for a shorter period which resulted in the carrying value not being recoverable from the projected cash flows.
During the first quarter of 2017, the Company entered into a purchase and sale agreement to dispose of Morgantown Commons,
which was sold in the second quarter of 2017. Earlier in 2017, we shortened the hold period used in assessing impairment for the
asset, which resulted in the carrying value not being recoverable from the expected cash flows. The purchase offer represented the
best available evidence of fair value for this property. We compared the fair value to the carrying value, which resulted in the
recording of an impairment charge of approximately $8.5 million in the accompanying consolidated statements of operations and
comprehensive income (loss) for the year ended December 31, 2017.
F-29
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
During the year ended December 31, 2016, we recorded an impairment charge of $21.9 million, primarily related to noncore
properties consisting of Gulf View Square, Richmond Town Square, River Oaks Center, and Virginia Center Commons. The
impairment charge was attributed to the continued declines in the fair value of the properties and executed agreements entered
into in 2016 to sell these properties at prices below the carrying value.
During the year ended December 31, 2015, we took an impairment charge of approximately $138.0 million primarily related
to the noncore properties noted above, in addition to Forest Mall and Northlake Mall, which were both sold on January 29, 2016,
and Knoxville Center, which was sold on August 19, 2016. The impairment charge resulted from the change 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.
During the third quarter of 2015, a major anchor tenant of Chesapeake Square informed us of their intention to close their
store at the property. The impending closure was deemed a triggering event and, therefore, we evaluated this property in conjunction
with our quarterly impairment review and preparation of our financial statements for the quarter ended September 30, 2015. We
compared the fair value to the related carrying value, which resulted in the recording of an impairment charge of approximately
$9.9 million in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2015.
Furthermore, we transferred ownership of this property to the mortgage lender on April 28, 2016 (see Note 6 - "Indebtedness").
uu
Condensed Pro Forma Financial Information (Unaudited)
The results of operations of acquired properties are included in the consolidated statements of operations beginning on their
respective acquisition dates. The following unaudited condensed pro forma financial information is presented as if the Merger
and the Property Sale described in Note 1 - "Organization," which were completed on January 15, 2015, had been consummated
on January 1, 2015. The unaudited condensed pro forma financial information assumes the O'Connor Joint Venture transaction
completed on June 1, 2015 (see Note 5 - "Investment in Unconsolidated Entities, at Equity") also occurred on January 1, 2015.
Additionally, adjustments have been made to reflect the following transactions as if they occurred on January 1, 2015: the issuance
of the Notes Payable on March 24, 2015 (see Note 6 - "Indebtedness"), the redemption of all 4,700,000 outstanding 8.125% Series
G Cumulative Redeemable Preferred Stock on April 15, 2015 (see Note 9 - "Equity"), the refinancings of property mortgages on
May 21, 2015 (see Note 6 - "Indebtedness"), the receipt of funds from the June 2015 Term Loan on June 4, 2015 (see Note 6 -
"Indebtedness") and the receipt of funds from the December 2015 Term Loan on December 10, 2015 (see Note 6 - "Indebtedness").
The unaudited condensed pro forma financial information is for comparative purposes only and not necessarily indicative of what
actual results of operations of the Company would have been had the Merger and other transactions noted above been consummated
on January 1, 2015, nor does it purport to represent the results of operations for future periods.
)
WPG Inc. Condensed Pro Forma Financial Information (Unaudited)
(
f
The table below contains information related to the unaudited condensed pro forma financial information of WPG Inc. for
the year ended December 31, 2015 as follows:
Year Ended December 31,
2015
Total revenues
Net loss attributable to the Company
Net loss attributable to common shareholders
Loss per common share-basic and diluted
Weighted average shares outstanding-basic (in thousands)
Weighted average shares outstanding-diluted (in thousands)
$
$
$
$
874,338
(60,876)
(75,024)
(0.40)
185,342
219,708
F-30
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
)
WPG L.P. Condensed Pro Forma Financial Information (Unaudited)
(
f
The table below contains information related to the unaudited condensed pro forma financial information of WPG L.P. for
the year ended December 31, 2015 as follows:
Year Ended December 31,
2015
Total revenues
Net loss attributable to unitholders
Net loss attributable to common unitholders
Loss per common unit-basic and diluted
Weighted average units outstanding-basic (in thousands)
Weighted average units outstanding-diluted (in thousands)
$
$
$
$
874,338
(74,734)
(88,882)
(0.40)
219,708
219,708
5.
Investment in Unconsolidated Entities, at Equity
The Company's investment activity in unconsolidated real estate entities for the years ended December 31, 2017 and 2016
consisted of investments in the following joint ventures:
• The O'Connor Joint Venture I
On June 1, 2015, we completed a joint venture transaction with O'Connor Mall Partners L.P. ("O'Connor"), an unaffiliated
third party, with respect to the ownership and operation of five of the Company’s enclosed retail properties and certain
related out-parcels acquired in the Merger, 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 (the "O'Connor Joint Venture I"). The O'Connor Joint
Venture I was valued at approximately $1.625 billion, and we retained a 51% non-controlling interest. The transaction
generated net proceeds, after taking into consideration the assumption of debt and costs associated with the transaction,
of approximately $432 million (including $28.7 million for the partial reimbursement of the Scottsdale Quarter
development costs), which was used to repay a portion of the Bridge Loan (see Note 6 - "Indebtedness"). We
deconsolidated the properties and recorded a gain in connection with this sale of $4.2 million, which is included in gain
(loss) on disposition of interests in properties, net in the accompanying consolidated statements of operations and
comprehensive income (loss) for the year ended December 31, 2015. We retained day to day management, leasing, and
development responsibilities for the O'Connor Joint Venture I.
During the year ended December 31, 2016, the O'Connor Joint Venture I sold its 25% indirect ownership interest in
Crescent-SDQ III Venture, LLC to unaffiliated third parties. The Company received a cash distribution from the joint
venture at closing of $4.4 million and recorded $0.3 million as our share of the joint venture's gain, based on our pro-
rata ownership interest in the O'Connor Joint Venture I, which is recorded in income (loss) from unconsolidated entities
in the accompanying consolidated statements of operations and comprehensive income (loss).
On March 2, 2017, the O'Connor Joint Venture I closed on the purchase of Pearlridge Uptown II, an approximately
153,000 square foot (unaudited) wing of Pearlridge Center, for a gross purchase price of $70.0 million.
On March 30, 2017, the O'Connor Joint Venture I closed on a $43.2 million non-recourse mortgage note payable with
an eight year term and a fixed interest rate of 4.071% secured by Pearlridge Uptown II. The mortgage note payable
requires monthly interest only payments until April 1, 2019, at which time monthly interest and principal payments are
due until maturity.
On March 29, 2017, the O'Connor Joint Venture I closed on a $55.0 million non-recourse mortgage note payable with
a ten year term and a fixed interest rate of 4.36% secured by sections of Scottsdale Quarter® known as Block K and
Block M. The mortgage note payable requires monthly interest only payments until May 1, 2022, at which time monthly
interest and principal payments are due until maturity.
F-31
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
•
The O'Connor Joint Venture II
During the year ended December 31, 2017, we completed an additional joint venture transaction with O'Connor with
respect to the ownership and operation of seven of the Company's retail properties and certain related outparcels,
consisting of the following: The Arboretum, located in Austin, Texas; Arbor Hills; 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"). The transaction valued the properties at $598.6 million before closing adjustments and debt assumptions. Under
the terms of the joint venture agreement, we retained a non-controlling 51% interest in the O'Connor Joint Venture II
and sold the remaining 49% to O'Connor. The transaction generated net proceeds to the Company of approximately
$138.9 million, after taking into consideration costs associated with the transaction and the assumption of debt (including
the new mortgage loans on The Arboretum, Gateway Centers, and Oklahoma City Properties which closed prior to the
joint venture transaction; see Note 6 - "Indebtedness" for net proceeds to the Company from the new mortgage loans),
which we used to reduce the Company's debt as well as for general corporate purposes. We deconsolidated the properties
included in the O'Connor Joint Venture II and recorded a gain in connection with this partial sale of $126.1 million,
which is included in gain (loss) on disposition of interests in properties, net in the accompanying consolidated statements
of operations and comprehensive income (loss). The gain was recorded pursuant to ASC 360-20 and calculated based
upon proceeds received, less 49% of the book value of the deconsolidated net assets. Our retained 51% non-controlling
equity method interest was valued at historical cost based upon the pro rata book value of the retained interest in the
net assets. We retained management and leasing responsibilities for the properties included in the O'Connor Joint
Venture II, though our partner's substantive participating rights over certain decisions most important to the operations
of the O'Connor Joint Venture II preclude our control and consolidation of this venture.
In connection with the formation of this joint venture, we recorded transaction costs of approximately $6.4 million as
part of our basis in this investment.
•
The Seminole Joint Venture
This investment consists of a 45% non-controlling interest held by the Company in Seminole Towne Center, an
approximate 1.1 million square foot (unaudited) enclosed regional retail property located in the Orlando, Florida area.
The Company's effective financial interest in this property (after preferences) was approximately 22% for the year
ended December 31, 2017. We retained day to day management, leasing, and development responsibilities for the
Seminole Joint Venture. During the year ended December 31, 2017, the Company received cash of $0.7 million (after
preferences) related to our share of the proceeds from the sale of two outparcels, which was recorded in income (loss)
from unconsolidated entities, net in the accompanying consolidated statements of operations and comprehensive income
(loss).
• Other Joint Venture
The Company also holds an indirect 12.5% ownership interest in certain real estate through a joint venture with an
unaffiliated third party. We do not have management, leasing and development responsibilities for this joint venture.
Individual agreements specify which services the Company is to provide to each joint venture. The Company, through its
affiliates, may provide management, development, construction, leasing and legal services for a fee to the joint ventures described
above for which we've retained the right to provide such services. Related to performing these services, we recorded management
fees of $7.9 million, $6.7 million and $3.9 million for the years ended December 31, 2017, 2016 and 2015, respectively, which
are included in other income in the accompanying consolidated statements of operations and comprehensive income (loss).
