Item 1. Business
Background and Description of the Business
Who we are - Simon Property Group, L.P. (the "SPG Operating Partnership"), a Delaware limited partnership, is a majority owned subsidiary of Simon Property Group, Inc. ("SPG"), a Delaware corporation. SPG is a self-administered and self-managed real estate investment trust ("REIT"). Each share of common stock of SPG is paired ("Paired Shares") with 1/100th of a share of common stock of SPG Realty Consultants, Inc. ("SRC" and together with SPG, the "Companies"). Units of partnership interests ("Units") in the SPG Operating Partnership are paired ("Paired Units") with Units in SPG Realty Consultants, L.P. (the "SRC Operating Partnership" and together with the SPG Operating Partnership, the "Operating Partnerships"). The SRC Operating Partnership is the primary subsidiary of SRC. In this report, the terms "we", "us" and "our" refer to the SPG Operating Partnership and its subsidiaries.
As of December 31, 2001, we owned or held an interest in 251 income-producing properties in the United States, which consisted of 165 regional malls, 72 community shopping centers, five specialty retail centers, four office and mixed-use properties and five value-oriented super-regional malls in 36 states (the "Properties"). We also own 11 parcels of land held for future development (together with the Properties, the "Portfolio" or the "Portfolio Properties"). In addition, we have ownership interests in seven additional retail real estate properties operating in Europe and Canada.
Mergers and Acquisitions
Mergers and acquisitions have been a significant component of the growth and development of our business. Beginning with the merger with DeBartolo Realty Corporation in August of 1996 for approximately $3.0 billion, we have completed five major mergers and/or acquisitions that have helped shape the current organization. These acquisitions included the merger with Corporate Property Investors, Inc. in 1998 for approximately $5.9 billion. Information regarding the mergers and acquisitions required by this item are included in the Notes to Financial Statements of the attached audited financial statements, Notes 3 and 4 (acquisitions portion only), included in Item 8 of this Form 10-K.
Subsequent to December 31, 2001, we signed a definitive agreement to purchase, jointly with Westfield America Trust and The Rouse Company, the assets of Rodamco North America N.V. for $5.3 billion. Our portion of the acquisition includes the purchase of the remaining ownership interests in four of our existing joint venture assets and new ownership interests in nine additional properties. Our share of the purchase price is $1.55 billion including $570.0 million in debt and perpetual preferred stock assumed.
General
During 2001, regional malls (including specialty retail centers and retail space in the mixed-use Properties), community centers and the remaining Portfolio comprised 92.2%, 4.9%, and 2.9%, respectively, of consolidated rent revenues and tenant reimbursements. The Properties contain an aggregate of approximately 186.5 million square feet of gross leasable area ("GLA"), of which we own 110.9 million square feet ("Owned GLA"). More than 3,970 different retailers occupy more than 19,950 stores in the Properties. Total estimated retail sales at the Properties in 2001 were approximately $39 billion.
Operating Strategies
Our primary business objectives are to increase cash generated from operations per Paired Unit and to increase the value of the Portfolio Properties. We plan to achieve these objectives through a variety of methods discussed below, although we cannot assure you that that we will achieve such objectives.
Leasing. We pursue an active leasing strategy that includes:
•aggressively marketing available space •renewing existing leases at higher base rents per square foot, and •originating leases that provide for percentage or overage rents and/or regular or periodic fixed contractual increases in base rents.
Management. We draw upon our expertise gained through management of a geographically diverse Portfolio nationally recognized as high quality retail and mixed-use Properties. In doing so, we seek to maximize cash flow through a combination of:
•an active merchandising program to maintain our shopping centers as inviting shopping destinations •efforts to minimize overhead and operating costs •coordinated marketing and promotional activities that establish and maintain customer loyalty, and •systematic planning and monitoring of results.
Acquisitions. As noted above, we expect to acquire certain assets from Rodamco North America, N.V. in 2002. We may selectively acquire other individual properties and portfolios of properties that meet our investment criteria as opportunities arise. We continue to review and evaluate a limited number of acquisition opportunities and will continue our focus on acquiring highly productive, market dominant malls. We believe that acquisition activity is a component of our growth strategy
Development in the United States. Our strategy is to selectively develop new properties in major metropolitan areas that exhibit strong population and economic growth. We opened one regional mall during 2001. This addition added approximately 0.6 million square feet of GLA to the Portfolio at a cost of approximately $68.8 million. Currently, there are no new developments under construction. We believe given the current economic environment there are no new developments that meet our risk-reward criteria in order to commence development in the near term, especially in a weakening leasing economic environment.
We also have direct or indirect interests in eleven parcels of land being held for future development in eight states totaling approximately 772 acres. We believe that we are well positioned to pursue future development opportunities as conditions warrant.
Strategic Expansions and Renovations. One of our key objectives is to increase the profitability and market share of the Properties through strategic renovations and expansions. We invested approximately $118.2 million on redevelopment projects during 2001. We also have a number of renovation and/or expansion projects currently either under construction or in preconstruction development. However, for the same reasons we are limiting development activities, we have reduced our renovation and expansion plans for the near term.
International Expansion. We believe the expertise we have gained through the development and management of our domestic Properties can be utilized in retail properties throughout the world. We intend to continue pursuing international opportunities on a selected basis to enhance Unitholder value. There are risks inherent in international business that may be
beyond our control. These risks include the following risks that may have a negative impact on our results of operations:
•changes in foreign currency exchange rates •declines in economic conditions abroad •changes in foreign political environments, and •changes in foreign laws.
Other Revenues. We also generate revenues due to our size and tenant relationships from:
•mall marketing initiatives •consumer focused strategic corporate alliances, and •delivering competitively priced property operating services to our tenants.
Competition
We believe that we have a competitive advantage in the retail real estate business as a result of:
•the size, quality and diversity of our Properties •our management and operational expertise •our use of innovative retailing concepts •our extensive experience and relationships with retailers and lenders •our mall marketing initiatives and consumer focused strategic corporate alliances, and •our ability to use our size to deliver competitively priced property operating services to our tenants.
We believe that the Portfolio is the largest, as measured by GLA, of any publicly traded REIT. In addition, we own more regional malls than any other publicly traded REIT. For these reasons, we believe that we are the leader in our industry.
All of the Portfolio Properties are located in developed areas. Certain of our Properties are of the same type and are within the same market area as other competitive properties. The existence of competitive properties could have a material adverse effect on our ability to lease space and on the level of rents we can obtain.
There are numerous other commercial developers, real estate companies and other owners of real estate that compete with us in our trade areas. This results in competition for both acquisition of prime sites (including land for development and operating properties) and for tenants to occupy the space that we and our competitors develop and manage.
Environmental Matters
General Compliance. We believe that the Portfolio Properties are in compliance, in all material respects, with all Federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances. Nearly all of the Portfolio Properties have been subjected to Phase I or similar environmental audits (which generally involve only a review of records and visual inspection of the property without soil sampling or ground water analysis) by independent environmental consultants. Phase I environmental audits are intended to discover information regarding, and to evaluate the environmental condition of, the surveyed properties and surrounding properties. These environmental audits have not revealed, nor are we aware of, any environmental liability that we believe will have a material adverse effect on our results of operations. We cannot assure you that:
•existing environmental studies with respect to the Portfolio Properties reveal all potential environmental liabilities •any previous owner, occupant or tenant of a Portfolio Property created any material environmental condition not known to us
•the current environmental condition of the Portfolio Properties will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties, or •future uses or condition (including, without limitation, changes in applicable environmental laws and regulations or the interpretation thereof) will not result in environmental liabilities.
Asbestos-Containing Materials. Asbestos-containing materials are present in most of the Properties, primarily in the form of vinyl asbestos tile, mastics and roofing materials, which we believe are generally in good condition. Fireproofing and insulation containing asbestos is also present in certain Properties in limited concentrations or in limited areas. The presence of such asbestos-containing materials does not violate currently applicable laws. Generally, we remove asbestos-containing materials as required in the ordinary course of any renovation, reconstruction and expansion, and in connection with the retenanting of space.
Underground Storage Tanks. Several of the Portfolio Properties contain, or at one time contained, underground storage tanks used to store waste oils or other petroleum products primarily related to auto services center establishments or emergency electrical generation equipment. We believe that regulated tanks have been removed, upgraded or abandoned in place in accordance with applicable environmental laws. Site assessments have revealed certain soil and groundwater contamination associated with such tanks at some of these Properties. Subsurface investigations (Phase II assessments) and remediation activities are either completed, ongoing, or scheduled to be conducted at such Properties. The cost of remediation with respect to such matters has not been material and we do not expect these costs will have a material adverse effect on our results of operations.
Properties to be Developed or Acquired. Land held for shopping mall development or that may be acquired for development may contain residues or debris associated with the use of the land by prior owners or third parties. In certain instances, such residues or debris could be or contain hazardous wastes or hazardous substances. Prior to exercising any option to acquire any of the optioned properties, we will conduct environmental due diligence consistent with acceptable industry standards.
Employees
At February 28, 2002 we and our affiliates employed approximately 4,160 persons at various centers and offices throughout the United States, of which approximately 1,580 were part-time. Approximately 940 of these employees were located at our headquarters.
Insurance
We have comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to our Properties. The impact of the events of September 11, 2001 has affected our insurance programs. Our insurance programs are discussed in detail in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.
Corporate Headquarters
Our executive offices are located at National City Center, 115 West Washington Street, Indianapolis, Indiana 46204, and its telephone number is (317) 636-1600.
Executive Officers of the Registrant
The following table sets forth certain information with respect to the executive officers of SPG, which is the managing general partner of the SPG Operating Partnership, as of December 31, 2001.
Name
Age
Position
Melvin Simon(1)
Co-Chairman
Herbert Simon(1)
Co-Chairman
David Simon(1)
Chief Executive Officer
Hans C. Mautner
Vice Chairman; Chairman, Simon Global Limited
Richard S. Sokolov
President and Chief Operating Officer
Randolph L. Foxworthy
Executive Vice President - Corporate Development
William J. Garvey
Executive Vice President - Property Development
James A. Napoli
Executive Vice President - Leasing
John R. Neutzling
Executive Vice President - Property Management
James M. Barkley
General Counsel; Secretary
Stephen E. Sterrett
Executive Vice President and Chief Financial Officer
Drew Sheinman
President - Simon Brand Ventures
Joseph S. Mumphrey
President - Simon Business Network
John Rulli
Senior Vice President and Chief Administrative Officer
Andrew A. Juster
Senior Vice President and Treasurer
David Schacht
Senior Vice President and Chief Information Officer
(1)Melvin Simon is the brother of Herbert Simon and the father of David Simon.
Set forth below is a summary of the business experience of the executive officers of the Companies. The executive officers of the Companies serve at the pleasure of the Board of Directors. For biographical information of Melvin Simon, Herbert Simon, David Simon, Hans C. Mautner, and Richard Sokolov, see Item 10 of this report.
Mr. Foxworthy is the Executive Vice President - Corporate Development of the Companies. Mr. Foxworthy joined Melvin Simon & Associates, Inc. ("MSA") in 1980 and has been an Executive Vice President in charge of Corporate Development of MSA since 1986 and has held the same position with the Companies since 1993.
Mr. Garvey is the Executive Vice President - Property Development of the Companies. Mr. Garvey, who was Executive Vice President and Director of Development at MSA, joined MSA in 1979 and held various positions with MSA.
Mr. Napoli is the Executive Vice President - Leasing of the Companies. Mr. Napoli also served as Executive Vice President and Director of Leasing of MSA, which he joined in 1989.
Mr. Neutzling is the Executive Vice President - Property Management of the Companies. Mr. Neutzling has also been an Executive Vice President of MSA since 1992 overseeing all property and asset management functions. He joined MSA in 1974 and has held various positions with MSA.
Mr. Barkley serves as the Companies' General Counsel and Secretary. Mr. Barkley holds the same position for MSA. He joined MSA in 1978 as Assistant General Counsel for Development Activity.
Mr. Sterrett serves as the Companies' Executive Vice-President and Chief Financial Officer. He joined MSA in 1989 and has held various positions with MSA.
Mr. Mumphrey holds the position of President - Simon Business Network. He joined MSA in 1974 and has held various property and asset management positions with MSA
Mr. Juster serves as the Companies' Senior Vice-President and Treasurer. He joined MSA in 1989 and has held various financial positions with MSA.
Mr. Rulli serves as the Companies' Senior Vice-President and Chief Administrative Officer. He joined MSA in 1988 and has held various positions with MSA.
Mr. Sheinman holds the position of President - Simon Brand Ventures. He joined the Companies' in 1998 as Senior Vice President of Marketing and Business Development.
Mr. Schacht serves as the Companies' Senior Vice-President and Chief Information Officer. He joined the Companies in 1997 and has held various information technology positions.
Item 2.
Item 2. Properties
Portfolio Properties
Our Properties primarily consist of regional malls and community shopping centers. Regional malls generally contain two or more anchors and a wide variety of smaller stores ("Mall" stores) located in enclosed malls connecting the anchors. Additional stores ("Freestanding" stores) are usually located along the perimeter of the parking area. Our 165 regional malls range in size from approximately 300,000 to 2.8 million square feet of GLA, with all but four regional malls over 400,000 square feet. These regional malls contain in the aggregate more than 17,000 occupied stores, including over 650 anchors, which are mostly national retailers. As of December 31, 2001, regional malls (including specialty retail centers and retail space in the mixed-use Properties) represented 84.7% of total GLA, 79.2% of Owned GLA and 86.3% of total annualized base rent of the Properties.
Community shopping centers are generally unenclosed and smaller than regional malls. Most of our 72 community shopping centers in the Properties range in size from approximately 50,000 to 600,000 square feet of GLA. Community shopping centers generally are of two types. First, we own traditional community centers that focus primarily on value-oriented and convenience goods and services. These centers are usually anchored by a supermarket, drugstore or discount retailer and are designed to service a neighborhood area. Second, we own "power centers" that are designed to serve a larger trade area and contain at least two anchors that are usually national retailers among the leaders in their markets and occupy more than 70% of the GLA in the center. As of December 31, 2001, community shopping centers represented 9.2% of total GLA, 10.8% of Owned GLA and 5.9% of the total annualized base rent of the Properties.
We also have interests in five specialty retail centers, four office and mixed-use Properties and five value-oriented super-regional malls. The specialty retail centers contain approximately 1,843,000 square feet of GLA and do not have anchors. These properties feature retailers and entertainment facilities in a distinctive shopping environment and location. The four office and mixed-use Properties range in size from approximately 512,000 to 1,030,000 square feet of GLA. Two of these Properties are regional malls with connected office buildings, and two are located in mixed-use developments and contain primarily office space. The value-oriented super-regional malls range in size from approximately 1.0 million to 1.6 million square feet of GLA. These Properties combine retail outlets, manufacturers' off-price stores and other value-oriented tenants. As of December 31, 2001, value-oriented super-regional malls represented 3.5% of total GLA, 5.9% of Owned GLA and 5.5% of the total annualized base rent of the Properties.