Advances to the O'Connor Joint Venture I and O'Connor Joint Venture II totaled $4.3 million as of December 31, 2017 and, with
respect to the O'Connor Joint Venture I only, $2.5 million as of December 31, 2016, which is 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.
aa
The results for the O'Connor Joint Venture I are included below for the years ended December 31, 2017 and 2016 and for
the period from June 1, 2015 through December 31, 2015. The results for the O'Connor Joint Venture II are included below from
May 12, 2017 (the closing date of the venture), and in the case of Malibu Lumber Yard from June 13, 2017 (the date the property
was contributed to the venture), through December 31, 2017. The results for the Seminole Joint Venture are included below for
all periods presented. The results for the Company's indirect 12.5% ownership interest in another real estate project are included
for the years ended December 31, 2017 and 2016 and for the period from January 15, 2015 through December 31, 2015.
F-32
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The following table presents the combined statements of operations for the unconsolidated joint venture properties for the
periods indicated above during which the Company accounted for these investments as unconsolidated entities for the years ended
December 31, 2017, 2016 and 2015:
Total revenues
Operating expenses
Depreciation and amortization
Operating income
Gain on sale of interests in property and unconsolidated entities, net
Interest expense, taxes, and other, net
Net income from the Company's unconsolidated real estate entities
Our share of income (loss) from the Company's unconsolidated real estate entities
2017
$ 236,415
2016
$ 191,831
2015
$ 127,263
95,603
89,397
51,415
1,585
(45,906)
7,094
1,395
$
$
78,685
78,972
34,174
1,014
(32,754)
2,434
$
53,204
48,876
25,183
—
(20,135)
5,048
(1,745) $
(1,247)
$
$
The following table presents the combined balance sheets for the unconsolidated joint venture properties for the periods
indicated above during which the Company accounted for these investments as unconsolidated entities as of December 31, 2017
and 2016:
Assets:
Investment properties at cost, net
Construction in progress
Cash and cash equivalents
Tenant receivables and accrued revenue, net
Deferred costs and other assets (1)
Total assets
Liabilities and Members’ Equity:
Mortgage notes payable
Accounts payable, accrued expenses, intangibles, and deferred revenues(2)
Total liabilities
Members’ equity
Total liabilities and members’ equity
Our share of members’ equity, net
December 31,
2017
2016
$ 1,972,208
44,817
40,955
30,866
174,665
$ 2,263,511
$ 1,641,170
21,084
20,657
19,056
135,313
$ 1,837,280
$ 1,302,143
$
875,811
148,273
1,450,416
813,095
$ 2,263,511
414,245
$
116,870
992,681
844,599
$ 1,837,280
429,792
$
(1)
(2)
Includes value of acquired in-place leases and acquired above-market leases with a net book value of $107,869 and
$93,634 as of December 31, 2017 and 2016, respectively.
Includes the net book value of below market leases of $69,269 and $69,886 as of December 31, 2017 and 2016,
respectively.
F-33
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The following table presents the investment in and advances to (cash distributions and losses in) unconsolidated entities for
the periods indicated above during which the Company accounted for these investments as unconsolidated entities as of December
31, 2017 and 2016:
Our share of members’ equity, net
Advances and excess investment
Net investment in and advances to unconsolidated entities, at equity(1)
December 31,
2017
414,245
22,173
436,418
$
$
2016
429,792
13,679
443,471
$
$
(1)
Includes $451,839 and $458,892 of investment in and advances to unconsolidated entities, at equity as of December
31, 2017 and 2016, respectively, and $15,421 and $15,421 of cash distributions and losses in unconsolidated entities,
at equity as of December 31, 2017 and 2016, respectively.
6.
Indebtedness
Mortgage Debt
Total mortgage indebtedness at December 31, 2017 and 2016 was as follows:
Face amount of mortgage loans
Fair value adjustments, net
Debt issuance cost, net
Carrying value of mortgage loans
2017
$ 1,152,436
2016
$ 1,610,429
8,338
(3,692)
$ 1,157,082
12,661
(5,010)
$ 1,618,080
The mortgage debt had weighted average interest and maturity of 4.77% and 4.0 years at December 31, 2017 and 4.98% and
4.0 years at December 31, 2016.
A roll forward of mortgage indebtedness from December 31, 2016 to December 31, 2017 is summarized as follows:
Balance at December 31, 2016
Debt amortization payments
Repayment of debt
Debt issuances, net of debt issuance costs
Debt canceled upon partial paydown
Debt canceled upon lender foreclosures
Debt transferred to unconsolidated entities, net of debt issuance costs and fair value adjustments
Amortization of fair value and other adjustments
Amortization of debt issuance costs
Balance at December 31, 2017
$ 1,618,080
(19,455)
(229,298)
213,574
(68,931)
(40,000)
(314,595)
(3,475)
1,182
$ 1,157,082
2017 Activityy
On December 29, 2017, an affiliate of WPG Inc. repaid the $11.7 million mortgage loan secured by Henderson Square,
located in King of Prussia, Pennsylvania. This repayment was funded by cash on hand.
On October 17, 2017, an affiliate of WPG Inc. completed a discounted payoff of the $99.7 million mortgage loan secured
by Southern Hills Mall, located in Sioux City, Iowa, for $55.0 million (see "Covenants" section below for additional details).
On October 3, 2017, the $40.0 million mortgage on Valle Vista Mall was canceled upon a deed-in-lieu of foreclosure agreement
(see "Covenants" section below for additional details).
F-34
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
On October 2, 2017, an affiliate of WPG Inc. repaid the $99.6 million mortgage loan on WestShore Plaza, located in Tampa,
Florida. This repayment was funded by borrowings on the Revolver.
On May 10, 2017 and prior to the deconsolidation of these properties due to the sale of 49% of our interests (see Note 5 -
"Investment in Unconsolidated Entities, at Equity" for further details), the Company closed on non-recourse mortgage loans
encumbering The Arboretum, Gateway Centers, and Oklahoma City Properties. The following table summarizes the key terms of
each mortgage loan:
Property
The Arboretum
Gateway Centers
Oklahoma City Properties
Total
Principal
$ 59,400
112,500
43,279
$ 215,179
$
$
Debt
issuance
costs
Net debt
issuance
58,948
111,791
42,852
(1,588) $ 213,591
(452) $
(709)
(427)
Interest
Rate
Maturity
Date
4.13% June 1, 2027
4.03% June 1, 2027
3.90% June 1, 2027
The Arboretum and Gateway Centers loans require monthly interest only payments until July 1, 2021, at which time monthly
interest and principal payments are due until maturity. The Oklahoma City Properties loan requires monthly interest only payments
until July 1, 2022, at which time monthly interest and principal payments are due until maturity. We used the net proceeds to repay
a portion of the outstanding balance on the Revolver, as defined below. These three loans were deconsolidated during the year
ended December 31, 2017, in connection with the completion of the O'Connor Joint Venture II transaction.
On April 25, 2017, the Company completed a discounted payoff of the $87.3 million mortgage loan secured by Mesa Mall,
located in Grand Junction, Colorado, for $63.0 million (see "Covenants" section below for additional details).
2016 Activityy
On December 29, 2016, the mortgage on River Valley Mall was canceled upon a deed-in-lieu of foreclosure agreement (see
"Covenants" section below for additional details).
On October 1, 2016, the Company exercised the last option to extend the maturity date of the principal amount of the mortgage
loan on WestShore Plaza for one year to October 1, 2017.
On June 9, 2016, the mortgage on Merritt Square Mall was canceled upon the lender foreclosure (see "Covenants" section
below for additional details).
On June 8, 2016, the Company borrowed $65.0 million under a term loan secured by ownership interests in Weberstown
Mall, located in Stockton, California (the "June 2016 Secured Loan"). The June 2016 Secured Loan bears interest at one-month
LIBOR plus 1.75% and will initially mature on June 8, 2018, subject to three one-year extensions available at our option subject
to compliance with the terms of the underlying loan agreement and payment of customary extension fees. The interest rate on the
June 2016 Secured Loan may vary in the future based on the Company's credit rating. The Company used the proceeds from the
June 2016 Secured Loan to repay the $60.0 million mortgage loan secured by Weberstown Mall and for other general corporate
purposes. As of December 31, 2017, the balance was $64.7 million, net of $0.3 million of debt issuance costs, and the applicable
interest rate was 3.31%.
On April 28, 2016, the mortgage on Chesapeake Square was canceled upon the lender foreclosure (see "Covenants" section
below for additional details).
F-35
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Unsecured Debt
The following table identifies our total unsecured debt outstanding at December 31, 2017 and December 31, 2016:
Notes payable:
Face amount - 3.850% Notes due 2020 (the "Exchange Notes")(1)
Face amount - 5.950% Notes due 2024(2)
Debt discount, net
Debt issuance costs, net
Total carrying value of notes payable
Unsecured term loans:(8)
Face amount - Term Loan(3)(4)
Face amount - December 2015 Term Loan(5)
Face amount - June 2015 Term Loan(6)
Debt issuance costs, net
Total carrying value of unsecured term loans
Revolving credit facility:(3)(7)
Face amount
Debt issuance costs, net
Total carrying value of revolving credit facility
December 31,
2017
December 31,
2016
$
$
$
$
$
$
250,000
750,000
(11,086)
(9,542)
979,372
$
$
— $
340,000
270,000
(3,305)
606,695
155,000
(540)
154,460
$
$
$
250,000
—
(47)
(2,316)
247,637
500,000
340,000
500,000
(5,478)
1,334,522
308,000
(1,835)
306,165
(1) The Exchange Notes were issued at a 0.028% discount, bear interest at 3.850% per annum and mature on April 1, 2020.