As of December 31, 2001, approximately 91.9% of the Mall and Freestanding Owned GLA in regional malls, specialty retail centers and the retail space in the mixed use Properties was leased, approximately 93.7% of the Owned GLA in the value-oriented super-regional malls was leased, and approximately 89.3% of Owned GLA in the community shopping centers was leased.
Of the 251 Properties, we own 100% of 170 of the Properties and the remainder are held as joint venture interests. We are the managing or co-managing general partner or member of all but 15 of the Properties held as joint venture interests.
Additional Information
The following table sets forth certain information, as of December 31, 2001, regarding the Properties:
17.
Brea Mall
Brea, CA
Fee
100.0
Cons
Acquired 1998
1,304,272
Macy's, JCPenney, Robinsons-May, Nordstrom, Sears
18.
Broadway Square
Tyler, TX
Fee
100.0
Cons
Acquired 1994
617,033
Dillard's, JCPenney, Sears
19.
Brunswick Square East
Brunswick, NJ
Fee
100.0
Cons
Built 1973
768,663
Macy's, JCPenney, Barnes & Noble
20.
Burlington Mall
Burlington, MA
Ground Lease (2048)
100.0
Cons
Acquired 1998
1,252,087
Macy's, Lord & Taylor, Filene's, Sears
21.
Cape Cod Mall
Hyannis, MA
Ground Leases (10) (2009-2073)
49.1
JV
Acquired 1999
723,621
Macy's, Filene's, Marshall's, Sears, Best Buy, Barnes & Noble
22.
Castleton Square
Indianapolis, IN
Fee
100.0
Cons
Built 1972
1,460,926
Galyan's, LS Ayres, Lazarus, JCPenney, Sears, Von Maur
23.
Century III Mall
Pittsburgh, PA
Fee
100.0
Cons
Built 1979
1,284,197
JCPenney, Sears, T.J. Maxx, Kaufmann's (4), Wickes Furniture
24.
Charlottesville
Fashion Square
Charlottesville, VA
Ground Lease (2076)
100.0
Cons
Acquired 1997
571,521
Belk (4), JCPenney, Sears
25.
Chautauqua Mall
Jamestown, NY
Fee
100.0
Cons
Built 1971
432,733
Sears, JCPenney, Office Max, The Bon Ton
26.
Cheltenham Square Philadelphia, PA
Fee
100.0
Cons
Built 1981
636,981
Burlington Coat Factory, Home Depot, Value City, Seaman's Furniture, Shop Rite
27.
Chesapeake Square Chesapeake, VA
Fee and Ground Lease (11) (2062)
75.0
Cons
Built 1989
797,319
Dillard's (4), JCPenney, Sears, Hecht's, Target (9)
28.
Cielo Vista Mall
El Paso, TX
Fee and Ground Lease (12) (2027)
100.0
Cons
Built 1974
1,191,768
Dillard's (4), JCPenney, Foley's, Sears
29.
Circle Centre
Indianapolis, IN
Property Lease (2097)
14.7
JV
Built 1995
795,859
Nordstrom, Parisian
30.
College Mall
Bloomington, IN
Fee and Ground Lease (12) (2048)
100.0
Cons
Built 1965
706,800
Sears, Lazarus, L.S. Ayres, Target, (6)
31.
Columbia Center
Kennewick, WA
Fee
100.0
Cons
Acquired 1987
745,640
Sears, JCPenney, Gottschalks, Barnes & Noble, The Bon Marche
32.
Coral Square (27)
Coral Springs, FL
Fee
50.0
JV
Built 1984
945,474
Dillard's, JCPenney, Sears, Burdines (4)
33.
Cordova Mall
Pensecola, FL
Fee
100.0
Cons
Acquired 1998
852,223
Ward, Parisian, Dillard's (4), Best Buy (9), (6)
34.
Cottonwood Mall
Albuquerque, NM
Fee
100.0
Cons
Built 1996
1,041,230
Dillard's, Foley's, JCPenney, Mervyn's, Sears (9)
35.
Crossroads Mall
Omaha, NE
Fee
100.0
Cons
Acquired 1994
858,650
Dillard's, Sears, Younkers, Barnes & Noble
36.
Crystal Mall
Waterford, CT
Fee
74.6
JV
Acquired 1998
785,070
Macy's, Filene's, JCPenney, Sears
37.
Crystal River Mall
Crystal River, FL
Fee
100.0
Cons
Built 1990
423,941
JCPenney, Sears, Belk, Kmart
38.
Dadeland Mall
Miami, FL
Fee
50.0
JV
Acquired 1997
1,404,815
Saks Fifth Avenue, JCPenney, Burdine's, Burdine's Home Gallery, Limited, Lord & Taylor
39.
DeSoto Square
Bradenton, FL
Fee
100.0
Cons
Built 1973
689,159
JCPenney, Sears, Dillard's, Burdines
40.
Eastern Hills Mall
Buffalo, NY
Fee
100.0
Cons
Built 1971
994,110
Sears, JCPenney, The Bon Ton, Kaufmann's, Burlington Coat Factory, (6)
41.
Eastland Mall
Evansville, IN
Fee
50.0
JV
Acquired 1998
899,718
JC Penney, De Jong's, Famous Barr, Lazarus
42.
Eastland Mall
Tulsa, OK
Fee
100.0
Cons
Built 1986
706,996
Dillard's, Foley's, Mervyn's, (6)
43.
Edison Mall
Fort Myers, FL
Fee
100.0
Cons
Acquired 1997
1,042,442
Dillard's, JCPenney, Sears, Burdines (4)
44.
Emerald Square North
Attleborough, MA
Fee
49.1
JV
Acquired 1999
1,022,630
Filene's, JCPenney, Lord & Taylor, Sears
45.
Empire Mall (8)
Sioux Falls, SD
Fee and Ground Lease (10) (2013)
50.0
JV
Acquired 1998
1,057,414
JCPenney, Younkers, Sears, Dayton Hudson, Richman Gordman
46.
Fashion Mall at Keystone
at the Crossing, The Indianapolis, IN
Ground Lease (2067)
100.0
Cons
Acquired 1997
655,320
Jacobsons, Parisian
47.
Fashion Valley Mall
San Diego, CA
Fee
50.0
JV
Acquired 2001
1,709,985
JCPenney, Macy's, Neiman-Marcus, Nordstrom, Robinson-May, Saks Fifth Avenue
48.
Florida Mall, The (27) Orlando, FL
Fee
50.0
JV
Built 1986
1,632,180
Dillard's, JCPenney, Lord & Taylor (9), Saks Fifth Avenue, Sears, Burdines,
Nordstrom (9)
49.
Forest Mall
Fond Du Lac, WI
Fee
100.0
Cons
Built 1973
501,556
JCPenney, Kohl's, Younkers, Sears, Staples
50.
Forest Village Park Mall Forestville, MD
Fee
100.0
Cons
Built 1980
418,500
JCPenney, Kmart
51.
Granite Run Mall
Media, PA
Fee
50.0
JV
Acquired 1998
1,047,283
JCPenney, Sears, Boscovs
52.
Great Lakes Mall
Cleveland, OH
Fee
100.0
Cons
Built 1961
1,314,861
Dillard's (4), Kaufmann's, JCPenney, Sears
53.
Greendale Mall
Worcester, MA
Fee and Ground Lease (10) (2009)
49.1
JV
Acquired 1999
434,699
(13)
Best Buy, Marshall's, T.J. Maxx & More
54.
Greenwood Park Mall Greenwood, IN
Fee
100.0
Cons
Acquired 1979
1,327,753
JCPenney, JCPenney Home Store, Lazarus, L.S. Ayres, Sears, Service Merchandise, Von Maur
55.
Gulf View Square
Port Richey, FL
Fee
100.0
Cons
Built 1980
804,216
Sears, Dillard's (7), JCPenney, Burdines
56.
Gwinnett Place
Atlanta, GA
Fee
50.0
JV
Acquired 1998
1,276,470
Parisian, Macy's, Rich's JCPenney, Sears
57.
Haywood Mall
Greensville, SC
Fee and Ground Lease (10) (2017)
100.0
Cons
Acquired 1998
1,245,133
Rich's, Sears, Dillard's, JCPenney, Belk Simpson
58.
Heritage Park Mall
Midwest City, OK
Fee
100.0
Cons
Built 1978
605,236
Dillard's, Sears, (6)
59.
Highland Mall (8)
Austin, TX
Fee and Ground Lease (2070)
50.0
JV
Acquired 1998
1,090,685
Dillard's (4), Foley's, JCPenney
60.
Hutchinson Mall
Hutchinson, KS
Fee
100.0
Cons
Built 1985
525,618
Dillard's, JCPenney, Sears, Wal-Mart
61.
Independence Center Independence, MO
Fee
100.0
Cons
Acquired 1994
1,022,749
Dillard's, Sears, The Jones Store Co.
62.
Indian River Mall
Vero Beach, FL
Fee
50.0
JV
Built 1996
748,157
Sears, JCPenney, Dillard's, Burdines
63.
Ingram Park Mall
San Antonio, TX
Fee
100.0
Cons
Built 1979
1,129,992
Dillard's (4), Foley's, JCPenney, Sears, Beall's
64.
Irving Mall
Irving, TX
Fee
100.0
Cons
Built 1971
1,124,413
Foley's, Dillard's, Mervyn's, Sears, Barnes & Noble, (6)
65.
Jefferson Valley Mall Yorktown Heights, NY
Fee
100.0
Cons
Built 1983
587,700
Macy's, Sears, H & M
66.
Knoxville Center
Knoxville, TN
Fee
100.0
Cons
Built 1984
981,288
Dillard's, JCPenney, Proffitt's, Sears, The Rush
67.
La Plaza
McAllen, TX
Fee and Ground Lease (10) (2040)
100.0
Cons
Built 1976
1,214,966
Dillard's, JCPenney, Foley's, Foley's Home Store, Sears, Beall's, Joe Brand-Lady Brand
68.
Lafayette Square Indianapolis, IN
Fee
100.0
Cons
Built 1968
1,215,198
JCPenney, LS Ayres, Sears, Lazarus, Burlington Coat Factory
69.
Laguna Hills Mall
Laguna Hills, CA
Fee
100.0
Cons
Acquired 1997
867,114
Macy's, JCPenney, Sears
70.
Lake Square Mall
Leesburg, FL
Fee
50.0
JV
Acquired 1998
560,975
JCPenney, Sears, Belk, Target
71.
Lakeline Mall
N. Austin, TX
Fee
100.0
Cons
Built 1995
1,099,202
Dillard's, Foley's, Sears, JCPenney, Mervyn's
72.
Lenox Square
Atlanta, GA
Fee
100.0
Cons
Acquired 1998
1,479,576
Neiman Marcus, Macy's, Rich's
73.
Liberty Tree Mall
Newton, MA
Fee
49.1
JV
Acquired 1999
857,117
Marshall's, Sports Authority, Target, Best Buy, Staples, Bed, Bath & Beyond, (6)
74.
Lima Mall
Lima, OH
Fee
100.0
Cons
Built 1965
746,613
Elder-Beerman, Sears, Lazarus, JCPenney
75.
Lincolnwood Town Center Lincolnwood, IL
Fee
100.0
Cons
Built 1990
422,106
JCPenney, Carson Pirie
Scott, (6)
76.
Lindale Mall (8)
Cedar Rapids, IA
Fee
50.0
JV
Acquired 1998
691,623
Von Maur, Sears, Younkers
77.
Livingston Mall
Livingston, NJ
Fee
100.0
Cons
Acquired 1998
985,537
Macy's, Sears, Lord & Taylor
78.
Longview Mall
Longview, TX
Fee
100.0
Cons
Built 1978
613,846
Dillard's (4), JCPenney, Sears, Service Merchandise, Beall's
79.
Machesney Park Mall (28) Rockford, IL
Fee
100.0
Cons
Built 1979
554,916
Seventh Avenue Direct, Bergners
80.
Mall at Rockingham Park Salem, NH
Fee
24.6
JV
Acquired 1999
1,020,581
Macy's, Filene's, JCPenney, Sears
81.
Mall of America
Minneapolis, MN
Fee (14)
27.5
JV
Acquired 1999
2,778,608
Macy's, Bloomingdales, Nordstrom, Sears, Knott's Camp Snoopy
82.
Mall of Georgia
Gwinnett County, GA
Fee
50.0
JV
Built 1999
1,785,432
Lord & Taylor, Rich's, Dillard's, Galyan's, Haverty's, JCPenney, Nordstrom, Bed, Bath & Beyond
83.
Mall of New Hampshire
Manchester, NH
Fee
49.1
JV
Acquired 1999
806,469
Filene's, JCPenney, Sears, Best Buy
84.
Markland Mall
Kokomo, IN
Ground Lease (2041)
100.0
Cons
Built 1968
393,102
Lazarus, Sears, Target
85.
McCain Mall
N. Little Rock, AR
Ground Lease (15) (2032)
100.0
Cons
Built 1973
777,092
Sears, Dillard's, JCPenney, M.M. Cohn
86.
Melbourne Square Melbourne, FL
Fee
100.0
Cons
Built 1982
729,331
Belk, Dillard's (4), JCPenney, Burdines
87.
Memorial Mall
Sheboygan, WI
Fee
100.0
Cons
Built 1969
348,601
Kohl's, Sears, Hobby Lobby (9)
88.
Menlo Park Mall
Edison, NJ
Fee
100.0
Cons
Acquired 1997
1,297,201
(16)
Macy's (4), Nordstrom
89.
Mesa Mall (8)
Grand Junction, CO
Fee
50.0
JV
Acquired 1998
856,175
Sears, Herberger's, JCPenney, Target, Mervyn's
90.
Metrocenter
Phoenix, AZ
Fee
50.0
JV
Acquired 1998
1,366,738
Macy's, Dillard's, Robinsons-May, JCPenney, Sears, Vans Skate Park
91.
Miami
International Mall (27)
Miami, FL
Fee
60.0
Cons
Built 1982
972,947
Sears, Dillard's, JCPenney, Burdines (4)
92.
Midland Park Mall
Midland, TX
Fee
100.0
Cons
Built 1980
619,202
Dillard's (4), JCPenney, Sears, Beall's
93.
Miller Hill Mall
Duluth, MN
Ground Lease (2008)
100.0
Cons
Built 1973
807,810
JCPenney, Sears, Younkers, Barnes & Noble
94.
Mounds Mall
Anderson, IN
Ground Lease (2033)
100.0
Cons
Built 1965
404,483
Elder-Beerman, JCPenney, Sears
95.
Muncie Mall
Muncie, IN
Fee
100.0
Cons
Built 1970
657,451
JCPenney, L.S. Ayres, Sears, Elder Beerman
96.
Nanuet Mall
Nanuet, NY
Fee
100.0
Cons
Acquired 1998
915,139
Macy's, Boscov, Sears
97.
North East Mall
Hurst, TX
Fee
100.0
Cons
Built 1971
1,705,334
Saks Fifth Avenue, Nordstrom, Dillard's, JCPenney, Sears, Foley's, (6)
98.
North Towne Square
Toledo, OH
Fee
100.0
Cons
Built 1980
748,122
(6)
99.
Northfield Square
Bradley, IL
Fee (11)
31.6
JV
Built 1990
558,365
Sears, JCPenney, Carson Pirie Scott (4)
100.
Northgate Mall
Seattle, WA
Fee
100.0
Cons
Acquired 1987
1,012,870
Nordstrom, JCPenney, Gottschalk, The Bon Marche
101.
Northlake Mall
Atlanta, GA
Fee
100.0
Cons
Acquired 1998
961,977
Parisian, Macy's, Sears, JCPenney
102.
Northpark Mall
Davenport, IA
Fee
50.0
JV
Acquired 1998
1,056,596
Von Maur, Younkers, Dillard's (9), JCPenney, Sears, Barnes & Noble
103.
Northshore Mall
Peabody, MA
Fee
49.1
JV
Acquired 1999
1,684,590
Macy's, Filene's, JCPenney, Lord & Taylor, Sears
104.
Northwoods Mall
Peoria, IL
Fee
100.0
Cons
Acquired 1983
695,395
Famous Barr, JCPenney, Sears
105.
Oak Court Mall
Memphis, TN
Fee
100.0
Cons
Acquired 1997
853,333
(17)
Dillard's (4), Goldsmith's
106.
Orange Park Mall Jacksonville, FL
Fee
100.0
Cons
Acquired 1994
928,831
Dillard's, JCPenney, Sears, Belk
107.
Orland Square
Orland Park, IL
Fee
100.0
Cons
Acquired 1997
1,217,507
JCPenney, Marshall Field, Sears, Carson Pirie Scott
108.
Paddock Mall
Ocala, FL
Fee
100.0
Cons
Built 1980
559,902
JCPenney, Sears, Belk, Burdines
109.
Palm Beach Mall
West Palm Beach, FL
Fee
100.0
Cons
Built 1967
1,212,678
Dillard's, JCPenney, Sears, Burdines, Borders Books & Music, MARS, (6)
110.
Phipps Plaza
Atlanta, GA
Fee
100.0
Cons
Acquired 1998
821,501
Lord & Taylor, Parisian, Saks Fifth Avenue
111.
Port Charlotte Town Center Port Charlotte, FL
Ground Lease (11) (2064)
80.0
Cons
Built 1989
780,562
Dillard's, JCPenney, Beall's (9), Sears, Burdines
112.
Prien Lake Mall
Lake Charles, LA
Fee and Ground Lease (10) (2025)
100.0
Cons
Built 1972
812,022
Dillards, JCPenney, Foley's (9), Sears, The White House
113.
Raleigh Springs Mall Memphis, TN
Fee and Ground Lease (10) (2018)
100.0
Cons
Built 1979
917,789
Dillard's, Sears, JCPenney, Goldsmith's
114.
Randall Park Mall (28) (29)
Cleveland, OH
Fee
100.0
Cons
Built 1976
1,563,546
Dillard's, Kaufmann's, Sears, Burlington Coat Factory, Ohio Furniture Mart.com, (6)
115.
Richardson Square
Dallas, TX
Fee
100.0
Cons
Built 1977
745,515
Dillard's, Sears, Stein Mart, Target, Ross Dress for Less, Barnes & Noble, Super Target (9)
116.
Richmond Square
Richmond, IN
Fee
100.0
Cons
Built 1966
391,217
Dillard's, JCPenney, Sears, Office Max
117.
Richmond Town Square Cleveland, OH
Fee
100.0
Cons
Built 1966
1,021,546
Sears, JCPenney, Kaufmann's, Barnes & Noble, Old Navy
118.
River Oaks Center
Calumet City, IL
Fee
100.0
Cons
Acquired 1997
1,362,404
(18)
Sears, JCPenney, Carson Pirie Scott, Marshall Field's
119.
Rockaway Townsquare Rockaway, NJ
Fee
100.0
Cons
Acquired 1998
1,242,037
Macy's, Lord & Taylor, JCPenney, Sears
120.
Rolling Oaks Mall
North San Antonio, TX
Fee
100.0
Cons
Built 1988
737,781
Sears, Dillard's, Foley's,
121.
Roosevelt Field Mall
Garden City, NY
Ground Lease (10) (2090)
100.0
Cons
Acquired 1998
2,178,006
Macy's, Bloomingdale's, JCPenney, Nordstrom, (6)
122.
Ross Park Mall
Pittsburgh, PA
Fee
100.0
Cons
Built 1986
1,276,177
Lazarus, JCPenney, Sears, Kaufmann's, Media Play, Designer Shoe Warehouse
123.
Rushmore Mall (8)
Rapid City, SD
Fee
50.0
JV
Acquired 1998
835,224
JCPenney, Sears, Herberger's, Hobby Lobby, Target
124.
St. Charles Towne Center Waldorf, MD
Fee
100.0
Cons
Built 1990
1,044,196
Sears, JCPenney, Kohl's, Hecht's (7)
125.
Santa Rosa Plaza
Santa Rosa, CA
Fee
100.0
Cons
Acquired 1998
696,411
Macy's, Mervyn's, Sears
126.
Seminole Towne Center Sanford, FL
Fee
45.0
JV
Built 1995
1,153,559
Dillard's, JCPenney, Parisian, Sears, Burdines
127.
Shops at Mission Viejo Mall,
The Mission
Viejo, CA
Fee
100.0
Cons
Built 1979
1,145,489
Macy's, Saks Fifth Avenue, Robinsons - May, Nordstrom
128.
Smith Haven Mall
Lake Grove, NY
Fee
25.0
JV
Acquired 1995
1,363,904
Macy's, Sears, JCPenney, H & M, (6)
129.
Solomon Pond Mall Marlborough, MA
Fee
49.1
JV
Acquired 1999
880,786
Filene's, Sears, JCPenney, Linens-N-Things
130.
Source, The
Long Island, NY
Fee
25.0
JV
Built 1997
728,763
Off 5th-Saks Fifth Avenue, Fortunoff, Nordstrom Rack, Old Navy, Circuit City, Virgin Megastore
131.
South Hills Village Pittsburgh, PA
Fee
100.0
Cons
Acquired 1997
1,113,247
Sears, Kaufmann's, Lazarus
132.
South Park Mall
Shreveport, LA
Fee
100.0
Cons
Built 1975
857,775
Burlington Coat Factory, Stage, Wholesale America, (6)
133.
South Shore Plaza
Braintree, MA
Fee
100.0
Cons
Acquired 1998
1,443,696
Macy's, Filene's, Lord & Taylor, Sears
134.
Southern Hills Mall (8)
Sioux City, IA
Fee
50.0
JV
Acquired 1998
750,418
Younkers, Sears, Target
135.
Southern Park Mall Youngstown, OH
Fee
100.0
Cons
Built 1970
1,198,862
Dillard's, JCPenney, Sears, Kaufmann's
136.
Southgate Mall
Yuma, AZ
Fee
100.0
Cons
Acquired 1988
321,564
Sears, Dillard's, JCPenney, Hastings
137.
SouthPark Mall
Moline, IL
Fee
50.0
JV
Acquired 1998
1,032,672
JCPenney, Dillard's (9), Younkers, Sears, Von Maur
138.
SouthRidge Mall (8)
Des Moines, IA
Fee
50.0
JV
Acquired 1998
1,008,088
Sears, Younkers, JCPenney, Target, (6)
139.
Square One Mall
Saugus, MA
Fee
49.1
JV
Acquired 1999
850,487
Filene's, Sears, Service Merchandise, TJMaxx & More
140.
Summit Mall
Akron, OH
Fee
100.0
Cons
Built 1965
762,876
Dillard's (4), Kaufmann's
141.
Sunland Park Mall
El Paso, TX
Fee
100.0
Cons
Built 1988
919,543
JCPenney, Mervyn's, Sears, Dillard's (4)
142.
Tacoma Mall
Tacoma, WA
Fee
100.0
Cons
Acquired 1987
1,263,690
Nordstrom, Sears, JCPenney, The Bon Marche, Mervyn's
143.
Tippecanoe Mall
Lafayette, IN
Fee
100.0
Cons
Built 1973
861,364
Lazarus, Sears, L.S. Ayres, JCPenney, Kohl's
144.
Town Center at Boca Raton Boca Raton, FL
Fee
100.0
Cons
Acquired 1998
1,554,606
Lord & Taylor, Saks Fifth Avenue, Bloomingdale's, Sears, Burdines, Nordstrom
145.
Town Center at Cobb Atlanta, GA
Fee
50.0
JV
Acquired 1998
1,272,847
Macy's, Parisian, Sears, JCPenney, Rich's
146.
Towne East Square
Wichita, KS
Fee
100.0
Cons
Built 1975
1,092,070
Dillard's, JCPenney, Sears, Von Maur (9), Steinmart
147.
Towne West Square
Wichita, KS
Fee
100.0
Cons
Built 1980
966,057
Dillard's (4), Sears, JCPenney, (6)
148.
Treasure Coast Square
Jenson Beach, FL
Fee
100.0
Cons
Built 1987
872,277
Dillard's (4), Sears, Borders JCPenney, Burdines
149.
Tyrone Square
St. Petersburg, FL
Fee
100.0
Cons
Built 1972
1,128,815
Dillard's, JCPenney, Sears, Borders, Burdines
150.
University Mall
Little Rock, AR
Ground Lease (2026)
100.0
Cons
Built 1967
565,306
JCPenney, M.M. Cohn, Sears (9)
151.
University Mall
Pensacola, FL
Fee
100.0
Cons
Acquired 1994
707,203
JCPenney, Sears, McRae's
152.
University Park Mall
South Bend, IN
Fee
60.0
Cons
Built 1979
941,112
LS Ayres, JCPenney, Sears, Marshall Fields
153.
Upper Valley Mall Springfield, OH
Fee
100.0
Cons
Built 1971
750,486
Lazarus, JCPenney, Sears, Elder-Beerman
154.
Valle Vista Mall
Harlingen, TX
Fee
100.0
Cons
Built 1983
656,654
Dillard's, Mervyn's, Sears, JCPenney, Marshalls, Beall's
155.
Valley Mall
Harrisonburg, VA
Fee
50.0
JV
Acquired 1998
511,889
JCPenney, Belk, Wal-Mart, Peebles
156.
Virginia Center Commons Richmond, VA
Fee
100.0
Cons
Built 1991
786,639
Dillard's (4), Hecht's, JCPenney, Sears
157.
Walt Whitman Mall Huntington Station, NY
Ground Rent (2012)
98.4
Cons
Acquired 1998
1,027,872
Macy's, Lord & Taylor, Bloomingdale's, Saks Fifth Avenue
158.
Washington Square Indianapolis, IN
Fee
100.0
Cons
Built 1974
1,121,521
L.S. Ayres, Lazarus, Target, Sears, (6)
159.
West Ridge Mall
Topeka, KS (19)
Fee
100.0
Cons
Built 1988
1,040,623
Dillard's, JCPenney, The Jones Store, Sears, (6)
160.
West Town Mall (27) Knoxville, TN
Ground Lease (2042)
50.0
JV
Acquired 1991
1,334,029
Parisian, Dillard's, JCPenney, Proffitt's, Sears
6.
Celina Plaza
El Paso, TX
Fee and Ground Lease (25) (2027)
100.0
Cons
Built 1978
32,622
7.
Charles Towne Square Charleston, SC
Fee
100.0
Cons
Built 1976
199,693
Regal Cinema
8.
Chesapeake Center Chesapeake, VA
Fee
100.0
Cons
Built 1989
299,604
Phar Mor, K-Mart
9.
Cobblestone Court
Victor, NY
Fee and Ground Lease (12) (2038)
35.0
JV
Built 1993
265,493
Dick's Sporting Goods, Kmart, Office Max
10.
Countryside Plaza Countryside, IL
Fee and Ground Lease (12) (2058)
100.0
Cons
Built 1977
435,608
Best Buy, Old Country Buffet, Kmart, Burlington Coat, (6)
11.
Crystal Court
Crystal Lake, IL
Fee
35.0
JV
Built 1989
278,971
Cub Foods, Wal-Mart
12.
Eastgate Consumer Mall (28) Indianapolis, IN
Fee
100.0
Cons
Acquired 1981
463,650
Burlington Coat Factory
13.
Eastland Convenience Center Evansville, IN
Ground Lease (2075)
50.0
JV
Acquired 1998
173,069
Marshalls, Kids "R" Us, Toys "R" Us, Bed Bath & Beyond
14.
Eastland Plaza
Tulsa, OK
Fee
100.0
Cons
Built 1986
188,229
Marshalls, Target, Toys "R" Us
15.
Empire East (8)
Sioux Falls, SD
Fee
50.0
JV
Acquired 1998
271,351
Kohl's, Target, (6)
16.
Fairfax Court
Fairfax, VA
Fee
26.3
JV
Built 1992
258,738
Burlington Coat Factory, Circuit City Superstore, Today's Man
17.
Forest Plaza
Rockford, IL
Fee
100.0
Cons
Built 1985
431,001
Kohl's, Marshalls, Media Play, Michael's, Factory Card Outlet, Office Max, T.J. Maxx, Bed, Bath & Beyond, Petco
18.
Fox River Plaza (28)
Elgin, IL
Fee
100.0
Cons
Built 1985
322,997
Big Lots, (6), (26)
19.
Gaitway Plaza
Ocala, FL
Fee
23.3
JV
Built 1989
229,972
Books-A-Million, Office Depot, T.J. Maxx, Ross Dress for Less, Bed, Bath & Beyond
20.
Glen Burnie Mall (28)
Glen Burnie, MD
Fee
100.0
Cons
Built 1963
455,291
Toys "R" Us, Best Buy, Dick's Clothing & Sporting Goods
21.
Great Lakes Plaza
Cleveland, OH
Fee
100.0
Cons
Built 1976
164,104
Circuit City, Best Buy, Michael's, Cost Plus World Market
22.
Great Northeast Plaza Philadelphia, PA
Fee
50.0
JV
Acquired 1989
298,242
Sears, Phar Mor
23.
Greenwood Plus
Greenwood, IN
Fee
100.0
Cons
Built 1979
173,481
Best Buy, Kohl's
24.
Griffith Park Plaza
Griffith, IN
Ground Lease (2060)
100.0
Cons
Built 1979
274,230
(6)
25.
Grove at Lakeland
Square, The
Lakeland, FL
Fee
100.0
Cons
Built 1988
215,591
Sports Authority
26.
Highland Lakes Center Orlando, FL
Fee
100.0
Cons
Built 1991
478,014
Marshalls, Bed, Bath & Beyond, Foods Festival, Ross Dress for Less, Office Max, (6)
27.
Indian River Commons
Vero Beach, FL
Fee
50.0
JV
Built 1997
264,681
Lowe's, Ross Dress for Less, Bed, Bath & Beyond, (6)
28.