(2) On August 4, 2017, WPG L.P. completed the issuance of $750.0 million of unsecured notes. The notes were issued at a 1.533% discount,
with an interest rate of 5.950% per annum, and mature on August 15, 2024. Proceeds from the unsecured notes offering were used to pay down
the Term Loan (defined below) and for partial repayment of the June 2015 Term Loan as discussed below. The interest rate could vary in the
future based upon changes to the Company's credit ratings.
d
(3) The unsecured revolving credit facility, or "Revolver" and unsecured term loan, or "Term Loan" are collectively known as the "Facility."
On January 22, 2018, the Company amended and restated $1.0 billion of the existing Facility (see Note 13 - "Subsequent Events").
(4) The Term Loan bore interest at one-month LIBOR plus 1.45% per annum. We had interest rate swap agreements totaling $200.0 million,
which effectively fixed the interest rate on a portion of the Term Loan at 2.04% per annum. During the year ended December 31, 2017, the Term
Loan was repaid in full and the Company wrote off $0.2 million of debt issuance costs. On January 22, 2018, the Company borrowed $350.0
million under the Term Loan feature of the amended and restated Facility (see Note 13 - "Subsequent Events").
(5) The December 2015 Term Loan bears interest at one-month LIBOR plus 1.80% per annum and will mature on January 10, 2023. We
have interest rate swap agreements totaling $340.0 million, which effectively fix the interest rate at 3.51% per annum through maturity.
(6) The June 2015 Term Loan bears interest at one-month LIBOR plus 1.45% per annum and will mature on March 2, 2020. We have
interest rate swap agreements totaling $270.0 million, which effectively fix the interest rate at 2.56% per annum through June 30, 2018. During
the year ended December 31, 2017, the Company repaid $230.0 million of the June 2015 Term Loan and wrote off $0.9 million of debt issuance
costs. On January 22, 2018, the Company repaid the $270.0 million outstanding with proceeds from the amended and restated Facility (see Note
13 - "Subsequent Events").
(7) The Revolver provides borrowings on a revolving basis up to $900.0 million, bears interest at one-month LIBOR plus 1.25%, and will
initially mature on May 30, 2018, subject to two six-month extensions available at our option subject to compliance with terms of the Facility
and payment of a customary extension fee. At December 31, 2017, we had an aggregate available borrowing capacity of $744.8 million under
the Revolver, net of $0.2 million reserved for outstanding letters of credit. At December 31, 2017, the applicable interest rate on the Revolver
was one-month LIBOR plus 1.25%, or 2.81%. On January 22, 2018, the Company amended the Revolver under the amended and restated
Facility (see Note 13 - "Subsequent Events").
(8) While we have interest rate swap agreements in place that fix the LIBOR portion of the rates as noted above, the spread over LIBOR
could vary in the future based upon changes to the Company's credit ratings.
F-36
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The following table presents the borrowings and paydowns on the Revolver during the years ended December 31, 2017 and
December 31, 2016:
Beginning Balance
Borrowings
Paydowns
Ending Balance
$
$
2017
308,000
350,000
(503,000)
$
155,000
$
2016
278,750
142,250
(113,000)
308,000
During 2017, borrowings under the Revolver were primarily used for general corporate purposes. Paydowns of outstanding
borrowings were funded using proceeds from property dispositions (see Note 4 - "Investment in Real Estate"), the O'Connor Joint
Venture II transaction (see Note 5 - "Investment in Unconsolidated Entities, at Equity"), including certain mortgage notes executed
prior to the deconsolidation, and cash flow from operations.
During 2016, borrowings under the Revolver were used primarily used for general corporate purposes. Paydowns of
outstanding borrowings were funded using proceeds from property dispositions (see Note 4 - "Investment in Real Estate") and
cash flow from operations.
Bridge Loan
On September 16, 2014, in connection with the execution of the Merger Agreement, WPG entered into a debt commitment
letter, which was amended and restated on September 23, 2014 pursuant to which parties agreed to provide up to $1.25 billion in
a senior unsecured bridge loan facility (the “Bridge Loan”). The Bridge Loan had a maturity date of January 14, 2016, the date
that was 364 days following the closing date of the Merger.
On January 15, 2015, the Company borrowed $1.19 billion under the Bridge Loan in connection with the closing of the
Merger, which was repaid in full during 2015.
The Company incurred $10.4 million of Bridge Loan commitment, structuring and funding fees. Upon the full repayment
of the Bridge Loan, the Company accelerated amortization of the deferred loan costs, resulting in total amortization of $10.4
million included in interest expense in the accompanying consolidated statements of operations and comprehensive income (loss)
for the year ended December 31, 2015.
Covenants
Our unsecured debt agreements contain financial and other covenants. If we were to fail to comply with these covenants,
after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by the
lender including adjustments to the applicable interest rate. As of December 31, 2017, management believes the Company is in
compliance with all covenants of its unsecured debt.
The total balance of mortgages was approximately $1.2 billion as of December 31, 2017. At December 31, 2017, certain of
our consolidated subsidiaries were the borrowers under 23 non-recourse loans, one full-recourse loan and one partial-recourse
loan secured by mortgages encumbering 28 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. Our existing non-recourse mortgage loans
generally prohibit our subsidiaries that are borrowers thereunder from incurring additional indebtedness, subject to certain
customary and limited exceptions. In addition, certain of these instruments limit the ability of the applicable borrower's parent
entity from incurring mezzanine indebtedness unless certain conditions are satisfied, including compliance with maximum loan
to value ratio and minimum debt service coverage ratio tests. Further, under certain of these existing agreements, if certain cash
flow levels in respect of the applicable mortgaged property (as described in the applicable agreement) are not maintained for at
least two consecutive quarters, the lender could accelerate the debt and enforce its right against its collateral. If the borrower fails
to comply with these covenants, the lender could accelerate the debt and enforce its right against their collateral.
a
On March 30, 2017, the Company transferred the $40.0 million mortgage loan secured by Valle Vista Mall to the special
servicer at the request of the borrower, a consolidated subsidiary of the Company. On May 18, 2017, we received a notice of default
letter, dated that same date, from the special servicer because the borrower did not repay the loan in full by its May 10, 2017
maturity date. On October 3, 2017, an affiliate of WPG Inc. transitioned the property to the lender.
ff
F-37
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
On June 6, 2016, we received a notice of default letter, dated June 3, 2016, from the special servicer to the borrower of the
$99.7 million mortgage loan secured by Southern Hills Mall. The letter was sent because the borrower, a consolidated subsidiaryrr
of the Company, did not repay the loan in full by its June 1, 2016 maturity date. On October 27, 2016, we received notification
that a receiver has been appointed to manage and lease the property. On October 17, 2017, an affiliate of WPG Inc. completed a
discounted payoff of the mortgage loan for $55.0 million and retained ownership and management of the property.
On June 30, 2016, we received a notice, dated that same date, that the $87.3 million mortgage loan secured by Mesa Mall
had been transferred to the special servicer due to the payment default that occurred when the borrower, a consolidated subsidiary
of the Company, did not repay the loan in full by its June 1, 2016 maturity date. On April 25, 2017, the Company completed a
discounted payoff of the mortgage loan for $63.0 million and retained ownership and management of the property.
On August 8, 2016, we received a notice of default letter, dated August 4, 2016, from the special servicer to the borrower
concerning the $44.9 million mortgage loan secured by River Valley Mall. The letter was sent because the borrower, a consolidated
subsidiary of the Company, did not repay the loan in full by its January 11, 2016 maturity date. On December 29, 2016, we
transferred title of the property to the mortgage lender pursuant to the terms of a deed-in-lieu of foreclosure agreement entered
into by the Company's affiliate and the mortgage lender.
On October 8, 2015, we received a notice of default letter, dated October 5, 2015, from the special servicer to the borrower
of the $52.9 million mortgage loan secured by Merritt Square Mall. The letter was sent because the borrower, a consolidated
subsidiary of the Company, did not repay the loan in full by its September 1, 2015 maturity date. On May 25, 2016, the trustee
on behalf of the mortgage lender conducted a non-judicial foreclosure sale of Merritt Square Mall, in which the Company's affiliate
previously held a 100% ownership interest. The mortgage lender was the successful bidder at the sale and ownership transferred
on June 9, 2016. The Company managed the property through and including July 31, 2016.
On October 30, 2015, we received a notice of default letter, dated that same date, from the special servicer to the borrower
concerning the $62.4 million mortgage loan that matures on February 1, 2017 and was secured by Chesapeake Square. The default
resulted from an operating cash flow shortfall at the property in October 2015 that the borrower, a consolidated subsidiary of the
Company, did not cure. On April 21, 2016, the trustee on behalf of the mortgage lender conducted a non-judicial foreclosure of
Chesapeake Square, in which the Company's affiliate previously held majority ownership interest. The mortgage lender was the
successful bidder at the sale and ownership transferred on April 28, 2016.
Upon the discounted payoff of the mortgage note payable secured by Southern Hills Mall, ownership transfer of Valle Vista
Mall, and discounted payoff of the mortgage note payable secured by Mesa Mall, the Company recognized a net gain of $90.6
million based on the cancellation of the remaining outstanding mortgage debt of $108.9 million, which is included in gain on
extinguishment of debt, net in the consolidated statements of operations and comprehensive income (loss) for the year ended
December 31, 2017. During the year ended December 31, 2016, the Company recognized a net gain of $34.6 million related to
the $160.1 million mortgage debt cancellation and ownership transfers of River Valley Mall, Merritt Square Mall, and Chesapeake
Square, which is included in gain on extinguishment of debt, net in the consolidated statements of operations and comprehensive
income (loss) for the year then ended.
At December 31, 2017, management believes the applicable borrowers under our other non-recourse mortgage loans were
in compliance with all covenants where non-compliance could individually, or giving effect to applicable cross-default provisions
in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.
F-38
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Debt Maturity and Cash Paid for Interest
Scheduled principal repayments on indebtedness (including extension options) as of December 31, 2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
Total principal maturities
Bond Discount
Fair value adjustments, net
Debt issuance costs, net
Total mortgages and unsecured indebtedness
$
25,412
313,281
701,084
321,639
131,855
1,424,165
2,917,436
(11,086)
8,338
(17,079)
$ 2,897,609
Cash paid for interest for the years ended December 31, 2017, 2016 and 2015 was $107,609, $125,999 and $124,646,
respectively.
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 unsecured debt (including variable-rate unsecured debt swapped to fixed-rate) using cash flows discounted at current
borrowing rates. We estimate the fair values of consolidated fixed-rate unsecured notes payable using quoted market prices, or, if
no quoted market prices are available, we use quoted market prices for securities with similar terms and maturities. The book
value and fair value of these financial instruments along with the related discount rate assumptions as of December 31, 2017 and
2016 are summarized as follows:
rr
Book value of fixed- rate mortgages(1)
Fair value of fixed-rate mortgages
Weighted average discount rates assumed in
calculation of fair value for fixed-rate mortgages
Book value of fixed-rate unsecured debt(1)
Fair value of fixed-rate unsecured debt
Weighted average discount rates assumed in
calculation of fair value for fixed-rate unsecured debt
2017
$1,000,936
$1,024,890
2016
$1,359,329
$1,403,103
4.19%
3.79%
$1,610,000
$1,616,810
$1,290,000
$1,261,858
4.27%
2.86%
(1) Excludes deferred financing fees and applicable debt discounts.
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.
t
F-39
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
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 flowff
payments based on the difference between the contract rate and market rate on the settlement date.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded
in other comprehensive income ("OCI") or other comprehensive loss (“OCL”) and is subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects earnings. Net realized gains or losses resulting from derivatives that were
settled in conjunction with planned fixed-rate financings or refinancings continue to be included in accumulated other
comprehensive income ("AOCI") during the term of the hedged debt transaction. Any ineffective portion of the change in fair
value of the derivatives is recognized directly in earnings. The Company recognized $295, $288 and $193 of hedge ineffectiveness
as increases to earnings during the years ended December 31, 2017, 2016 and 2015, respectively.
Amounts reported in AOCI 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 AOCI are recognized
as an adjustment to income over the term of the hedged debt transaction. During the next twelve months, the Company estimates
that an additional $2.1 million will be reclassified as a decrease to interest expense.
On August 4, 2017, the Company terminated six interest rate derivatives and partially terminated one interest rate derivative
with an aggregate notional amount of $430,000, upon the repayment of the Term Loan and partial repayment of the June 2015
Term Loan, receiving cash proceeds of approximately $2.0 million upon settlement. As of December 31, 2017, the Company had
8 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk with a notional value of $610,000.
f
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on
the consolidated balance sheet as of December 31, 2017 and 2016:
Derivatives designated as hedging instruments:
Interest rate products Asset Derivatives
Interest rate products Liability Derivatives Accounts payable, accrued expenses,
Deferred costs and other assets
intangibles and deferred revenues
Balance Sheet
Location
December 31,
2017
December 31,
2016
$
$
7,413
$
5,754
— $
2
The asset derivative instruments were reported at their fair value of $7,413 and $5,754 in deferred costs and other assets at
December 31, 2017 and 2016, respectively, with a corresponding adjustment to OCI for the unrealized gains and losses (net of
noncontrolling interest allocation). The liability derivative instruments were reported at their fair value of $0 and $2 in accounts
payable, accrued expenses, intangibles, and deferred revenues at December 31, 2017 and 2016, respectively, with a corresponding
adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest allocation). Over time, the unrealized gains
and losses held in AOCI will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged
interest payments in earnings.
The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of
operations and comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015:
Derivatives in Cash Flow Hedging Relationships
(Interest rate products)
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
Location of Gain or
(Loss) Recognized in
Income on Derivatives
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
Interest expense
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
Interest expense
For the Year Ended December 31,
2017
1,256
1,145
295
$
$
$
2016
2015
$ (3,580) $
(429)
$
$
7,381
288
$
$
2,466
193
F-40
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Credit Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision that if the Company either
defaults or is capable of being declared in default on any of its consolidated indebtedness, then the Company could also be declared
in default on its derivative obligations.
The Company has agreements with its derivative counterparties that incorporate the loan covenant provisions of the Company's
indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would
result in the Company being in default on any derivative instrument obligations covered by the agreement.
As of December 31, 2017, the Company did not have any derivative instruments that contain credit-risk related contingent
features that are in a net liability position.
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
t
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.y
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 December 31, 2017 and
2016, 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 presents the Company’s net assets and liabilities measured at fair value as of December 31, 2017 and 2016
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 December
31, 2017
Derivative instruments, net
$
— $
7,413
$
— $
7,413
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, 2016
Derivative instruments, net
$
— $
5,752
$
— $
5,752
F-41
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
8. Rentals under Operating Leases
Future minimum rentals to be received under non-cancelable operating leases for each of the next five years and thereafter,
excluding tenant reimbursements of operating expenses and percentage rent based on tenant sales volume, as of December 31,
2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
9. Equity
The Merger
$
$
431,410
360,917
296,662
236,100
190,575
496,839
2,012,503
Related to the Merger completed on January 15, 2015, WPG Inc. issued 29,942,877 common shares, 4,700,000 shares of
8.125% Series G Cumulative Redeemable Preferred Stock (the "Series G Preferred Shares"), 4,000,000 shares of 7.5% Series H
Cumulative Redeemable Preferred Stock (the "Series H Preferred Shares") and 3,800,000 shares of 6.875% Series I Cumulative
Redeemable Preferred Stock (the "Series I Preferred Shares"), and WPG L.P. issued to WPG Inc. a like number of common and
preferred units as consideration for the common and preferred shares issued. Additionally, WPG L.P. issued to limited partners
1,621,695 common units and 130,592 Series I-1 Preferred Units. The preferred shares and units were issued as consideration for
similarly-named preferred interests of GRT that were outstanding at the Merger date.
On April 15, 2015, WPG Inc. redeemed all of the outstanding Series G Preferred Shares, resulting in WPG L.P. redeeming
a like number of preferred units under terms identical to those of the Series G Preferred Shares described below. The Series G
Preferred Shares were redeemed at a redemption price of $25.00 per share, plus accumulated and unpaid distributions up to, but
excluding, the redemption date, in an amount equal to $0.5868 per share, for a total payment of $25.5868 per share. This redemption
amount included the first quarter dividend of $0.5078 per share that was declared on February 24, 2015 to holders of record of
such Series G Preferred Shares on March 31, 2015. Because the redemption of the Series G Preferred Shares was a redemption
in full, trading of the Series G Preferred Shares on the NYSE ceased after the redemption date. The aggregate amount paid to
effect the redemptions of the Series G Preferred Shares was approximately $120.3 million, which was funded with cash on hand.
m
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 year ended December 31,
2017, WPG Inc. issued 314,577 shares of common stock to a limited partner of WPG L.P. in exchange for an equal number of
units pursuant to the WPG L.P. Partnership Agreement. This transaction increased WPG Inc.’s ownership interest in WPG L.P. At
December 31, 2017, WPG Inc. had reserved 34,760,026 shares of common stock for possible issuance upon the exchange of units
held by limited partners.
The holders of the Series I-1 Preferred Units have, at their option, the right to have their units purchased by WPG L.P. subject
to the satisfaction of certain conditions. Therefore, the Series I-1 Preferred Units are classified as redeemable noncontrolling
interests outside of permanent equity.
F-42
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
Share Based Compensation
On May 28, 2014, the Board adopted the Washington Prime Group, L.P. 2014 Stock Incentive Plan (the "Plan"), which
permits the Company to grant awards to current and prospective directors, officers, employees and consultants of the Company
or any affiliate. An aggregate of 10,000,000 shares of common stock has been reserved for issuance under the Plan. In addition,
the maximum number of awards to be granted to a participant in any calendar year is 500,000 shares/units. 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
Plan terminates on May 28, 2024.
Long Term Incentive Awards
Time Vested LTIP Awards
The Company has issued time-vested LTIP units ("Inducement LTIP Units") to certain executive officers and employees
under the Plan, pursuant to LTIP Unit Award Agreements between the Company and each of the grant recipients. These awards
will vest and the related fair value will be expensed over a four-year vesting period. During the years ended December 31, 2017
and 2016, the Company did not grant any Inducement LTIP Units.
During the years ended December 31, 2015 and 2014, the Company awarded 203,215 and 283,610 Inducement LTIP Units,
respectively, to certain executive officers and employees of the Company under the Plan, pursuant to LTIP Unit Award Agreements
between the Company and each of the grant recipients.
The Inducement LTIP Units vest and the related fair value will be expensed over a four-year vesting period, subject to each
respective grant recipient's continued employment on each such vesting date, except in certain instances that result in accelerated
vesting due to severance arrangements. The fair value of the Inducement LTIP Units of $8.4 million is being recognized as expense
over the applicable vesting period. As of December 31, 2017, the estimated future compensation expense for Inducement LTIP
Units was $0.4 million. The weighted average period over which the compensation expense will be recorded for the Inducement
LTIP Units is approximately 1.1 years.
A summary of the Inducement LTIP Units and changes during the year ended December 31, 2017 is listed below:
Outstanding unvested at beginning of year
Units granted
Units vested
Units forfeited
Outstanding unvested at end of year
Activity for the Year Ended
December 31,
2017
Inducement
LTIP Units
Weighted
Average Grant
Date
Fair Value
75,053
$
— $
(29,685) $
(7,500) $
$
37,868
18.16
—
18.33
19.23
17.82
During the year ended December 31, 2016, 189,755 LTIP Units, with a weighted average grant date fair value per share of
$18.07, vested. During the year ended December 31, 2015, 222,017 LTIP Units, with a weighted average grant date fair value per
share of $16.16, vested.
Performance Based Awards
2015 Awards
During 2015, the Company authorized the award of LTIP units subject to certain market conditions under ASC 718
("Performance LTIP Units") to certain executive officers and employees of the Company in the maximum total amount of 304,818
units, to be earned and related fair value expensed over the applicable performance periods, except in certain instances that could
result in accelerated vesting due to severance arrangements.