Ingram Plaza
San Antonio, TX
Fee
100.0
Cons
Built 1980
111,518
-
29.
Keystone Shoppes Indianapolis, IN
Ground Lease (2067)
100.0
Cons
Acquired 1997
29,140
-
30.
Knoxville Commons Knoxville, TN
Fee
100.0
Cons
Built 1987
180,463
Office Max, Circuit City
31.
Lake Plaza
Waukegan, IL
Fee
100.0
Cons
Built 1986
215,498
Pic 'N Save, Home Owners Buyer's Outlet, (6)
32.
Lake View Plaza
Orland Park, IL
Fee
100.0
Cons
Built 1986
381,907
Best Buy (4), Marshalls, Ulta Cosmetics, Factory Card Outlet, Golf Galaxy, Linens-N-Things (4), Pet Care Plus, (6)
33.
Lakeline Plaza
Austin, TX
Fee
100.0
Cons
Built 1998
344,693
Old Navy, Best Buy, Cost Plus World Market, Linens-N-Things, Office Max, Petsmart, Ross Dress for Less, T.J. Maxx, Party City, Ulta Cosmetics
34.
Lima Center
Lima, OH
Fee
100.0
Cons
Built 1978
201,154
Kohl's, Hobby Lobby
35.
Lincoln Crossing
O'Fallon, IL
Fee
100.0
Cons
Built 1990
161,337
Wal-Mart, PetsMart
36.
Mainland Crossing
Galveston, TX
Fee(11)
80.0
Cons
Built 1991
390,987
Hobby Lobby, Sam's Club, Wal-Mart
37.
Mall of Georgia Crossing Gwinnett County, GA
Fee
50.0
JV
Built 1999
440,612
Target, Nordstrom Rack, Best Buy, Staples, T.J. Maxx N More
38.
Markland Plaza
Kokomo, IN
Fee
100.0
Cons
Built 1974
66,166
Best Buy, (6)
39.
Martinsville Plaza Martinsville, VA
Space Lease (2036)
100.0
Cons
Built 1967
102,105
Rose's
40.
Matteson Plaza
Matteson, IL
Fee
100.0
Cons
Built 1988
275,455
Dominick's, Michael's Arts & Crafts, Value City
41.
Memorial Plaza
Sheboygan, WI
Fee
100.0
Cons
Built 1966
131,499
Office Max, Big Lots
42.
Mounds Mall Cinema Anderson, IN
Fee
100.0
Cons
Built 1974
7,500
-
43.
Muncie Plaza
Muncie, IN
Fee
100.0
Cons
Built 1998
172,651
Kohl's, Office Max, Shoe Carnival, T.J. Maxx, Target
44.
New Castle Plaza
New Castle, IN
Fee
100.0
Cons
Built 1966
91,648
Goody's
45.
North Ridge Plaza
Joliet, IL
Fee
100.0
Cons
Built 1985
305,070
Best Buy, Minnesota Fabrics, Hobby Lobby, Office Max, Cub Foods
46.
North Riverside Park Plaza North Riverside, IL
Fee
100.0
Cons
Built 1977
119,608
Dominick's
47.
Northland Plaza
Columbus, OH
Fee and Ground Lease (10) (2085)
100.0
Cons
Built 1988
209,534
Marshalls, Hobby Lobby, (6)
48.
Northwood Plaza
Fort Wayne, IN
Fee
100.0
Cons
Built 1974
204,372
Target, Cinema Grill, (6)
49.
Park Plaza
Hopkinsville, KY
Fee and Ground Lease (10) (2039)
100.0
Cons
Built 1968
115,024
Wal-Mart, (6)
50.
Plaza at Buckland Hills, The Manchester, CT
Fee
35.0
JV
Built 1993
334,487
Toys "R" Us, Jo-Ann Etc., Kids "R" Us, Comp USA, Linens-N-Things, Party City, The Floor Store
51.
Regency Plaza
St. Charles, MO
Fee
100.0
Cons
Built 1988
287,526
Wal-Mart, Sam's Wholesale, Pets Mart
52.
Ridgewood Court
Jackson, MS
Fee
35.0
JV
Built 1993
240,662
T.J. Maxx, Bed, Bath & Beyond, Best Buy, Marshall's, Lifeway Christian Stores
53.
Rockaway Convenience
Center
Rockaway, NJ
Fee
100.0
Cons
Acquired 1998
135,426
Kids "R" Us, AMCE Grocery
54.
Royal Eagle Plaza
Coral Springs, FL
Fee
35.0
JV
Built 1989
198,986
Kmart, Stein Mart
55.
Shops at Northeast Mall, The Hurst, TX
Fee
100.0
Cons
Built 1999
364,534
Old Navy, Nordstrom Rack, Bed, Bath & Beyond, Office Max, Michael's, Petsmart, T.J. Maxx, Ultra Cosmetics, Best Buy, Zany Brainy
56.
St. Charles Towne Plaza Waldorf, MD
Fee
100.0
Cons
Built 1987
404,952
Value City Furniture, T.J. Maxx, Ames, Jo Ann Fabrics, CVS, Shoppers Food Warehouse, (6)
57.
Teal Plaza
Lafayette, IN
Fee
100.0
Cons
Built 1962
101,087
Circuit City, Hobby-Lobby, The Pep Boys
58.
Terrace at The Florida Mall Orlando, FL
Fee
100.0
Cons
Built 1989
329,362
Marshalls, Target
59.
Tippecanoe Plaza
Lafayette, IN
Fee
100.0
Cons
Built 1974
94,598
Best Buy, Barnes & Noble
60.
University Center
South Bend, IN
Fee
60.0
Cons
Built 1980
150,548
Best Buy, Michaels
61.
Village Park Plaza
Westfield, IN
Fee
35.0
JV
Built 1990
528,154
Wal-Mart, Galyan's, Frank's Nursery, Kohl's, Marsh, (6)
62.
Wabash Village
West Lafayette, IN
Ground Lease (2063)
100.0
Cons
Built 1970
124,536
Kmart
63.
Washington Plaza Indianapolis, IN
Fee
100.0
Cons
Built 1976
50,107
Kids "R" Us
64.
Waterford Lakes Town
Center
Orlando, FL
Fee
100.0
Cons
Built 1999
818,136
Super Target, T.J. Maxx, Barnes & Noble, Ross Dress for Less, Petsmart, Bed, Bath & Beyond, Old Navy, Best Buy, Office Max
65.
West Ridge Plaza
Topeka, KS
Fee
100.0
Cons
Built 1988
237,858
Target, T.J. Maxx, Toys "R" Us, (6)
66.
West Town Corners Altamonte Springs, FL
Fee
23.3
JV
Built 1989
385,026
Wal-Mart, Sports Authority, PetsMart, Winn Dixie
67.
Westland Park Plaza
Orange Park, FL
Fee
23.3
JV
Built 1989
163,154
Burlington Coat Factory, PetsMart, Sports Authority, Sound Advice
68.
White Oaks Plaza
Springfield, IL
Fee
100.0
Cons
Built 1986
400,303
Kohl's, Kids "R" Us, Office Max, T.J. Maxx, Toys "R" Us, Cub Foods
69.
Wichita Mall
Wichita, KS
Ground Lease (2022)
100.0
Cons
Built 1969
370,181
(6)
70.
Willow Knolls Court
Peoria, IL
Fee
35.0
JV
Built 1990
382,377
Kohl's, Phar-Mor, Sam's Wholesale Club
Footnotes:
(1)The date listed is the expiration date of the last renewal option available to the operating entity under the ground lease. In a majority of the ground leases, the lessee has either a right of first refusal or the right to purchase the lessor's interest. Unless otherwise indicated, each ground lease listed in this column covers at least 50% of its respective Property. (2)The SPG Operating Partnership's interests in some of the Properties held as joint venture interests are subject to preferences on distributions in favor of other partners or the SPG Operating Partnership. (3)Properties that are noted as "Cons" are consolidated in accordance with our accounting policy and these properties are reported in our consolidated balance sheets and results of operations. Properties that are noted as "JV" are joint venture properties accounted for under the equity method of accounting in accordance with our accounting policy. These joint venture properties' results are reported in Note 7 in the Notes to Financial Statements included in Part IV of this Form 10-K. (4)This retailer operates two stores at this Property. (5)Primarily retail space with approximately 105,800 square feet of office space. (6)Includes anchor space currently vacant. (7)This retailer will operate two stores at this Property. One of these stores is currently under construction or in predevelopment. (8)This Property is managed by a third party. (9)Indicates anchor is currently under construction or in predevelopment. (10)Indicates ground lease covers less than 15% of the acreage of this Property. (11)The SPG Operating Partnership receives substantially all of the economic benefit of these Properties. (12)Indicates ground lease(s) cover(s) less than 50% of the acreage of the Property. (13)Primarily retail space with approximately 119,900 square feet of office space. (14)The SPG Operating Partnership is entitled to 50% of the economic benefits of this Property. (15)Indicates ground lease covers all of the Property except for parcels owned in fee by anchors. (16)Primarily retail space with approximately 46,000 square feet of office space. (17)Primarily retail space with approximately 130,000 square feet of office space. (18)Primarily retail space with approximately 101,000 square feet of office space. (19)Includes outlots in which the SPG Operating Partnership has an 85% interest and which represent less than 3% of the GLA and total annualized base rent for the Property. (20)The SPG Operating Partnership owns 60% of the original phase of this Property and 55% of phase II. (21)Primarily retail space with approximately 169,100 square feet of office space. (22)Primarily retail space with approximately 488,000 square feet of office space. (23)Primarily office space with approximately 12,800 square feet of retail space. (24)Primarily office space with approximately 24,300 square feet of retail space. (25)Indicates ground lease covers outparcel only. (26)Indicates anchor has closed, but the SPG Operating Partnership still collects rents and/or fees under an agreement. (27)We expect to acquire the remaining ownership interests in these properties in connection with the expected closing of the Rodamco North America, N.V. acquisition in 2002. (28)These properties are classified as assets held for sale. See Note 4 in the Notes to Financial Statements included in Part IV of this Form 10-K. (29)We are currently in negotiations with the properties' lenders to dispose of these properties in 2002.
Land Held for Development
We have direct or indirect ownership interests in eleven parcels of land held for future development, containing an aggregate of approximately 772 acres located in eight states. In addition, we have an indirect interest in one parcel of land totaling 109 acres through M.S. Management Associates, Inc., which was previously held for development, but is now being marketed for sale.
Joint Ventures
At certain of the Properties held as joint-ventures, we and its partners each have rights of first refusal, subject to certain conditions, to acquire additional ownership in the Property should the other partner decide to sell its ownership interest. In addition, certain of the Properties held as joint ventures contain "buy-sell" provisions, which give the partners the right to trigger a purchase or sale of ownership interest amongst the partners.
Mortgage Financing on Properties
The following table sets forth certain information regarding the mortgages and other debt encumbering the Properties. Substantially all of the mortgage and property related debt is nonrecourse. In addition certain limited partner Unitholders have guaranteed a portion of the property related debt in the aggregate amount of $559.3 million.
MORTGAGE AND OTHER DEBT ON PORTFOLIO PROPERTIES
(Dollars in thousands)
(Footnotes on following page)
(Footnotes for preceding pages)
(1)Loans secured by these four Properties are cross-collateralized and cross-defaulted. (2)Requires monthly payment of interest only. (3)LIBOR + 1.500%. (4)Includes applicable extension available at the SPG Operating Partnership's option. (5)Loans secured by these eleven Properties are cross-collateralized and cross-defaulted. (6)Loans secured by these three Properties are cross-collateralized and cross-defaulted. (7)Secured by cross-collateralized and cross-defaulted mortgages encumbering seven of the Properties (Bay Park Square, Boardman Plaza, Cheltenham Square, De Soto Square, Upper Valley Mall, Washington Square, and West Ridge Mall). (8)LIBOR + 0.405%, through an interest rate protection agreement is effectively fixed at an all-in-one rate of 6.200%. (9)Loans secured by these three Properties are cross-collateralized and cross-defaulted. (10)LIBOR + 1.300% with LIBOR capped at 7.700%. (11)LIBOR + 1.000%. (12)Loans secured by these six Properties are cross-collateralized and cross-defaulted. (13)LIBOR + 0.300%, through an interest rate protection agreement is effectively fixed at an all-in-one rate of 6.190%. (14)LIBOR + 1.250%. (15)LIBOR + 1.375%. (16)LIBOR + 2.750%, with LIBOR capped at 6.500%. (17)LIBOR + 1.050%. (18)Lender also participates in a percentage of certain gross receipts above a specified base. (19)LIBOR + 1.400%. (20)LIBOR + 1.650%. (21)Requires semi-annual payments of interest only. (22)LIBOR + 0.800%. (23)$1,250,000 unsecured revolving credit facility. Currently, bears interest at LIBOR + 0.650% and provides for different pricing based upon the SPG Operating Partnership's investment grade rating. Two interest rate caps currently limit LIBOR on $90,000 and $50,000 of this indebtedness to 11.530% and 16.770%, respectively. As of 12/31/2001, $1,057,519 was available after outstanding borrowings and letters of credit. (24)LIBOR + 3.100%. (25)The MOPPRS have an actual maturity of June 15, 2028, but are subject to mandatory tender on June 15, 2008. (26)LIBOR + 5.000%. (27)LIBOR + 1.150% capped at 8.100%. (28)LIBOR + 0.440%, with LIBOR capped at 8.810% through maturity. (29)LIBOR + 1.500%, with LIBOR capped at 7.750% through maturity. (30)These Commercial Mortgage Notes are secured by cross-collateralized mortgages encumbering thirteen Properties (Eastland Mall, Empire East, Empire Mall, Granite Run Mall, Mesa Mall, Lake Square, Lindale Mall, Northpark Mall, Southern Hills Mall, Southpark Mall, Southridge Mall, Rushmore Mall, and Valley Mall). A weighted average rate is used for each component. The floating components have interest protection agreements which caps LIBOR at 11.670% and 11.830% respectively. (31)Loans secured by these twelve Properties are cross-collateralized and cross-defaulted. (32)LIBOR + 1.350%. (33)LIBOR + 0.800% with LIBOR capped at 8.450% (34)EURIBOR + 0.600%, EURIBOR swapped to effectively fix all-in-rate at 7.75%. (35)EURIBOR + 0.600%. (36)LIBOR + 0.5128%, with LIBOR capped at 8.7157%. (37)Canadian Prime. (38)LIBOR + 1.300%, rate may be reduced based upon project performance. (39)LIBOR + 1.150%. (40)Includes minority interest partners' share of consolidated indebtedness of $156,967. (41)Loans secured by these four Properties are cross-collateralized and cross-defaulted. (42)LIBOR + 2.500% capped at 11.000%. (43)LIBOR + 2.500% capped at 8.000%. (44)Includes outside partners' share of joint venture indebtedness of $3,296,867. (45)Represents the fair market value swaps entered into by the SPG Operating Partnership, pursuant to FAS 133. (46)EURIBOR + 2.3795% (47)We are currently in negotiations with the properties' lenders to dispose of these properties in 2002. (48)LIBOR + 2.2500%. (49)The Putable Asset Trust Securities have an actual maturity of November 15, 2010, but are subject to mandatory tender on November 15, 2003. (50)LIBOR + 3.050%, with LIBOR capped at 7.950%.
Item 3.
Item 3. Legal Proceedings
Please refer to Note 11 of the attached audited financial statements for a summary of material litigation.
We are also subject to routine litigation, claims and administrative proceedings arising in the ordinary course of its business, none of which are expected to have a material adverse effect on its financial position or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5.
Item 5. Market for the Registrant and Related Unitholder Matters
Market Information
There is no established public trading market for the SPG Operating Partnership's Units or preferred Units. The following table sets forth for the periods indicated, the distributions declared on the Units:
Holders
The number of holders of Units was 2,455 as of March 20, 2002.
Distributions
We make distributions to SPG in order to maintain SPG's REIT status under the Code. To maintain its status as a REIT, SPG is required each year to distribute to its shareholders at least 90% of its taxable income after certain adjustments. Future distributions are determined in the discretion of the Boards of Directors and will depend on our actual cash flow, financial condition, capital requirements, the annual REIT distribution requirements and such other factors as the Board of Directors of the Companies deem relevant.
Unregistered Sales of Equity Securities
The SPG Operating Partnership did not issue any equity securities that were not required to be registered under the Securities Act of 1933, as amended during the fourth quarter of 2001.
Item 6.
Item 6. Selected Financial Data
The following tables set forth selected financial data for the SPG Operating Partnership. The 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 data we believe is important in understanding trends in the SPG Operating Partnership's business is also included in the tables.
(1)Notes 3 and 4 to the accompanying financial statements describe the NED Acquisition and other 2000 and 1999 real estate acquisitions, development and disposals. On September 24, 1998, we merged with Corporate Property Investors, Inc. ("CPI Merger"). (2)Represents distributions declared per period. The current annual distribution rate is $2.10 per Unit. (3)In 2001, includes a $47,000 impairment charge (see Note 4 to the accompanying financial statements in Part IV of this Form 10-K). Excluding this charge the ratio would have been 1.54 in 2001. In 1999, includes a $12,000 unusual loss (see Note 11 to the accompanying financial statements) and a total of $12,290 of asset write-downs. Excluding these items, the ratio would have been 1.53x in 1999
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the financial statements and notes thereto that are included in this Form 10-K. Certain statements made 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. Those risks and uncertainties include, but are not limited to: national, regional and local economic climates, competitive market forces, changes in market rental rates, trends in the retail industry, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, the impact of terrorist activities, environmental liabilities, maintenance of REIT status, and changes in market rates of interest. 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.
Overview
Who we are - Simon Property Group, L.P. (the "SPG Operating Partnership"), a Delaware limited partnership, is a majority owned subsidiary of Simon Property Group, Inc. ("SPG"), a Delaware corporation. SPG is a self-administered and self-managed real estate investment trust ("REIT"). Each share of common stock of SPG is paired ("Paired Shares") with 1/100th of a share of common stock of SPG Realty Consultants, Inc. ("SRC" and together with SPG, the "Companies"). Units of partnership interests ("Units") in the SPG Operating Partnership are paired ("Paired Units") with Units in SPG Realty Consultants, L.P. (the "SRC Operating Partnership" and together with the SPG Operating Partnership, the "Operating Partnerships")). The SRC Operating Partnership is the primary subsidiary of SRC. In this report, the terms "we", "us" and "our" refer to the SPG Operating Partnership and its subsidiaries.
We are engaged primarily in the ownership, operation, leasing, management, acquisition, expansion and development of real estate properties. Our real estate properties consist primarily of regional malls and community shopping centers. As of December 31, 2001, we owned or held an interest in 251 income-producing properties in the United States, which consisted of 165 regional malls, 72 community shopping centers, five specialty retail centers, four office and mixed-use properties and five value-oriented super-regional malls in 36 states (the "Properties"). We also own 11 parcels of land held for future development (together with the Properties, the "Portfolio" or the "Portfolio Properties"). In addition, we have ownership interests in seven additional retail real estate properties operating in Europe and Canada. Our leases from retail tenants generate the majority of our revenues through:
•Base minimum rents and cart and kiosk rentals •Overage and percentage rents based on tenants' sales volume •Recoveries of common area maintenance, real estate tax, and advertising and promotion expenditures.
We also generate revenues due to our size and tenant relationships from:
•Mall marketing initiatives •Consumer focused strategic corporate alliances •Delivering competitively priced property operating services to our tenants.
We also hold substantially all of the economic interest in M.S. Management Associates, Inc. (the "Management Company"). See Note 7 in the Notes to Financial Statements for a description of the activities of the Management Company.
Results of Operations
The year 2001 was marked by the onset of the country's first recession in over ten years and the unprecedented, tragic events of September 11, 2001. In addition, the retail industry experienced a significant restructuring of the theater industry and an increase in tenant bankruptcies. During 2001 tenant bankruptcies resulted in the loss of over 1.2 million square feet of regional mall shop space. Despite these challenges our Portfolio demonstrated its resiliency with steady sales per square foot of $378 for regional malls in 2001 compared to $377 in 2000. Despite the losses to bankruptcies, occupancy levels were up slightly in 2001 to 91.9% for regional malls compared to 91.8% in 2000. Our releasing spreads also remained strong with new regional mall store leases signed at $34.88 average initial base rents per square foot in 2001 as compared to average base rents of $29.10 per square foot for regional mall store leases terminating or expiring in the same year, a spread of $5.78, or 20%.
The following property acquisitions and openings impacted our results of operations in the comparative periods. During 2001 the SPG Operating Partnership acquired the ownership of Simon Brand Ventures, LLC ("SBV") from SRC. We also opened Bowie Towne Center in October 2001 and we sold interests in several Properties throughout the comparative periods (collectively the "Property Transactions"). In addition, we opened Orlando Premium Outlets in May 2000, Arundel Mills in November 2000, Montreal Forum in May 2001, and in October 2001 we acquired a 50% ownership interest in Fashion Valley Mall. See "Liquidity and Capital Resources" and Note 4 to the financial statements for additional information about acquisitions, openings and disposals during the comparative period. The following discussion of the changes in operating income excludes the Property Transactions.
Year Ended December 31, 2001 vs. Year Ended December 31, 2000
Our change in operating income was impacted by positive trends in 2001 including a $38.0 million increase in minimum rents, excluding our Simon Brand Venture ("SBV") and Simon Business Network ("SBN") initiatives. The increase in minimum rent primarily results from steady occupancy levels and the replacement of expiring tenant leases with renewal leases at higher minimum base rents. Revenues from temporary tenant rentals increased $5.6 million reflecting our continual effort to maximize the profitability of our mall space. Miscellaneous income increased $7.9 million. This increase includes $5.7 million in fees associated with the Kimsward transaction charged to the Management Company, a $5.6 million contract termination payment offset by a decrease in various miscellaneous income items in the prior year. The Kimsward transaction is described in Note 12 in the Notes to Financial Statements. The change in operating income includes the net positive impact of the Property Transactions of $3.7 million.
These positive trends realized in operating income were offset by an impairment charge of $47.0 million we recorded in 2001 to adjust assets to their estimated fair value in connection with our anticipated disposal of nine properties. In 2000, we recorded a $10.6 million impairment charge on two properties as the contract prices for the sales of these properties as of December 31, 2000 were less than our carrying amounts. We closed the sale of these properties in 2001. We recognized a non-recurring $3.0 million write-down of an investment in 2001 and we wrote-off $2.7 million of miscellaneous technology investments in 2001 both included in other expenses. Depreciation and amortization increased $36.3 million primarily due to an increase in depreciable real estate resulting from renovation and expansion activities, as well as increased tenant cost amortization. Tenant reimbursement revenues, net of reimbursable expenses decreased $18.0 million. This decrease is primarily the result of true-up billings and decreases in recovery ratios. Overage rents decreased $7.8 million resulting from flat sales levels. The sale of outlot land parcels declined in 2001 resulting in a $12.9 million decrease in revenues. Interest income decreased $5.5 million during 2001 due to the lower interest rate environment. Revenues from our SBV and SBN initiatives decreased $3.3 million.
Interest expense during 2001 decreased $29.8 million, or 4.7% compared to the same period in 2000. This decrease is primarily due to lower interest rates during 2001 and reductions in the corporate
credit facilities offset by the issuance of $500.0 million of unsecured notes on January 11, 2001 and $750.0 million in unsecured notes on October 26, 2001.
Income from unconsolidated entities decreased $19.7 million in 2001, resulting from a $9.8 million increase in income from unconsolidated partnerships and joint ventures, and a $29.5 million decrease in income from the Management Company. The increase in joint venture income related to: lower interest rates; a reduction in real estate taxes due to a real estate tax settlement at one Property; the acquisition of Fashion Valley Mall in 2001; and the full year impact of two Properties that opened in 2000. Included in the Management Company decrease is our net $13.9 million share of the write-off of technology investments, primarily clixnmortar. In addition, the Management Company realized a $3.7 million decrease in various fee revenues, a $3.2 million decrease in land sales, and a $4.3 million increase in overhead expenses. These amounts were partially offset by $12.6 million of income from the Kimsward transaction net of the $5.7 million fee charged by the SPG Operating Partnership. In addition, our share of the increased losses associated with MerchantWired LLC was $14.0 million. We use joint ventures to finance certain properties and to diversify our risk in a particular trade area. These joint ventures are described further in Note 7 to the Notes to Financial Statements. Note 7 also includes combined balance sheets and results of operations for our unconsolidated entities and Item 2 of our Form 10-K lists the Portfolio Properties and our corresponding legal interests.
During 2001 we recorded a $1.7 million expense as a cumulative effect of an accounting change, which includes our $1.5 million share from unconsolidated entities, due to the adoption of SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as amended. During 2000 we recorded a $12.3 million expense as a cumulative effect of an accounting change, which includes our $1.8 million share from unconsolidated entities, due to the adoption of Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 addressed certain revenue recognition policies, including the accounting for overage rent by a landlord. See Note 13 in the Notes to Financial Statements for discussions of the cumulative effect of accounting changes.
The $2.6 million net gain on the sales of assets in 2001 resulted from the sale of our interests in one regional mall, one community center, and an office building for a gross sales price of approximately $20.3 million. In 2000, we recognized a net gain of $19.7 million on the sale of two regional malls, four community centers, and one office building for a gross sales price of approximately $142.6 million.
Net income was $279.5 million for the year ended December 31, 2001, which reflects a $60.9 million or 17.9% decrease compared to the same period in 2000, primarily for the reasons discussed above. Net income was allocated to the partners of the SPG Operating Partnership based on their preferred Unit preferences and weighted average ownership interests in the SPG Operating Partnerships during the period.
Preferred distributions of the SPG Operating Partnership represent distributions on preferred Units.
Impairment
As previously mentioned, in connection with our anticipated disposal of nine Properties we recorded a $47.0 million expense for the impairment of certain investment Properties for the year ended December 31, 2001. In general, economic and demographic changes has caused tenants to vacate space at certain lower quality properties, decreasing occupancy rates and leading to declines in the fair values of these assets due to significantly decreased profitability and cash flows from these Properties. In addition, we have committed to a plan to dispose of these assets in 2002. The impairment of these assets was calculated using a combination of cap rate analysis and discounted cash flows from the individual Properties' operations as well as contract prices, if applicable. These nine Properties' cash flows and results of operations were not material to our cash flows and results of operations and their removal from service and sale will not materially affect our ongoing operations.
Year Ended December 31, 2000 vs. Year Ended December 31, 1999
Operating income increased $44.7 million or 5.2% in 2000 as compared to 1999. This increase includes the net result of the Property Transactions ($10.8 million). Excluding these transactions, operating income increased approximately $33.9 million or 4.0%, primarily resulting from a $53.6 million increase in minimum rents, a $14.2 million increase in consolidated revenues realized from marketing initiatives throughout the Portfolio from our strategic marketing division, Simon Brand Ventures ("SBV"), a $3.8 million increase in miscellaneous income, a $4.8 million increase in interest income, and an $8.6 million increase in lease settlements, partially offset by a $31.8 million increase in depreciation and amortization, a $2.5 million increase in cost sharing expense, and a $4.7 million increase in other expenses, and a $10.6 million impairment charge. The increase in minimum rent primarily results from increased occupancy levels, the replacement of expiring tenant leases with renewal leases at higher minimum base rents, and a $5.1 million increase in rents from tenants operating under license agreements. The increase in miscellaneous income results from gift certificate sales previously recorded on the Management Company and incidental fee revenues. The increase in depreciation and amortization is primarily due to an increase in depreciable real estate realized through renovation and expansion activities. We recorded a $10.6 million impairment charge in connection with our anticipated disposal of two properties as the contract prices for the sale of these properties as of December 31, 2000 were less than our carrying amounts.
Interest expense increased $57.5 million, or 9.9% in 2000 as compared to 1999. This increase is primarily the result of overall increases in interest rates during the comparative periods ($20.6 million), the Property Transactions ($8.2 million) and incremental interest on borrowings under our Credit Facility to complete the NED Acquisition ($12.4 million) and acquire an ownership interest in Mall of America ($3.8 million), with the remainder being primarily from borrowings for Property redevelopments that opened in the comparative periods.
The $19.7 million net gain on the sales of assets in 2000 results from the sale of our interests in an office building, two regional malls and four community shopping centers for approximately $142.6 million. In 1999, we recognized a net loss of $1.9 million on the sale of two Properties.
Income from unconsolidated entities increased $34.7 million in 2000, resulting from a $22.0 million increase in income from the Management Company and a $12.7 million increase in income from unconsolidated partnerships and joint ventures. The increase in Management Company income is primarily the result of a $6.7 million increase in management fees due to property acquisitions and increased minimum rents, $7.3 million of asset write-downs recognized in 1999, $4.6 million in 2000 residual land sales, as well as a $5.3 million increase in the income tax benefit, which is primarily due to the reversal of valuation allowances due to 2000 income and forecasted future income. These increases are offset by our share of the $4.1 million of losses associated with MerchantWired LLC. Income from unconsolidated partnerships and joint ventures included a $5.0 million asset impairment write-down in 1999 related to The Tower Shops.
During the first quarter of 2000, we recorded a $12.3 million expense resulting from the cumulative effect of an accounting change described above.
Net income was $340.4 million for the year ended December 31, 2000, which reflects a $49.3 million or 16.9% increase over 1999, primarily for the reasons discussed above, and was allocated to the Unitholders of the SPG Operating Partnership based upon their preferred Unit preferences and weighted average ownership interests in the SPG Operating Partnership during the period.
Preferred distributions of the SPG Operating Partnership represent distributions on preferred Units issued.