F-43
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The Performance LTIP Units that were allocated during the year ended December 31, 2015 are market based awards with a
service condition. Recipients may earn between 0% - 100% of the award based on the Company's achievement of absolute and
relative (versus the MSCI REIT Index) total shareholder return ("TSR") goals, with 40% of the Performance LTIP Units available
to be earned with respect to each performance period based on achievement of absolute TSR goals, and 60% of the Performance
LTIP Units available to be earned with respect to each performance period based on achievement of relative TSR goals.
The Performance LTIP Units issued during 2015 relate to the following performance periods: from the beginning of the
service period to (i) December 31, 2016 ("2015-First Special PP"), (ii) December 31, 2017 ("2015-Second Special PP"), and
(iii) December 31, 2018 ("2015-Third Special PP"). There was no award for the 2015-First Special PP or 2015-Second Special
PP since our TSR was below the threshold level during 2016 and 2017, respectively.
2014 Awards
During 2014, the Company awarded Performance LTIP Units subject to performance conditions described below to certain
executive officers and employees of the Company in the maximum total amount of 451,017 units to be earned and related fair
value expensed over the applicable performance periods, except in certain instances that result in accelerated vesting due to
severance arrangements.
The Performance LTIP Units that were issued during the year ended December 31, 2014 are market based awards with a
service condition. Recipients may earn between 0% - 100% of the award based on the Company's achievement of absolute and
relative (versus the MSCI REIT Index) TSR goals, with 40% of the Performance LTIP Units available to be earned with respect
to each performance period based on achievement of absolute TSR goals, and 60% of the Performance LTIP Units available to be
earned with respect to each performance period based on achievement of relative TSR goals.
The Performance LTIP Units issued during 2014 relate to the following performance periods: from the beginning of the
service period to (i) December 31, 2015 ("2014-First Special PP"), (ii) December 31, 2016 ("2014-Second Special PP"), and
(iii) December 31, 2017 ("2014-Third Special PP"). There was no award for the 2014-First Special PP, 2014-Second Special PP,
or 2014-Third Special PP since our TSR was below the threshold level during 2015, 2016, and 2017, respectively.
Vestingg
The Performance LTIP awards that are earned, if any, will then be subject to a service-based vesting period. Awards earned
under the 2015-Third Special PP would vest immediately upon the conclusion of the performance period and would require no
subsequent service.
The fair value of the Performance LTIP Unit awards was estimated using a Monte Carlo simulation model and compensation
is being recognized ratably from the beginning of the service period through the end of the final performance period.
The total amount of compensation to be recognized over the performance period, and the assumptions used to value the
grants is provided below:
Fair value per share of Performance LTIP Units
Total amount to be recognized over the performance period
Risk free rate
Volatility
Dividend yield
$
$
2015
2014
$
$
7.28
2,218
1.04%
25.96%
6.43%
9.27
4,182
1.11%
28.88%
5.20%
As of December 31, 2017, the estimated future compensation expense for Performance LTIP Units was $46. The weighted
average period over which the compensation expense will be recorded for the Performance LTIP Units is approximately 1.0 years.
Annual Long-Term Incentive Awards
On February 21, 2017 (the "Adoption Date"), the Company approved the terms and conditions of the 2017 annual award
("2017 Annual Long-Term Incentive Awards") for certain executive officers and employees of the Company. Under the terms of
the 2017 Annual Long-Term Incentive 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.
F-44
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
During the year ended December 31, 2017, the Company issued 358,198 time-based RSUs, with a grant date fair value of $3.4
million, which will vest in one-third installments on each of February 21, 2018, 2019, and 2020, 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 with respect to the RSUs corresponding to the amount of
any dividends paid by the Company to the Company's common shareholders for the applicable dividend payment dates.
Compensation expense is recognized on a straight-line basis over the three year vesting term. During the year ended December
31, 2017, the Company allocated 358,198 PSUs, at target, with a grant date fair value of $2.8 million. Actual PSUs earned may
range from 0%-150% of the PSUs allocated to the award recipient, based on the Company's TSR compared to a peer group based
on companies with similar assets and revenue over a three-year performance period that commenced on the Adoption Date. During
the performance period, dividend equivalents corresponding to the amount of any regular cash dividends paid by the Company to
the Company’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 using a Monte Carlo simulation model. The total amount of compensation to be recognized over the
three-year performance period, and the assumptions used to value the PSUs are provided below:
Fair value per share of PSUs
Total amount to be recognized over the performance period
Risk free rate
Volatility
Dividend yield
$
$
2017
7.72
2,765
1.49%
20.52%
10.44%
During 2016, the Company approved the performance criteria and maximum dollar amount of the 2016 annual awards (the
"2016 Annual Long-Term Incentive Awards"), that generally range from 30%-100% of actual base salary, for certain executive
officers and employees of the Company. The number of awards was determined by converting the cash value of the award to a
number of RSUs (the "Allocated RSUs") based on the closing price of WPG Inc.'s common shares for the final 15 trading days
of 2016. Eventual recipients were eligible to receive a percentage of the Allocated RSUs based on the Company's performance on
its strategic goals detailed in the Company's 2016 cash bonus plan and the Company's relative TSR compared to a peer group
based on companies with similar assets and revenue. Payout for 50% of the Allocated RSUs was based on the Company's
performance on the strategic goals and the payout on the remaining 50% was based on the Company's TSR performance. Both
the strategic goal component as well as the TSR performance were achieved at target, resulting in a 100% payout. During the year
ended December 31, 2017, the Company awarded 324,237 Allocated RSUs, with a grant date fair value of $2.2 million, related
to the 2016 Annual Long-Term Incentive Awards, which will vest in one-third installments on each of February 21, 2018, 2019
and 2020.
During 2015, the Company approved the performance criteria and maximum dollar amount of the 2015 annual LTIP unit
awards (the "2015 Annual Long-Term Incentive Awards"), that generally range from 30%-300% of actual base salary earnings,
for certain executive officers and employees of the Company. The number of awards was determined by converting the cash value
of the award to a number of LTIP units (the "Allocated Units") based on the closing price of WPG Inc.'s common shares for the
final 15 trading days of 2015. Eventual recipients were eligible to receive a percentage of the Allocated Units based on the Company's
performance on its strategic goals detailed in the Company's 2015 cash bonus plan and the Company's relative TSR compared to
the MSCI REIT Index. Payout for 40% of the Allocated Units was based on the Company's performance on the strategic goals
and the payout on the remaining 60% was based on the Company's TSR performance. The strategic goal component was achieved
in 2015; however, the TSR was below threshold performance, resulting in only a 40% payout for this annual LTIP award. During
the year ended December 31, 2016, the Company awarded 323,417 LTIP units related to the 2015 Annual Long-Term Incentive
Awards, of which 108,118 vest in one-third installments on each of January 1, 2017, 2018 and 2019. The 94,106 LTIP units awarded
to our former Executive Chairman fully vested on the grant date and the 121,193 LTIP units awarded to certain former executive
officers fully vested on the applicable severance dates during 2016 pursuant to the underlying severance arrangements. The fair
value of the portion of the awards based upon the Company's performance of the strategic goals was recognized to expense when
granted.
F-45
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The 2016 and 2015 Annual Long-Term Incentive Awards that are based upon TSR were calculated using a Monte Carlo
simulation model. The total amount of compensation to be recognized over the performance period, and the assumptions used to
value the 2016 and 2015 Annual Long-Term Incentive Awards are provided below:
Fair value per share of Allocated RSUs/Units
Total amount to be recognized over the performance period
Risk free rate
Volatility
Dividend yield
WPG Restricted Share Awards
$
$
2016
2015
$
$
3.81
2,516
0.44%
31.40%
10.05%
7.07
4,656
0.20%
22.66%
6.03%
As part of the Merger, unvested restricted shares held by certain GRT executive employees, which had an original vesting
period of five years, were converted into 1,039,785 WPG restricted common shares (the “WPG Restricted Shares”). The WPG
Restricted Shares will be amortized over the remaining life of the applicable vesting period, except for the portion of the awardsaa
applicable to pre-Merger service, which was included as equity consideration issued in the Merger.
The amount of compensation expense related to unvested restricted shares that we expect to recognize in future periods is
$0.2 million over a weighted average period of 1.2 years. During the year ended December 31, 2017 the aggregate intrinsic value
of shares that vested was $1.0 million.
A summary of the status of the WPG Restricted Shares at December 31, 2017 and changes during the year are presented
below:
Outstanding at beginning of year
Shares granted
Shares vested/forfeited
Outstanding at end of year
Activity for the Year Ended
December 31,
2017
Restricted
Shares
Weighted
Average Grant
Date
Fair Value
150,579
$
— $
(120,044) $
$
30,535
18.18
—
18.18
18.18
There were no restricted shares granted during the years ended December 31, 2017 and 2016. The weighted average grant
date fair value per share of restricted shares granted during the years ended December 31, 2015 was $18.18. The total fair value
of the restricted shares vested during the years ended December 31, 2017, 2016 and 2015 was $2,182, $14,115, and $2,051,
respectively.
WPG Restricted Stock Unit Awards
The Company issues RSUs to certain executive officers, employees, and non-employee directors of the Board. During the
years ended December 31, 2017, 2016 and 2015, the Company issued 843,435, 518,112 and 82,203 RSUs, respectively. Of the
843,435 RSUs issued in 2017, 682,435 RSUs with a fair value of $5.6 million relates to the annual long-term incentive award
issuances that occurred in February 2017 (see "Annual Long-Term Incentive Awards" section above). Of the 518,112 RSUs issued
in 2016, 284,483 RSUs with a fair value of $3.3 million relates to Mr. Louis G. Conforti's appointment as the Company's CEO in
October 2016. 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.
The amount of compensation related to the unvested RSUs that we expect to recognize in future periods is $8.3 million over
a weighted average period of 2.0 years.