Significant Accounting Policies
Our significant accounting policies are described in detail in Note 5 of the Notes to Financial Statements. The following briefly describes those accounting policies that we feel are most critical to understanding our business for our Unitholders:
•Minimum rent revenues are accrued on a straight-line basis over the term of the respective leases. Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenditures are incurred. •In order to maintain SPG's status as a REIT, we make distributions so that SPG can distribute 90% of its taxable income in any given year. SPG must also meet certain asset and income tests, as well as other requirements. We monitor our business and transactions that may potentially impact SPG's REIT status. If SPG fails to maintain its REIT status then SPG would be required to pay federal income taxes at regular corporate income tax rates. •The purchase price for an acquisition of properties is allocated to each investment property or joint venture based upon the estimated fair value of each property. The fair value is calculated based upon the estimated annual cash flow of each property. •Income from joint ventures is recognized under the equity method of accounting based upon our economic ownership in the joint venture properties after considering partner preferences.
Liquidity and Capital Resources
Our balance of unrestricted cash and cash equivalents was $252.2 million as of December 31, 2001, including $141.5 million related to our gift certificate program, which we do not consider available for general working capital purposes. We have a $1.25 billion unsecured revolving credit facility (the "Credit Facility") which had available credit of $1.1 billion at December 31, 2001. The Credit Facility bears interest at LIBOR plus 65 basis points and provides for different pricing based upon our corporate credit rating. The Credit Facility has an initial maturity of August 2002, with an additional one-year extension available at our option. SPG and the SPG Operating Partnership also have access to public equity and debt markets. Our current corporate ratings are Baa1 by Moody's Investors Service and Bbb+ by Standard & Poor's.
We anticipate that cash generated from operating performance will provide the funds we need on a short- and long-term basis for operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures, and distributions to Unitholders so that SPG can comply with REIT requirements. Sources of capital for nonrecurring capital expenditures, such as major building renovations and expansions, as well as for scheduled principal payments, including balloon payments, on outstanding indebtedness are expected to be obtained from:
•excess cash generated from operating performance •working capital reserves •additional debt financing •additional equity raised in the public markets.
These sources may be negatively impacted by the bankruptcy of tenants, declines in occupancy at our malls, or the inability to refinance properties due to lack of terrorism insurance coverage. However, we expect to be able to successfully replace any departing tenants and do not currently anticipate any hindrances in refinancing activities due to lack of terrorism insurance coverage.
Financing and Debt
The following table summarizes the material aspects of our future obligations:
(1)Represents our pro rata share of principal maturities and excludes net premiums and discounts. The debt of our joint ventures is the liability of the joint venture partnerships and is typically secured by the joint venture property. We guarantee and therefore are only contractually obligated to fund $82.8 million of the total $2.4 billion of joint venture debt. In addition, we have guaranteed other obligations totaling approximately $29.7 million on certain unconsolidated entities.
We had consolidated debt of $8.8 billion as of December 31, 2001, of which $7.4 billion was fixed-rate debt, bearing interest at a weighted average rate of 7.2% and $1.4 billion was variable-rate debt bearing interest at a weighted average rate of 3.5%. As of December 31, 2001, we had interest rate protection agreements related to $758.6 million of consolidated variable-rate debt. Our interest rate protection agreements did not materially impact interest expense or weighted average borrowing rates in 2001. Our ratio of consolidated debt-to-market capitalization was 52.6% and 57.0% at December 31, 2001 and 2000, respectively.
The following summarizes significant financing and refinancing transactions completed in 2001:
Secured Indebtedness. During 2001, we refinanced approximately $401.7 million of mortgage indebtedness on five of the Properties. Our share of the refinanced debt is approximately $275.3 million. The weighted average maturity of the new indebtedness is 7.8 years and the weighted average interest rates decreased from approximately 6.82% to 6.20%.
Credit Facility. During 2001 the maximum amount outstanding under our Credit Facility was $863.0 million and the average amount outstanding under the Credit Facility was $581.5 million. The weighted average interest rate was 4.94% for 2001.
Unsecured Notes. We again demonstrated our ability to regularly access the unsecured debt market in 2001. On January 11, 2001, we issued $500.0 million of unsecured debt to institutional investors pursuant to Rule 144A in two tranches. The first tranche is $300.0 million bearing an interest rate of 73/8% due January 20, 2006 and the second tranche is $200.0 million bearing an interest rate of 73/4% due January 20, 2011. The net proceeds of the offering were used to repay the remaining portion of the indebtedness under the credit facility we used to fund the 1998 merger with Corporate Property Investors, Inc. ("CPI") due March 24, 2001 and to repay a portion of the CPI merger facility due September 24, 2001.
On August 6, 2001, we retired the third and final tranche of the CPI merger facility totaling $435.0 million. We generated the funds used to retire this debt primarily from our $277.0 million financing of four mall properties at a fixed rate of 6.99%, our $110.0 million financing of one office complex at LIBOR plus 115 basis points, and excess cash flow.
On October 26, 2001, we issued $750.0 million of 6.375% senior unsecured notes due November 15, 2007. We used the net proceeds from the offering to reduce the outstanding balance of the Credit
Facility. Ultimately, we plan to retire mortgage indebtedness on six wholly-owned Properties and to retire $250.0 million of 9% bonds that mature in early 2002 with borrowings from the Credit Facility.
Acquisitions and Disposals
Acquisitions. On October 1, 2001, we purchased a 50% interest in Fashion Valley Mall located in San Diego, California for a purchase price of $165.0 million which includes our share of a $200.0 million, seven year mortgage at a fixed rate of 6.5% issued concurrent with the acquisition by the partnership owning the property. We also assumed management responsibilities for this 1.7 million square foot open-air, super-regional mall. On August 20, 2001, the SPG Operating Partnership acquired an additional 21.46% interest in the Fashion Centre at Pentagon City for a total of $77.5 million. The purchase price consisted of cash and an additional capital contribution to the Property.
Subsequent to December 31, 2001, we signed a definitive agreement to purchase, jointly with Westfield America Trust and The Rouse Company, the assets of Rodamco North America N.V. for $5.3 billion. Our portion of the acquisition includes the purchase of the remaining ownership interests in four of our existing joint venture assets and new ownership interests in nine additional properties. Our share of the purchase price is $1.55 billion including $570.0 million in debt and perpetual preferred stock assumed. The balance will be payable in cash at closing and, initially, will be funded by the existing Credit Facility and an acquisition facility. The purchase price is denominated in Euros.
We continue to review and evaluate a limited number of acquisition opportunities and will continue our focus on acquiring highly productive, market dominant malls. We believe that acquisition activity is a component of our growth strategy and amounts available under the Credit Facility, together with the ability to issue shares of common stock, Units and debt securities, provide adequate means to finance certain acquisitions. We cannot assure you that we will not be required to, or will not elect to, even if not required to, obtain funds from outside sources, including the sale of debt or equity securities, to finance significant acquisitions, if any.
See Note 4 to the financial statements for 2000 and 1999 acquisition activity.
Disposals. During 2001, we sold our interests in one regional mall, one community center, and one office building for a combined gross sales price of $20.3 million, resulting in a net combined gain of $2.6 million. The net proceeds of approximately $19.6 million were used for general working capital purposes.
In addition to the Property sales described above, as a continuing part of our long-term strategic plan, we continue to pursue the sale of our remaining non-retail holdings and a number of retail assets that are no longer aligned with our strategic criteria, including four Properties currently under contract for sale. We may decide to sell Properties that are held for use, in which case the sale prices of these assets may differ from the carrying value of the related assets.
Market Risk - Sensitivity Analysis. Our future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR. Based upon consolidated indebtedness and interest rates at December 31, 2001, a 0.50% increase in the market rates of interest would decrease future earnings and cash flows by approximately $6.5 million, and would decrease the fair value of debt by approximately $537.3 million. A 0.50% decrease in the market rates of interest would increase future earnings and cash flows by approximately $6.5 million, and would increase the fair value of debt by approximately $621.8 million. We manage our exposure to interest rate risk by a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt and by refinancing fixed rate debt at times when rates and terms are appropriate.
In connection with the expected acquisition of the assets of Rodamco North America N.V. we entered into a EUR 795.1 million collar transaction to manage our exposure to fluctuations in the Euro currency. This derivative transaction effectively maintains our purchase price between a conversion rate of
.91 Euros and 0.864 Euros. The fluctuation in earnings, if any, from this transaction will be partially offset by changes in our final purchase price. We believe that this transaction is in the best interest of our Unitholders due to the magnitude of our potential exposure. Current hedge accounting explicitly states that the effects of a hedge of a business combination must be reported through earnings and cannot be capitalized as part of the purchase price. Therefore, we expect some volatility in our earnings for the first two quarters of 2002. If the Euro conversion rate at the close of the transaction equals 0.854, then our earnings would be reduced by approximately $8.7 million, including transaction costs. If the Euro conversion rate at the close of the transaction equals 0.92, then our earnings would be increased by approximately $7.2 million, net of transaction costs.
Development Activity
We pursue new development as well as strategic expansion and renovation activity when we believe the investment of our capital meets our risk-reward criteria. In response to the weakening economy, we reduced our spending in these areas in 2001 and expect to further reduce our spending in 2002.
New Developments. Development activities are an ongoing part of our business. During 2001, we opened two new Properties aggregating approximately 0.8 million square feet of GLA. In total, our share of new developments for Portfolio Properties in 2001 was approximately $121.3 million. With no new developments currently under construction, we expect 2002 pre-development costs to be approximately $10 million.
Strategic Expansions and Renovations. One of our key objectives is to increase the profitability and market share of the Properties through the completion of strategic renovations and expansions. We invested approximately $118.2 million in redevelopment projects during 2001. We have some renovation and/or expansion projects currently under construction or in preconstruction development and expect to invest approximately $100 million on redevelopment in 2002.
International. We have a 32.3% ownership interest in European Retail Enterprises, B.V. ("ERE"), which is accounted for using the equity method of accounting. ERE also operates through a wholly-owned subsidiary, Groupe BEG, S.A. ("BEG"). ERE and BEG are fully integrated European retail real estate developers, lessors and managers. Our current total investment in ERE and BEG, including subordinated debt, is approximately $73.4 million. The current estimated additional commitment, including subordinated debt, is approximately $27.6 million. However, since our future commitments are subject to certain performance and other criteria, including our approval of development projects, these additional commitments may vary. The agreements with BEG and ERE are structured to allow us to acquire an additional 28.5% ownership interest over time. As of December 31, 2001, BEG and ERE had four Properties open in Poland and two in France. The structure is described further in Note 7 of the Notes to Financial Statements
Technology Initiatives. We continue with our technology initiatives through two investments: MerchantWired LLC and Constellation Real Technologies. Constellation is a consortium of leading real estate companies. Its primary asset is an investment in FacilityPro, a purchasing aggregation company. Our share of the total carrying amount of and receivables from our investments is approximately $36.4 million as of December 31, 2001 with our investment in and receivables from MerchantWired LLC totaling $33.7 million. We own an approximately 53% indirect non-controlling interest in MerchantWired LLC. We, along with the other members of MerchantWired LLC, are in the final stages of negotiating a sale of MerchantWired LLC to a third party for cash and contingent consideration. Completing the sale is subject to finalizing the termination or modification of certain third party contracts, the buyer obtaining credit approval from its lenders, and certain regulatory and other matters. As a condition of this transaction, we will also acquire approximately $24 million of cable and related infrastructure from MerchantWired LLC and will make an $8 million additional contribution to MerchantWired LLC. These proceeds, along with
proceeds from other members, will be used by MerchantWired LLC to satisfy amounts outstanding under various lease arrangements and trade payables, resulting in the members being relieved of all guarantee arrangements. We expect the transaction to close in April. The amount of contingent consideration due us and the other members will be determined based upon a multiple of annualized December 2003 and December 2004 MerchantWired LLC revenues. If this transaction is not completed, the future of MerchantWired LLC will be impacted unless MerchantWired LLC is able to obtain future capital commitments.
Capital Expenditures on Consolidated Properties
Distributions
We make distributions in order for SPG to maintain its REIT status. We declared a cash distribution of $0.525 per unit in the fourth quarter of 2001. The current combined annual distribution rate is $2.10 per Unit. Distributions during 2001 aggregated $2.08 per Unit and distributions during 2000 aggregated $2.02 per Unit. Future distributions will be determined based on actual results of operations and cash available for distribution. Our distributions typically exceed our net income generated in any given year primarily because of depreciation, which is a "non-cash" expense. As evidenced by our $797.0 million of net cash provided by operating activities we are able to distribute the required level of dividends.
Investing and Financing Activities
Cash used in investing activities of $270.2 million for the year ended December 31, 2001 includes consolidated cash capital expenditures of $281.6 million, investments in unconsolidated joint ventures of $147.9 million, and acquisition costs of $164.3 million. Capital expenditures include development costs of $68.4 million, renovation and expansion costs of $123.6 million and tenant costs and other operational capital expenditures of $89.6 million. These cash uses are partially offset by distributions from unconsolidated entities of $289.0 million, advances from the Management Company of $1.4 million, loan activity with SRC of $5.6 million, cash from the consolidation of the SPG Administrative Services Partnership, L.P. of $8.1 million and net proceeds of $19.5 million from the sale of the three Properties previously mentioned.
Cash used in financing activities for the year ended December 31, 2001 was $484.3 million and includes net distributions of $592.2 million, offset by proceeds from net borrowings of $107.9 million.
Retail Climate and Tenant Bankruptcies
A number of local, regional, and national retailers, including both in-line and anchor tenants, announced store closings or filed for bankruptcy in 2001. Some changeover in tenants is normal in our business. We lost over 1.2 million square feet of mall shop tenants in 2001 to bankruptcies. Pressures which affect consumer confidence, job growth, energy costs and income gains, however, can affect retail sales growth and a continuing soft economic cycle may impact our ability to retenant property vacancies resulting from these store closings or bankruptcies.
The geographical diversity of our Portfolio mitigates some of our risk in the event of an economic downturn. In addition, the diversity of our tenant mix is also a factor because no single retailer represents either more than 2.0% of total GLA or more than 3.5% of our annualized base minimum rent. Bankruptcies and store closings may, in some circumstances, create opportunities for us to release spaces at higher rents to tenants with enhanced sales performance. Our previously demonstrated ability to successfully retenant anchor and in line store locations reflects our resilience to fluctuations in economic cycles. While these factors reflect some of the inherent strengths of our portfolio in a difficult retail environment, successful execution of a releasing strategy is not assured.
Energy Management Services
On September 30, 1999, Simon Property Group, L.P. entered into a multi-year contract with Enron Energy Services ("Enron") for Enron to supply or manage all of the energy commodity requirements for the wholly-owned properties and many of the SPG Operating Parntership's joint venture partnerships. As result of the December bankruptcy filing by Enron, we assumed total control over the management of the energy assets throughout the portfolio, including the purchase and payment of utilities and maintenance and repair of energy related equipment. The majority of these costs and expenses are recoverable from our tenants.