F-46
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
A summary of the status of the WPG RSUs at December 31, 2017 and changes during the year are presented below:
Activity for the Year Ended
December 31,
2017
Outstanding unvested at beginning of year
RSUs granted
RSUs vested/forfeited
Outstanding unvested at end of year
Weighted
Average Grant
Date
Fair Value
11.80
8.07
9.86
9.40
RSUs
$
504,842
843,435
$
(190,701) $
$
1,157,576
The weighted average grant date fair value per share of RSUs granted during the years ended December 31, 2017, 2016 and
2015 was $8.07, $11.48, and $13.62, respectively. The total fair value of the RSUs vested during the years ended December 31,
2017, 2016 and 2015 was $1,128, $1,082, and $628, respectively.
Stock Options
Options granted under the Company's Plan generally vest over a three year period, with options exercisable at a rate of 33.3%
per annum beginning with the first anniversary on the date of the grant. These options were valued using the Black-Scholes pricing
model and the expense associated with these options are amortized over the requisite vesting period.
During the year ended December 31, 2016, the Company granted 247,500 options to employees. The weighted average grant
date fair value was $0.62. As part of the Merger, outstanding stock options held by certain former GRT employees and one former
GRT board member who joined the WPG Inc. Board of Directors were converted into 1,125,014 WPG stock options. Due to
provisions within the option agreements, all of these options immediately vested. Additionally the Company granted 393,000
options to employees during the year ended December 31, 2015. The weighted average grant date fair value of the options converted
and granted during the year ended December 31, 2015 was $2.63.
rr
A summary of the status of the Company's option plans at December 31, 2017 and changes during the year are listed below:
Outstanding at beginning of year
Options granted
Options exercised
Options forfeited/expired
Outstanding at end of year
Activity for the Year Ended
December 31,
2017
Weighted
Average
Grant Date
Fair Value
2.24
—
11.37
1.98
2.26
Stock Options
977,576
$
— $
(2,739) $
(180,823) $
$
794,014
The fair value of each option grant was the date of the grant using the Black-Scholes options pricing mode. The weighted
average per share value of options granted as well as the assumptions used to value the grants is listed below:
Weighted average per share value of options granted/converted
Weighted average risk free rates
Expected average lives in years
Annual dividend rates
Weighted average volatility
Forfeiture rate
F-47
$
$
2016
2015
$
$
0.62
1.4%
6.0
1.00
28.3%
10%
2.63
1.0%
3.8
1.00
22.1%
10%
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
The following table summarizes information regarding the options outstanding at December 31, 2017:
Range of
Exercise Prices
$13.96
$1.79
$5.76
$11.97
$12.67
$16.56
$13.10
$14.28
$9.95
Options Outstanding
Options Exercisable
Number
Outstanding at
December 31,
2017
23,296
4,934
25,183
45,672
65,606
115,568
82,255
239,000
192,500
794,014
Weighted
Average
Remaining
Contractual Life
0.2
1.2
2.2
3.3
4.4
5.4
6.3
7.4
8.4
6.3
Weighted
Average
Exercise Price
$13.96
$1.79
$5.76
$11.97
$12.67
$16.56
$13.10
$14.28
$9.95
$12.82
Number
Exercisable at
December 31,
2017
23,296
4,934
25,183
45,672
65,606
115,568
82,255
159,334
64,171
586,019
Weighted
Average
Remaining
Contractual Life
0.2
1.2
2.2
3.3
4.4
5.4
6.3
7.4
8.4
5.7
Weighted
Average
Exercise Price
$13.96
$1.79
$5.76
$11.97
$12.67
$16.56
$13.10
$14.28
$9.95
$13.25
The following table summarizes the aggregate intrinsic value of options that are: outstanding, exercisable and exercised. It
also depicts the fair value of options that have vested.
Aggregate intrinsic value of options outstanding
Aggregate intrinsic value of options exercisable
Aggregate intrinsic value of options exercised
Aggregate fair value of options vested
For the Year Ended
December 31,
2017
$
$
$
$
61
61
12
187
The aggregate intrinsic value of options that exercised and the aggregate fair value of options that vested during the year
ended December 31, 2016 was $163 and $191, respectively. The aggregate intrinsic value of options that exercised and the
aggregate fair value of options that vested during the year ended December 31, 2015 was $982 and $3,380, respectively.
Share Award Related Compensation Expense
During the years ended December 31, 2017, 2016 and 2015, the Company recorded share award related compensation
expense pertaining to the award and option plans noted above within the consolidated statements of operations and comprehensive
income (loss) as indicated below (amounts in millions):
Merger, restructuring and transaction costs
General and administrative and property operating
Total expense
$
$
— $
6.4
6.4
$
$
9.5
4.6
14.1
$
4.0
10.1
14.1
For the Year Ended December 31,
2017
2016
2015
Distributions
During the years ended December 31, 2017 and 2016, the Board declared common share/unit dividends of $1.00 per common
share/unit, respectively.
F-48
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit 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.
t
Lease Commitments
As of December 31, 2017, a total of four consolidated properties are subject to ground leases. The termination dates of these
ground leases range from 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. We incurred ground lease expense, which is included in ground rent in the
accompanying consolidated statements of operations and comprehensive income (loss), for the years ended December 31, 2017,
2016 and 2015 of $2,438, $4,318 and $6,874, respectively.
Future minimum lease payments due under these ground leases for each of the next five years and thereafter, excluding
applicable extension options, as of December 31, 2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
$
$
509
509
509
509
518
20,460
23,014
Concentration of Credit Risk
Our properties rely heavily upon anchor or major tenants to attract customers; however, these retailers do not constitute a
material portion of our financial results. Additionally, many anchor retailers in the enclosed retail properties own their spaces
further reducing their contribution to our operating results. All operations are within the United States and no customer or tenant
accounts for 5% or more of our consolidated revenues.
11. Related Party Transactions
Transactions with SPG
The Company was formed in 2014 through a spin-off of certain properties from SPG. SPG managed the day-to-day operations
of our legacy SPG enclosed retail properties through February 29, 2016 in accordance with property management agreements that
expired as of May 31, 2016. Additionally, WPG and SPG entered into a transition services agreement pursuant to which SPG
provided to WPG, on an interim, transitional basis after May 28, 2014 through May 31, 2016, the date on which it was terminated,
various services including administrative support for the open air properties through December 31, 2015, information technology,yy
property management, accounts payable and other financial functions, as well as engineering support, quality assurance support
and other administrative services for the enclosed retail properties until March 1, 2016. Under the transition services agreement
that terminated on May 31, 2016, SPG charged WPG, based upon SPG's allocation of certain shared costs such as insurance
premiums, advertising and promotional programs, leasing and development fees. Amounts charged to expense for property
management and common costs, services, and other as well as insurance premiums are included in property operating expenses
in the consolidated statements of operations and comprehensive (loss) income. Additionally, leasing and development fees charged
by SPG were capitalized by the property. WPG terminated the transition services agreement, all applicable property management
agreements with SPG, and the property development agreement effective May 31, 2016.
F-49
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
We did not incur any charges pertaining to the transition services agreements for the year ended December 31, 2017. Charges
for properties which are consolidated for the years ended December 31, 2016 and 2015 are as follows:
For the Year Ended December 31,
For the Year Ended December 31,
2016
2015
Consolidated
Unconsolidated
Consolidated
Unconsolidated
Property management and common costs,
services and other
Insurance premiums
Advertising and promotional programs
Capitalized leasing and development fees
$
$
$
$
8,791
$
— $
$
102
$
3,166
Consulting Agreement with Mark S. Ordan
196
$
— $
$
$
6
23
23,302
9,076
812
9,841
$
$
$
$
816
12
46
55
Mr. Mark S. Ordan served as a member of the Board until May 18, 2017 at which time his term on the Board expired and
he retired from service. During 2017, Mr. Ordan and the Company were parties to a Consulting Agreement in which Mr. Ordan
provided consulting services to the Company for a fee. The Consulting Agreement was terminated on May 28, 2017. During
2017, the Company paid Mr. Ordan approximately $0.2 million in fees under the Consulting Agreement. The Company has no
further payment obligations under the Consulting Agreement.
12. Earnings (Loss) Per Common Share/Unit
WPG Inc. Earnings (Loss) Per Common Share
We determine WPG Inc.'s basic earnings (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 earnings (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.
The following table sets forth the computation of WPG Inc.'s basic and diluted earnings (loss) per common share:
Earnings (Loss) Per Common Share, Basic:
Net income (loss) attributable to common shareholders - basic
$
183,031
$
53,099
Weighted average shares outstanding - basic
Earnings (Loss) per common share, basic
186,829,385
0.98
$
185,633,582
0.29
$
$
(101,286)
184,195,769
(0.55)
$
For the Year Ended December 31,
2017
2016
2015
Earnings (Loss) Per Common Share, Diluted:
Net income (loss) attributable to common shareholders - basic
Net income (loss) attributable to common unitholders
Net income (loss) attributable to common shareholders - diluted
Weighted average common shares outstanding - basic
Weighted average operating partnership units outstanding
Weighted average additional dilutive securities outstanding
Weighted average common shares outstanding - diluted
Earnings (loss) per common share, diluted
$
$
183,031
34,222
217,253
$
$
53,099
10,034
63,133
186,829,385
34,808,890
337,508
221,975,783
0.98
$
185,633,582
34,304,109
803,805
220,741,496
0.29
$
$
$
(101,286)
(19,340)
(120,626)
184,195,769
34,303,804
—
218,499,573
(0.55)
$
For the years ended December 31, 2017, 2016 and 2015, additional potentially dilutive securities include contingently-
issuable outstanding stock options and performance based components of annual awards. For the year ended December 31, 2015,
diluted shares exclude the impact of any such securities because their effect would be anti-dilutive. We accrue distributions when
they are declared.
F-50
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
WPG L.P. Earnings (Loss) Per Common Unit
We determine WPG L.P.'s basic earnings (loss) 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 earnings (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 earnings (loss) per common unit:
For the Year Ended December 31,
2017
2016
2015
Earnings (loss) Per Common Unit, Basic and Diluted:
Net income (loss) attributable to common unitholders - basic and diluted
Weighted average common units outstanding - basic
$
217,253
221,638,275
$
63,133
219,937,691
(120,626)
$
218,499,573
Weighted average additional dilutive securities outstanding
Weighted average shares outstanding - diluted
Earnings (loss) per common unit, basic and diluted
337,508
221,975,783
0.98
$
803,805
220,741,496
0.29
$
—
218,499,573
(0.55)
$
For the years ended December 31, 2017, 2016 and 2015, additional potentially dilutive securities include contingently-
issuable units related to WPG Inc.'s outstanding stock options, WPG Inc.'s performance based components of annual awards and
WPG L.P.'s annual LTIP unit awards. For the year ended December 31, 2015, diluted shares exclude the impact of any such
securities because their effect would be anti-dilutive. We accrue distributions when they are declared.
13. Subsequent Events
On December 22, 2017 the Company executed a purchase agreement to acquire Southgate Mall in Missoula, Montana for
$58.0 million. Due diligence was completed on February 21, 2018 and the purchase is expected to be completed on or about April
20, 2018. The purchase will be funded by a combination of proceeds from the Four Corners transaction (as discussed below), the
Revolver and issuance of operating partnership units.
On January 12, 2018, we completed the sale of the first tranche of restaurant outparcels to FCPT Acquisitions, LLC ("Four
Corners") pursuant to the purchase and sale agreement executed on September 20, 2017 between the Company and Four Corners.
The first tranche consisted of 10 restaurant outparcels, with an allocated purchase price of approximately $13.7 million. The net
proceeds of approximately $13.5 million were used to fund future acquisitions and development and for general corporate purposes.
Additionally, the Company expects to close on the second tranche during the second half of 2018, subject to due diligence and
closing conditions.
On January 19, 2018, an affiliate of WPG Inc. repaid the $86.5 million mortgage loan on The Outlet Collection® Seattle,
located in Auburn, Washington. This repayment was funded by borrowings on the Revolver.
On January 22, 2018, WPG L.P. amended and restated $1.0 billion of the existing Facility. The newly recast Facility can
be increased to $1.5 billion through currently uncommitted facility commitments. Excluding the accordion feature, the newly
recast Facility includes a $650.0 million Revolver and $350.0 million Term Loan. The interest rates for the Revolver and Term
Loan are substantially consistent with the existing terms. When considering extension options, the Facility will mature on December
31, 2022. The $350.0 million Term Loan was fully funded at closing, and the Company used the proceeds to repay the $270.0
million outstanding on the June 2015 Term Loan and to pay down the Revolver.
On February 20, 2018, the Board declared common share/unit dividends of $0.25 per common share. The dividend is
payable on March 15, 2018 to shareholders/unitholders of record on March 5, 2018.
F-51
Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except share, unit, per share and per unit amounts and
where indicated as in millions or billions)
14. Quarterly Financial Data (Unaudited)
Quarterly 2017 and 2016 data is summarized in the table below. Quarterly amounts may not sum to annual amounts due to
rounding.
2017
Total revenue
Operating income
Net income (loss)
Washington Prime Group Inc.:
Net income (loss) attributable to the Company
Net income (loss) attributable to common shareholders
Earnings (loss) per common share—basic
Earnings (loss) per common share—diluted
Washington Prime Group, L.P.:
Net income (loss) attributable to unitholders
Net income (loss) attributable to common unitholders
Earnings (loss) per common unit—basic
Earnings (loss) per common unit—diluted
2016
Total revenue
Operating income
Net income
Washington Prime Group Inc.:
Net income attributable to the Company
Net income attributable to common shareholders
Earnings per common share—basic and diluted
Washington Prime Group, L.P.:
Net income attributable to unitholders
Net income attributable to common unitholders
Earnings per common unit—basic and diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 202,394
49,531
$
14,624
$
$ 189,171
$
49,869
$ 164,500
$ 187,237
$ 179,320
21,113
$
$
24,293
$ (10,664) $
63,133
$
$
$
$
$
$
$
$
12,810
9,302
$ 138,975
$ 135,467
0.05
0.05
$
$
0.73
0.72
(8,395) $
$
$ (11,903) $
(0.06) $
$
(0.06) $
$
14,624
11,056
0.05
0.05
$ 164,500
$ 160,932
0.73
$
0.72
$
$ (10,664) $
$ (14,232) $
(0.06) $
$
(0.06) $
$
53,673
50,165
0.27
0.27
63,133
59,497
0.27
0.27
$ 210,031
55,378
$
13,681
$
$ 205,738
25,835
$
24,737
$
$ 209,922
38,425
$
5,183
$
$ 217,784
65,355
$
33,815
$
$
$
$
$
$
$
12,022
8,514
0.05
13,687
10,119
0.05
$
$
$
$
$
$
21,315
17,807
0.10
24,745
21,177
0.10
$
$
$
$
$
$
4,870
1,362
0.01
5,187
1,619
0.01
$
$
$
$
$
$
28,924
25,416
0.13
33,786
30,218
0.13
F-52
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Washington Prime Group Inc. and Washington Prime Group, L.P.
Notes to Schedule III
December 31, 2017
(dollars in thousands)
(1) Reconciliation of Real Estate Properties:
The changes in real estate assets (which excludes furniture, fixtures and equipment) for the years ended December 31, 2017,
2016 and 2015 are as follows:
Balance, beginning of year
Acquisitions
Improvements
Held for sale reclasses
Disposals*
Balance, end of year
$ 6,205,387
14,366
135,713
—
(639,470)
$ 5,715,996
$ 6,699,789
297
157,561
(215,244)
(437,016)
$ 6,205,387
$ 5,227,466
3,113,240
153,536
(166,742)
(1,627,711)
$ 6,699,789
*Primarily represents properties that have been deconsolidated upon sale of controlling interest, sold properties
and fully depreciated assets which have been disposed. Further, includes impairment charges of $66,925,
$21,879, and $147,979 for the years ended December 31, 2017, 2016 and 2015, respectively.
The following reconciles investment properties at cost per the consolidated balance sheet to the balance per Schedule III as
of December 31, 2017:
Investment properties at cost
Less: furniture, fixtures and equipment
Total cost per Schedule III
2017
$ 5,807,760
(91,764)
$ 5,715,996
The unaudited aggregate cost for federal income tax purposes of real estate assets presented was $5,307,967 as of December 31,
2017.
(2) Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation and amortization for the years ended December 31, 2017, 2016 and 2015 are as
follows:
Balance, beginning of year
Depreciation expense
Disposals
Balance, end of year
2017
$ 2,063,107
2016
$ 2,261,593
2015
$ 2,058,061
205,078
(191,237)
$ 2,076,948
222,861
(421,347)
$ 2,063,107
232,735
(29,203)
$ 2,261,593
The following reconciles accumulated depreciation per the consolidated balance sheet to the balance per Schedule III as of
December 31, 2017:
Accumulated depreciation
Less: furniture, fixtures and equipment
Total accumulated depreciation per Schedule III
2017
$ 2,139,620
(62,672)
$ 2,076,948
Depreciation of our investment in buildings and improvements reflected in the consolidated statements of operations is
generally calculated over the estimated original lives of the assets as noted below:
• Buildings and Improvements—typically 10-40 years for the structure, 15 years for landscaping and parking lot, and
10 years for HVAC equipment.
• Tenant Allowances and Improvements—shorter of lease term or useful life.
(3) Encumbrances represent face amount of mortgage debt and exclude any fair value adjustments and debt issuance costs.
F-57
Washington Prime Group Inc.
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends
(in thousands)
Exhibit 12.1
Year Ended December 31,
2017
2016
2015
2014
2013
Earnings before fixed charges:
Net income (loss) from continuing operations
$ 231,593
$
77,416
Income tax expense
(Income) loss from unconsolidated entities
Remeasurement gains from unconsolidated
entities
Distributions from unconsolidated entities
Fixed charges
Capitalized interest
Earnings before fixed charges
3,417
(1,395)
—
1,873
128,173
(1,521)
$ 362,140
$ (104,122)
849
1,247
$ 205,455
$ 187,334
1,215
(973)
196
(1,416)
2,232
1,745
—
272
139,027
(2,640)
$ 218,052
$
—
223
141,965
(1,781)
38,381
(99,375)
1,004
82,816
(283)
$ 189,859
—
2,110
56,219
(1,019)
$ 243,424
Fixed charges and preferred share dividends:
Interest expense (1)
Capitalized interest
Portion of rents representative of the interest
factor
Total fixed charges
Preferred share dividends
Total fixed charges and preferred share
dividends
$ 126,541
1,521
$ 136,225
2,640
$ 139,923
1,781
$
$
82,428
283
55,058
1,019
111
128,173
14,032
162
139,027
14,032
261
141,965
15,989
105
82,816
—
142
56,219
—
$ 142,205
$ 153,059
$ 157,954
$
82,816
$
56,219
Ratio of earnings to fixed charges and
preferred share dividends
2.55
1.42
0.24 (2)
2.29
4.33
(1) Does not include the impact of the approximate $1 billion of debt incurred related to the spin-off from Simon Property
Group for all periods prior to May 28, 2014.
(2) The shortfall of earnings to fixed charges and preferred share dividends for the year ended December 31, 2015 was
$119,573. This shortfall resulted from the $31,653 of merger and transaction costs and $147,979 of impairment loss that we
incurred during the year ended December 31, 2015.
Washington Prime Group, L.P.