In addition, as part of our original agreement with Enron, we required that it contract with our existing service providers for the maintenance and repair work on our energy assets. This allowed us to convert back to our prior contractual agreements while keeping the same work force and scope of work. There was no service interruption to any of our malls or tenants, and we are once again actively self-managing our energy business, just as we had done prior to the Enron contract. Enron has not formally rejected our contract yet, although we expect that to occur. We do not anticipate adverse financial consequences from the Enron bankruptcy and ultimate rejection of our contract.
Insurance
Our portfolio-wide general liability and property insurance policies expired on December 31, 2001. We renewed these policies, the cost of which is predominantly passed through to tenants, at similar coverage levels, but at price increases aggregating approximately 30%. All of our Portfolio Properties have insurance coverage for 2002. The exception to coverage levels is in the area of terrorism, which is now excluded in our new property coverage. Terrorism coverage is simply not available today at any reasonable pricing level and Congress did not act to provide any type of supplemental or substitute coverage. To offset the drastic increases in insurance costs, we have taken measures to keep overall recoverable costs down to ensure that tenant costs per square foot do not increase significantly. We believe that we are in compliance with all insurance provisions of our debt agreements even though we lack terrorism insurance coverage. Some new loans are being quoted and closed without terrorism coverage, so this is not hindering our access to capital.
Inflation
Inflation has remained relatively low during the past four years and has had a minimal impact on the operating performance of the Properties. Nonetheless, substantially all of the tenants' leases contain provisions designed to lessen the impact of inflation. These provisions include clauses enabling us to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than ten years, which may enable us to replace existing leases with new leases at higher base and/or percentage rentals if rents of the existing leases are below the then-existing market rate. Substantially all of the leases, other than those for anchors, require the tenants to pay a proportionate share of operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
However, inflation may have a negative impact on some of our other operating items. Interest and general and administrative expenses may be adversely affected by inflation as these specified costs could increase at a rate higher than rents. Also, for tenant leases with stated rent increases, inflation may have a negative effect as the stated rent increases in these leases could be lower than the increase in inflation at any given time.
Seasonality
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season, when tenant occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve most of their temporary tenant rents during the holiday season. As a result of the above, our earnings are generally highest in the fourth quarter of each year.
Environmental Matters
See Note 11 in the Notes to Financial Statements for discussion of environmental matters.
New Accounting Pronouncements
See Footnote 13 of the Notes to Financial Statements for a discussion of the impact of new accounting pronouncements.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
Please refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 under the caption Liquidity and Capital Resources.
Item 8.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements contained in Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The managing general partner of the SPG Operating Partnership is SPG. The information required by this item is incorporated herein by reference to SPG's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A and is included under the caption "Executive Officers of the Registrants" in Part I thereof.
Item 11.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to SPG's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to SPG's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to SPG's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simon Property Group, Inc.:
We have audited the accompanying consolidated balance sheets of Simon Property Group, L.P. (a Delaware limited partnership) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations and comprehensive income, partners' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the management of Simon Property Group, L.P. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Simon Property Group, L.P. and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
As explained in Note 13 to the financial statements, effective January 1, 2001, Simon Property Group, L.P. adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as amended in June of 2000 by SFAS 138, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments. As explained in Note 13 to the financial statements, effective January 1, 2000, Simon Property Group, L.P. adopted Staff Accounting Bulletin No. 101, which addressed certain revenue recognition policies, including the accounting for overage rent by a landlord.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
March 28, 2002.
Simon Property Group, L.P.
Consolidated Balance Sheets
(Dollars in thousands)
The accompanying notes are an integral part of these statements.
Simon Property Group, L.P.
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per unit amounts)
The accompanying notes are an integral part of these statements.
Simon Property Group, L.P.
Consolidated Statements of Cash Flows
(Dollars in thousands)
The accompanying notes are an integral part of these statements.
Simon Property Group, L.P.
Consolidated Statements of Partners' Equity
(Dollars in thousands)
The accompanying notes are an integral part of these statements.
SIMON PROPERTY GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per unit amounts and where indicated as in millions or billions)
1. Organization
Simon Property Group, L.P. (the "SPG Operating Partnership"), a Delaware limited partnership, is a majority owned subsidiary of Simon Property Group, Inc. ("SPG"), a Delaware corporation. SPG is a self-administered and self-managed real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Each share of common stock of SPG is paired ("Paired Shares") with a beneficial interest in 1/100th of a share of common stock of SPG Realty Consultants, Inc., also a Delaware corporation ("SRC" and together with SPG, the "Companies"). Units of ownership interest ("Units") in the SPG Operating Partnership are paired ("Paired Units") with a Unit in SPG Realty Consultants, L.P. (the "SRC Operating Partnership" and together with the SPG Operating Partnership, the "Operating Partnerships"). The SRC Operating Partnership is the primary subsidiary of SRC.
The SPG Operating Partnership is engaged in the ownership, operation, leasing, management, acquisition, expansion and development of real estate properties. The SPG Operating Partnership's real estate properties consist primarily of regional malls and community shopping centers. As of December 31, 2001, the SPG Operating Partnership owned or held an interest in 251 income-producing properties in the United States, which consisted of 165 regional malls, 72 community shopping centers, five specialty retail centers, four office and mixed-use properties and five value-oriented super-regional malls in 36 states (the "Properties"). The SPG Operating Partnership also owned an interest in 11 parcels of land held for future development, which together with the Properties are hereafter referred to as the "Portfolio Properties." In addition, the SPG Operating Partnership has ownership in seven additional retail real estate properties operating in Europe and Canada. The SPG Operating Partnership's leases from retail tenants generate the majority of its revenues through:
•Base minimum rents and cart and kiosk rentals •Overage and percentage rents based on tenants' sales volume •Recoveries of common area maintenance, real estate tax, and advertising and promotion expenditures.
The SPG Operating Partnership also generates revenues due to its size and tenant relationships from:
•Mall marketing initiatives •Consumer focused strategic corporate alliances •Delivering competitively priced property operating services to our tenants.
The SPG Operating Partnership also holds substantially all of the economic interest in M.S. Management Associates, Inc. (the "Management Company"). See Note 7 for a description of the activities of the Management Company. The Management Company elected to become a taxable REIT subsidiary effective January 1, 2001.
The SPG Operating Partnership is subject to risks incidental to the ownership and operation of commercial real estate. These include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants, competition for tenants and customers, changes in tax laws, interest rate levels, the availability of financing, and potential liability under environmental and other laws. The SPG Operating Partnership's regional malls and community shopping centers rely heavily upon anchor tenants like most retail properties. Three retailers' anchor stores occupied 338 of the approximately 985 anchor stores in the Properties as of December 31, 2001. An affiliate of one of these retailers is a limited partner in the Operating Partnerships.
2. Basis of Presentation and Consolidation
The accompanying consolidated financial statements include accounts of all entities owned or controlled by the SPG Operating Partnership. All significant intercompany amounts have been eliminated.
Consolidated properties are wholly-owned or owned less than 100% and are controlled by SPG Operating Partnership. Control is demonstrated by the ability of the general partner to manage day-to-day operations, refinance debt and sell the assets of the partnership without the consent of the limited partner and the inability of the limited partner to replace the general partner. The deficit minority interest balance in the accompanying balance sheets represents outside partners' interests in the net equity of certain Properties. Deficit minority interests are recorded when a partnership agreement provides for the settlement of deficit capital accounts before distributing the proceeds from the sale of partnership assets and/or from the intent (legal or otherwise) and ability of the partner to fund additional capital contributions.
Investments in partnerships and joint ventures represent noncontrolling ownership interests in properties ("Joint Venture Properties") and the investment in the Management Company (see Note 7). These investments are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for net equity in income (loss), which is allocated in accordance with the provisions of the applicable partnership or joint venture agreement, and cash contributions and distributions. The allocation provisions in the partnership or joint venture agreements are not always consistent with the ownership interests held by each general or limited partner or joint venturer primarily due to partner preferences.
Net operating results of the SPG Operating Partnership are allocated after preferred distributions (see Note 10), based on its partners' weighted average ownership interests during the period. During 2001, one of the SPG Operating Partnership's general partners, SPG Properties Inc., merged with and into SPG as described in Note 10. SPG's weighted average direct and indirect ownership interest in the SPG Operating Partnership during 2001, 2000 and 1999 was 72.5%, 72.4% and 72.3%, respectively. At December 31, 2001 and 2000, SPG's direct and indirect ownership interest in the SPG Operating Partnership was 72.9% and 72.4%, respectively.
3. NED Acquisition
During 1999, the SPG Operating Partnership acquired ownership interests in 14 regional malls from New England Development Company (the "NED Acquisition"). The SPG Operating Partnership acquired one of the Properties directly and formed a joint venture with three partners ("Mayflower"), of which the SPG Operating Partnership owns a noncontrolling 49.1%, to acquire interests in the remaining Properties. The total cost of the NED Acquisition is approximately $1.8 billion, of which the SPG Operating Partnership's share is approximately $894 million. The SPG Operating Partnership assumed management responsibilities for the portfolio, which includes approximately 10.7 million square feet of GLA. The SPG Operating Partnership's share of the cost of the NED Acquisition included the assumption of approximately $530.0 million of mortgage indebtedness; $177.1 million in cash; the issuance of 1,269,446 Paired Units valued at approximately $36.4 million; the issuance of 2,584,227 7% Convertible Preferred Units in the SPG Operating Partnership valued at approximately $72.8 million; and 2,584,227 8% Redeemable Preferred Units in the SPG Operating Partnership valued at approximately $78.0 million. The SPG Operating Partnership's share of the cash portion of the purchase price was financed primarily using the Credit Facility (see Note 8).
In connection with the NED Acquisition, SPG borrowed $92.8 million from the SPG Operating Partnership at 7.8% interest with a maturity of December 2009. SPG used the proceeds to purchase a noncontrolling 88% interest in one of the NED Properties. SPG contributed its interest in such Property to the SPG Operating Partnership in exchange for 3,617,070 Paired Units. The SPG Operating Partnership then contributed its interest in such Property to Mayflower in exchange for an ownership interest in Mayflower. The note receivable from SPG is recorded as a reduction of partners' equity.
4. Other Real Estate Acquisitions, Disposals, and Impairment
Acquisitions
On October 1, 2001, the SPG Operating Partnership purchased a 50% interest in Fashion Valley Mall located in San Diego, California for a purchase price of $165.0 million which includes the SPG Operating Partnership's share of a $200.0 million, seven year mortgage at a fixed rate of 6.5% issued concurrent with the acquisition by the partnership owning the property. The SPG Operating Partnership also assumed management responsibilities for this 1.7 million square foot open-air, super-regional mall.
On August 20, 2001, the SPG Operating Partnership acquired an additional 21.46% interest in the Fashion Centre at Pentagon City for a total of $77.5 million. Concurrent with the acquisition, the partnership owning the property issued $200.0 million of debt. The purchase price consisted of cash and an additional capital contribution to the Property.
During 1999, the SPG Operating Partnership acquired the remaining interests in four Properties, and a noncontrolling 27.5% ownership interest in the 2.8 million square-foot Mall of America for a combined price of approximately $317.9 million, including the assumption of $134.3 million of mortgage indebtedness, 1,000,000 shares of 8% Redeemable Preferred Stock in SPG issued at $24.2 million, and the remainder in cash, financed primarily through the Credit Facility and working capital. The SPG Operating Partnership is entitled to 50% of the economic benefits of Mall of America, due to a preference.
Subsequent to December 31, 2001, the SPG Operating Partnership signed a definitive agreement to jointly purchase the assets of Rodamco North America N.V., concurrently with Westfield America Trust and The Rouse Company, for $5.3 billion. The SPG Operating Partnership's portion of the acquisition includes the purchase of the remaining ownership interests in four of the SPG Operating Partnership's existing joint venture assets and new ownership interests in nine additional properties. The SPG Operating Partnership's share of the purchase price is $1.55 billion including $570.0 million in debt and perpetual preferred stock assumed. The balance will be payable in cash at closing and, initially, will be funded by the existing Credit Facility and a new acquisition facility. The purchase price is denominated in Euros.
In connection with the acquisition of the assets of Rodamco North America N.V. the SPG Operating Partnership entered into a EUR 795.1 million collar transaction to manage its exposure to fluctuations in the Euro currency. This derivative transaction effectively maintains the SPG Operating Partnership's purchase price between a conversion rate of 0.91 Euros and 0.864 Euros. The fluctuation in earnings, if any, from this transaction will be partially offset by changes in the final purchase price. Current hedge accounting explicitly states that the effects of a hedge of a business combination must be reported through earnings and cannot be capitalized as part of the purchase price.
Disposals
The SPG Operating Partnership sold ownership interests in certain properties during each of the years ended December 31 presented in the accompanying financial statements. The disposals consisted of and resulted in the following:
The SPG Operating Partnership is continuing to pursue the sale of its remaining non-retail holdings and a number of retail assets that are no longer aligned with the SPG Operating Partnership's strategic criteria. The SPG Operating Partnership may decide to sell Properties that are held for use, in which case the sale prices of these assets may be less than the carrying value of the related assets.
Impairment
In connection with the SPG Operating Partnership's anticipated disposal of nine properties the SPG Operating Partnership recorded a $47.0 million expense for the impairment of certain investment properties for the year ended December 31, 2001. In general, the overall decline in the economy has caused tenants to vacate space at certain lower quality properties decreasing occupancy rates and leading to declines in the fair values of these assets due to decreased profitability. In addition, the SPG Operating Partnership has committed to a plan to dispose of these assets in 2002. The impairment of these assets was estimated using a combination of cap rate analysis and discounted cash flows from the individual properties' operations as well as contract prices, if applicable. The actual losses may differ from these estimates. The nine properties' cash flows and results of operations were not material to the cash flows and results of operations of the SPG Operating Partnership and their removal from service will not materially affect the SPG Operating Partnership's ongoing operations. The total carrying amounts of these properties were $87.2 million at December 31, 2001 and were included in investment properties.
The SPG Operating Partnership also recorded a $10.6 million expense for the impairment of two Properties for the year ended December 31, 2000 for the same reasons discussed above. These two Properties were subsequently sold in 2001.
The SPG Operating Partnership also wrote-off certain technology assets in 2001. The write-off was comprised of consolidated miscellaneous technology investments of $2.7 million recorded in other expense and the SPG Operating Partnership's net $13.9 million share of the write-off of technology investments, primarily clixnmortar as to which the SPG Operating Partnership has decided to postpone further development, recorded in the Management Company.
5. Summary of Significant Accounting Policies
Investment Properties
Investment Properties are recorded at cost or predecessor cost for Properties acquired from certain of the SPG Operating Partnership's Unitholders. Investment Properties for financial reporting purposes are reviewed 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. Impairment of investment Properties is recognized when estimated undiscounted operating income is less than
the carrying value of the Property. To the extent an impairment has occurred, the excess of carrying value of the Property over its estimated fair value is charged to income.