Computation of Ratios of Earnings to Fixed Charges
(in thousands)
Exhibit 12.2
Year Ended December 31,
2017
2016
2015
2014
2013
Earnings before fixed charges:
Net income (loss) from continuing operations
$ 231,593
$
77,416
Income tax expense
(Income) loss from unconsolidated entities
Remeasurement gains from unconsolidated
entities
Distributions from unconsolidated entities
Fixed charges
Capitalized interest
Earnings before fixed charges
3,417
(1,395)
—
1,873
128,173
(1,521)
$ 362,140
$ (104,122)
849
1,247
$ 205,455
$ 187,334
1,215
(973)
196
(1,416)
2,232
1,745
—
272
139,027
(2,640)
$ 218,052
$
—
223
141,965
(1,781)
38,381
(99,375)
1,004
82,816
(283)
$ 189,859
—
2,110
56,219
(1,019)
$ 243,424
Fixed charges:
Interest expense (1)
Capitalized interest
Portion of rents representative of the interest
factor
Total fixed charges
$ 126,541
1,521
$ 136,225
2,640
$ 139,923
1,781
$
$
82,428
283
55,058
1,019
111
162
261
105
142
$ 128,173
$ 139,027
$ 141,965
$
82,816
$
56,219
Ratio of earnings to fixed charges
2.83
1.57
0.27 (2)
2.29
4.33
(1) Does not include the impact of the approximate $1 billion of debt incurred related to the spin-off from Simon Property
Group for all periods prior to May 28, 2014.
(2) The shortfall of earnings to fixed charges for the year ended December 31, 2015 was $103,584. This shortfall resulted
from the $31,653 of merger and transaction costs and $147,979 of impairment loss that we incurred during the year ended
December 31, 2015.
Washington Prime Group Inc. and Washington Prime Group, L.P.
List of Subsidiaries*
As of December 31, 2017
Exhibit 21.1
Washington Prime Group Inc. has the following subsidiaries:
Washington Prime Group, L.P.
Washington Prime Group, L.P. has the following subsidiaries:
Masterventure Limited Partnership
Washington Prime Acquisition, LLC
Washington Prime Management Associates, LLC
WPG Management Associates, Inc.
WPG Subsidiary Holdings I, LLC
WPG-OC General Partner, LLC
WPG-OC Limited Partner, LLC
WPG-OC New Limited Partner, L.P.
Washington Prime Properties LLC has the following subsidiaries:
Washington Prime Property Limited Partnership
WPG Management Associates, Inc. has the following subsidiaries:
WPG-OC General Partner II, LLC
WPG-OC JV II, L.P.
WPG-OC JV III, L.P.
WPG-OC JV V, L.P.
WPG-OC Limited Partner II, LLC
WPG Subsidiary Holdings I, LLC has the following subsidiaries:
Washington Prime Properties, LLC
Washington Prime Property Limited Partnership
WPG-OC General Partner II, LLC has the following subsidiaries:
WPG-OC JV IV, L.P.
WPG-OC JV VI, L.P.
WPG-OC General Partner III, LLC has the following subsidiaries:
WPG-OC JV IV, L.P.
WPG-OC JV VI, L.P.
WPG-OC General Partner, LLC has the following subsidiaries:
WPG-OC JV, L.P.
WPG-OC New Limited Partner, L.P.
WPG-OC New Limited Partner, L.P. has the following subsidiaries:
WPG-OC General Partner III, LLC
Jurisdiction
Indiana
Indiana
Indiana
Indiana
Indiana
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
*Omits name and subsidiaries that as of December 31, 2017 were not, in the aggregate, “significant subsidiaries.”
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
• Registration statement (Form S-3ASR No. 333-206500) of Washington Prime Group Inc.,
• Registration statement (Form S-8 No. 333-201531) pertaining to Glimcher Realty Trust Amended and Restated 2004
Incentive Compensation Plan and Glimcher Realty Trust 2012 Incentive Compensation Plan
• Registration statement (Form S-8 No. 333-197000) pertaining to Washington Prime Group, L.P. 2014 Stock Incentive
Plan.
of our reports dated February 22, 2018, with respect to the consolidated financial statements and schedule of Washington Prime
Group Inc. and the effectiveness of internal control over financial reporting of Washington Prime Group Inc. included in this
Annual Report (Form 10-K) of Washington Prime Group Inc. for the year ended December 31, 2017.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 22, 2018
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
We consent to the incorporation by reference in the Registration Statement (Form S-3ASR No. 333-206500) of Washington
Prime Group L.P. and in the related Prospectus of our reports dated February 22, 2018, with respect to the consolidated financial
statements and schedule of Washington Prime Group L.P. and the effectiveness of internal control over financial reporting of
Washington Prime L.P. included in this Annual Report (Form 10-K) of Washington Prime Group, L.P. for the year ended
December 31, 2017.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 22, 2018
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Louis G. Conforti, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Washington Prime Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ Louis G. Conforti
Louis G. Conforti
Chief Executive Officer and Director
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Mark E. Yale, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Washington Prime Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ Mark E. Yale
Mark E. Yale
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.3
I, Louis G. Conforti, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Washington Prime Group, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ Louis G. Conforti
Louis G. Conforti
Chief Executive Officer and Director of Washington Prime Group Inc.,
general partner of Washington Prime Group, L.P.
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.4
I, Mark E. Yale, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Washington Prime Group, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ Mark E. Yale
Mark E. Yale
Executive Vice President and Chief Financial Officer of Washington
Prime Group Inc., general partner of Washington Prime Group, L.P.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT of 2002
EXHIBIT 32.1
In connection with the Annual Report of Washington Prime Group Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: February 22, 2018
/s/ Louis G. Conforti
Louis G. Conforti
Chief Executive Officer and Director
Date: February 22, 2018
/s/ Mark E. Yale
Mark E. Yale
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT of 2002
EXHIBIT 32.2
In connection with the Annual Report of Washington Prime Group, L.P. (the “Partnership”) on Form 10-K for the period
ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Partnership.
Date: February 22, 2018
Date: February 22, 2018
/s/ Louis G. Conforti
Louis G. Conforti
Chief Executive Officer and Director of Washington
Prime Group Inc., general partner of Washington Prime
Group, L.P.
/s/ Mark E. Yale
Mark E. Yale
Executive Vice President and Chief Financial Officer of
Washington Prime Group Inc., general partner of
Washington Prime Group, L.P.
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
MARKET INFORMATION
Washington Prime Group Inc.’s common shares are listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “WPG.” On
December 31, 2017, the last reported sales price of WPG common shares on the NYSE was $7.12. The following table shows the high and low sales
prices for WPG common shares on the NYSE for the 2017 quarterly periods indicated as reported by the New York Stock Exchange Composite Tape
and the cash distributions per common share declared by the company with respect to each such period.
2017
High
Low
First Quarter
$10.97
$7.90
Second Quarter
$9.49
$7.31
Third Quarter
$9.79
$8.00
Fourth Quarter
$8.87
$6.62
Distributions
Declared
Per Common
Share(1)
$0.25
$0.25
$0.25
$0.25
(1) Distributions on WPG common shares are currently declared and paid on a quarterly basis.
EMPLOYEES
At February 21, 2018, the company had a total of 787 employees, of which 79 were part-time.
f
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
Computershare Trust Company, N.A., an affiliate of the company’s transfer agent, sponsors and administers a Direct Stock Purchase and Dividend
Reinvestment Plan that allows interested persons to purchase WPG common shares and/or to reinvest distributions on WPG common shares.
HOLDERS
The number of holders of record of the common shares was 1,381 on February 21, 2018.
TRANSFER AGENT AND REGISTRAR
Computershare Inc.
Regular Mail:
PO BOX 505000
Louisville, KY 40233-5000
Overnight Delivery:
462 South 4th Street Suite 1600
Louisville, KY 40202
1.866.239.2277
STOCK EXCHANGE LISTINGS
At February 21, 2018, the company had two series of outstanding shares of preferred stock, all of which are also traded on the NYSE under the following
symbols:
•
•
7.50% Series H Cumulative Redeemable Preferred Stock: “WPGPRH.”
6.875% Series I Cumulative Redeemable Preferred Stock: “WPGPRI.”
COMMON SHARE PERFORMANCE
The following graph compares the cumulative total shareholder return (TSR) on WPG common shares for the period May 14, 2014 (th
e date that WPG
tt
commenced trading) through December 31, 2017 with the cumulative total return on the Standard & Poor’s 500 Stock Index (“S&P 500”) and the
NAREIT All Equity REITs Index (“NAREIT Index”) 1 for the same period. Each cumulative total return was calculated assuming the investment of
$100 in each of the S&P 500, the NAREIT Index, and WPG common shares on May 14, 2014 and assuming reinvestment of dividends. The information
set forth below is not necessarily indicative of future performance.
d
t
(1)
The Financial Times Stock Exchange Group (FTSE) NAREIT All Equity REITs Index (consisting of 167 constituents with a total equity market cap of $1.02 trillion is calculated
by FTSE, as of December 31, 2017.
ANNUAL REPORT ON FORM 10-K
The company’s Annual Report on Form 10-K for the year ended December 31, 2017 is attached and is also available to shareholders without charge at
e company’s investor relations department at the address of the corporate
www.investor.washingtonprime.com or upon written request addressed to th
office.
m
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
Indianapolis, IN
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held on Thursday, May 17, 2018 at 9:00 a.m., local ti
405 Lexington Avenue, New York, New York, 10174.
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me, at the offices of Blank Rome LLP,
CORPORATE OFFICE
180 East Broad Street
Columbus, OH 43215
614.621.9000
WEBSITE AND E-MAIL
www.washingtonprime.com
wpginfo@washingtonprime.com
FORWARD-LOOKING STATEMENTS
This report, together with other statements and information publicly disseminated by WPG, contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy. Future events and actual results may
differ from the events discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be
material, include, but are not limited to, economic and market conditions, competition, employment litigation, transaction delays, the failure of WPG
to qualify as a real estate investment trust, loss of key personnel, the failure to achieve earnings/funds from operations targets or estimates, as well as
other risks listed from time to time in our Form 10-K and other reports and statements filed by WPG with the Securities and Exchange Commission.
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WASHINGTONPRIME.COM