Investment Properties include costs of acquisitions, development and predevelopment, construction, tenant allowances and improvements, interest and real estate taxes incurred during construction, certain capitalized improvements and replacements, and certain allocated overhead. Depreciation on buildings and improvements is provided utilizing the straight-line method over an estimated original useful life, which is generally 35 years or the term of the applicable tenant's lease in the case of tenant inducements. Depreciable lives are reviewed periodically and are adjusted when necessary to reflect a shorter economic life. Depreciation on tenant allowances and improvements is provided utilizing the straight-line method over the term of the related lease.
Certain improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. All other repair and maintenance items are expensed as incurred.
Goodwill
Goodwill resulted from the SPG Operating Partnership's merger with Corporate Property Investors, Inc. in 1998. Goodwill is amortized over the estimated life of the properties of 35 years. See Note 13 for the impact of the new accounting pronouncement SFAS No. 142 "Goodwill and Other Intangible Assets."
Use of Estimates
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from these estimates.
Capitalized Interest
Interest is capitalized on projects during periods of construction. Interest capitalized during 2001, 2000 and 1999 was $9,807, $18,210, and $19,641, respectively.
Segment Disclosure
The SPG Operating Partnership's interests in its regional malls, community centers and other assets represent one segment because resource allocation and other operating decisions are based on an evaluation of the entire portfolio.
Long-term Investment
Investments in securities classified as available for sale are reflected at market value with the changes in market value reflected as comprehensive income in partners' equity. These investments were sold in 2000.
Deferred Costs
Deferred costs consist primarily of financing fees incurred to obtain long-term financing and internal and external leasing commissions and related costs. Deferred financing costs are amortized on a straight-line basis over the terms of the respective loans or agreements. Deferred leasing costs are amortized on a straight-line basis over the terms of the related leases. Deferred leasing costs consist primarily of capitalized salaries and related benefits in connection with lease originations. Net deferred costs of $142,592 and $138,396 are net of accumulated amortization of $180,051 and $148,697 as of December 31, 2001 and 2000, respectively.
Interest expense in the accompanying consolidated Statements of Operations and Comprehensive income includes amortization in each year of the following:
Accounting Policies for Derivatives
The SPG Operating Partnership uses a variety of derivative financial instruments in the normal course of business to manage or hedge the risks described in Note 8 and records all derivatives on its balance sheets at fair value. The SPG Operating Partnership requires that hedging derivative instruments are effective in reducing the risk exposure that they are designated to hedge. Any instrument that meets these hedging criteria is formally designated as a hedge at the inception of the derivative contract.
The SPG Operating Partnership adjusts its balance sheets on an ongoing quarterly basis to reflect current fair market value of its derivatives. Changes in the fair value of derivatives are recorded each period in earnings or comprehensive income, as appropriate. The ineffective portion of the hedge is immediately recognized in earnings to the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged. The unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings over time and occurs when the hedged items are also recognized in earnings. The SPG Operating Partnership has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.
The SPG Operating Partnership uses standard market conventions to determine the fair values of derivative instruments and techniques such as discounted cash flow analysis, option pricing models, and termination cost are used to determine fair value at each balance sheet date. All methods of assessing fair value result in a general approximation of value and such value may never actually be realized.
Revenue Recognition
The SPG Operating Partnership, as a lessor, has retained substantially all of the risks and benefits of ownership of the investment Properties and accounts for its leases as operating leases. Minimum rents are accrued on a straight-line basis over the terms of their respective leases. Certain tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. Beginning January 1, 2000, the SPG Operating Partnership recognizes overage rents only when each tenant's sales exceeds its sales threshold. Overage rents were previously recognized as revenues based on reported and estimated sales for each tenant through December 31, less the applicable base sales amount. Differences
between estimated and actual amounts are recognized in the subsequent year. See Note 13 for description and impact of the accounting change.
Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. The SPG Operating Partnership receives escrow payments for these reimbursements from substantially all its tenants throughout the year. This reduces the risk of loss on uncollectible accounts once the SPG Operating Partnership performs the final year end billings for recoverable expenditures. Differences between estimated recoveries and the final billed amounts are recognized in the subsequent year.
Allowance for Credit Losses
A provision for credit losses is recorded based on management's judgment of tenant creditworthiness. The activity in the allowance for credit losses during 2001, 2000 and 1999 was as follows:
Income Taxes
As a partnership, the allocated share of income or loss for each year is included in the income tax returns of the partners', accordingly, no accounting for income taxes is required in the accompanying consolidated financial statements. State and local taxes are not material.
Per Unit Data
Basic earnings per Unit is based on the weighted average number of Units outstanding during the period and diluted earnings per Unit is based on the weighted average number of Units outstanding combined with the incremental weighted average Units that would have been outstanding if all dilutive potential common Units would have been converted into Units at the earliest date possible. The following table sets forth the computation for the SPG Operating Partnership's basic and diluted earnings per Unit.
Basic and diluted earnings per Unit is presented in the financial statements based upon the weighted average number of Units outstanding of the SPG Operating Partnership. Preferred Units issued and outstanding during the comparative periods did not have a dilutive effect on earnings per Unit. Paired Units held by limited partners in the Operating Partnerships may be exchanged for Paired Shares, on a one-for-one basis in certain circumstances. If exchanged, the Paired Units would not have a dilutive effect. The increase in weighted average Units outstanding under the diluted method over the basic method in every period presented for the SPG Operating Partnership is due entirely to the effect of outstanding stock options. The SPG Operating Partnership accrues distributions when they are declared.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of 90 days or less are considered cash and cash equivalents. Cash equivalents are carried at cost, which approximates market value. Cash equivalents generally consist of commercial paper, bankers acceptances, Eurodollars, repurchase agreements and Dutch auction securities.
Noncash Transactions
Please refer to Notes 3, 4, 7, 10, and 12 for additional discussion of noncash transactions.
Comprehensive Income
The following table summarizes the components of other comprehensive income for the SPG Operating Partnership:
As of December 31, 2001, $9.9 million of accumulated other comprehensive income is included in partners' equity, of which $7.2 million is included in general partners' equity and $2.7 million is included in limited partners' equity. Accumulated other comprehensive income consists of unrealized losses on derivative instruments. There was no accumulated other comprehensive income as of December 31, 2000.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. These reclassifications have no impact on net operating results previously reported.
6. Investment Properties
Investment Properties consist of the following:
Investment Properties include $111,217 and $122,277 of construction in progress at December 31, 2001 and 2000, respectively.
7. Investments in Unconsolidated Entities
Joint ventures are common in the real estate industry. The SPG Operating Partnership utilizes joint ventures to finance certain properties and to diversify its risk in a particular trade area. In addition, the SPG Operating Partnership's size makes it an attractive partner for other real estate companies that
may not want to assume or do not have the ability to assume 100% of the risk of a particular project or acquisition. As discussed in Note 2, since the SPG Operating Partnership does not fully control these properties, its accounting policy and current GAAP requires that it account for these properties on the equity method of accounting. Summary financial information of the joint ventures and a summary of the SPG Operating Partnership's investment in and share of income from such joint ventures follow.
"Excess Investment" represents the unamortized difference of the SPG Operating Partnership's investment over its share of the equity in the underlying net asset of the partnerships and joint ventures acquired. Excess investment is amortized over the life of the related Properties, typically 35 years, and the amortization is included in income from unconsolidated entities. The statement of operations summary financial information includes in the 1999 amortization a $5,000 writedown on a joint venture investment.
As of December 31, 2001, scheduled principal repayments on joint venture indebtedness were as follows:
This debt becomes due in installments over various terms extending through 2011 with interest rates ranging from 2.24% to 9.05% and a weighted average rate of 6.10% at December 31, 2001.
European Investment
The balance sheets and results of operations of the SPG Operating Partnership's European investments are included in the summary financial information of joint ventures above. The SPG Operating Partnership has a 32.3% ownership interest in European Retail Enterprises, B.V. ("ERE"). Prior to January 2001, the Management Company had a 29% ownership interest in Groupe BEG, S.A. ("BEG") which was accounted for using the equity method of accounting. In January 2001, BEG merged with ERE and became a wholly-owned subsidiary of ERE. During the third quarter of 2001, the Management Company transferred its interest in ERE at its carrying value of $29.9 million to the SPG Operating Partnership through the intercompany note to simplify the organizational structure. BEG and ERE are fully integrated European retail real estate developers, lessors and managers. The SPG Operating Partnership's current total investment in ERE and BEG, including subordinated debt, is approximately $73.4 million. The current estimated additional commitment, including subordinated debt, is approximately $27.6 million. However, since the SPG Operating Partnership's future commitments are subject to certain performance and other criteria, including the SPG Operating Partnership's approval of development projects, these additional commitments may vary. The agreements with BEG and ERE are structured to allow the SPG Operating Partnership to acquire an additional 28.5% ownership interest over time. As of December 31, 2001, BEG and ERE had four properties open in Poland and two in France.
The translation adjustment resulting from the conversion of BEG and ERE's financial statements from Euros to U.S. dollars was not significant for the years ended December 31, 2001, 2000 and 1999.
The Management Company
The SPG Operating Partnership holds 80% of the outstanding common stock, 5% of the outstanding voting common stock, all of the 8% cumulative Class A preferred stock, all of the 6% Cumulative Class B preferred stock, and all of the 6% Cumulative Class C preferred stock of the Management Company. The remaining 20% of the outstanding common stock of the Management Company (representing 95% of the voting common stock) is owned directly by certain Simon family members. Because the SPG Operating Partnership exercises significant influence but not control over the financial and operating policies of the Management Company, it is reflected in the accompanying statements using the equity method of accounting. The SPG Operating Partnership has accounted for the Management Company as an unconsolidated entity since it became a public company. One of the primary reasons for the Management Company being accounted for as a non-consolidated joint venture is that the income generated from management fees, leasing fees, and development contracts as well as other income is considered impermissible under REIT requirements of the Code. Transactions may be structured through the Management Company to avoid jeopardizing SPG's status as a REIT under the Code.
The Management Company, including its consolidated subsidiaries, provides management, leasing, development, project management, accounting, legal, marketing and management information systems services and property damage and general liability insurance coverage to certain Portfolio Properties. The SPG Operating Partnership incurred total costs of $86,488, $86,238 and $82,630 on consolidated Properties, related to services provided by the Management Company and its affiliates in 2001, 2000 and 1999, respectively. Certain of these amounts are capitalized by the SPG Operating Partnership for leasing and development costs. Common costs are allocated by the Management Company to the SPG Operating Partnership using assumptions that management believes are reasonable. Amounts due to the Management Company under cost-sharing arrangements and management contracts are netted in notes and
advances receivable from the Management Company and affiliates. In addition, the Management Company also provides certain of such services to Melvin Simon & Associates, Inc. ("MSA"), and certain other non-owned properties for a fee. Fees for services provided by the Management Company to MSA were $4,249, $4,246 and $3,853 for the years ended December 31, 2001, 2000 and 1999, respectively.
As of December 31, 2001 and 2000, amounts due from the Management Company for unpaid accrued interest and unpaid accrued preferred dividends were not material to the consolidated financial statements or to those of SPG. Included in other income, the SPG Operating Partnership recorded interest income and preferred dividends from the Management Company of the following:
The Management Company elected to become a taxable REIT subsidiary ("TRS") effective January 1, 2001. The SPG Operating Partnership and the Management Company performed the following recapitalization transactions in order to implement the SPG Operating Partnership's new TRS strategy. The SPG Operating Partnership contributed its ownership in clixnmortar at its carrying value of $22.6 million and $385 to the Management Company in exchange for 2,140 shares of 6% Cumulative Class B preferred stock of the Management Company on March 31, 2001. In addition, the SPG Operating Partnership contributed $60.2 million of its note receivable from the Management Company in exchange for 5,600 shares of 6% Cumulative Class C preferred stock on December 31, 2001. The SPG Operating Partnership's economic ownership of the Management Company increased to 98.0% from 90.0% as a result of these transactions. Finally, the SPG Operating Partnership agreed to reduce the interest rate on the note receivable from the Management Company to 7% from 11% effective January 1, 2002 to more accurately reflect current interest rate conditions.
Summarized consolidated financial information of the Management Company and a summary of the SPG Operating Partnership's investment in and share of income from the Management Company follows and includes the effects of the Management Company's ownership of MerchantWired LLC.
The SPG Operating Partnership's share of the Management Company's net investment in and receivables from MerchantWired LLC was $33.7 million at December 31, 2001. The SPG Operating Partnership, along with the other members of MerchantWired LLC, is in the final stages of negotiating a sale of MerchantWired LLC to a third party for cash and contingent consideration. Completing the sale is subject to finalizing the termination or modification of certain third party contracts, the buyer obtaining credit approval from its lenders, and certain regulatory and other matters. As a condition of this transaction, the SPG Operating Partnership will also acquire approximately $24 million of cable and related infrastructure from MerchantWired LLC and will make an $8 million additional contribution to MerchantWired LLC. These proceeds, along with proceeds from other members, will be used by MerchantWired LLC to satisfy amounts outstanding under various lease arrangements and trade payables, resulting in the members being relieved of all guarantee arrangements. Management expects the transaction to close in April. The amount of contingent consideration due to the SPG Operating Partnership and the other members will be determined based upon a multiple of annualized December 2003 and December 2004 MerchantWired LLC revenues. If this transaction is not completed, the future of MerchantWired LLC will be impacted unless MerchantWired LLC is able to obtain future capital commitments.
8. Indebtedness
The SPG Operating Partnership's mortgages and other notes payable consist of the following:
General. Certain of the Properties are cross-defaulted and cross-collateralized as part of a group of properties. Under certain of the cross-default provisions, a default under any mortgage included in the cross-defaulted package may constitute a default under all such mortgages and may lead to acceleration of the indebtedness due on each Property within the collateral package. Certain indebtedness is subject to financial performance covenants relating to leverage ratios, annual real property appraisal requirements, debt service coverage ratios, minimum net worth ratios, debt-to-market capitalization, and minimum equity values. Debt premiums and discounts are amortized over the terms of the related debt instruments. Certain mortgages and notes payable may be prepaid but are generally subject to a prepayment of a yield-maintenance premium.
Mortgages and Other Notes. Certain of the Properties are pledged as collateral to secure the related mortgage notes. The net book value of these Properties was $3.6 billion at December 31, 2001. The fixed
and variable mortgage notes are nonrecourse. In addition, certain notes have partial guarantees by various limited partner Unitholders of approximately $559.3 million. The fixed-rate mortgages generally require monthly payments of principal and/or interest. Variable-rate mortgages are typically based on LIBOR.
Unsecured Notes. Certain of the SPG Operating Partnership's unsecured notes totaling $825.0 million with weighted average interests and maturities of 8.0% and 6.1 years, respectively, are structurally senior in right of payment to holders of other SPG Operating Partnership unsecured notes to the extent of the assets and related cash flows of certain Properties. Certain of the unsecured notes are guaranteed by the SPG Operating Partnership.
On February 4, 1999, the SPG Operating Partnership completed the sale of $600.0 million of senior unsecured notes. These notes include two $300.0 million tranches. The first tranche bears interest at 6.75% and matures on February 4, 2004 and the second tranche bears interest at 7.125% and matures on February 4, 2009. The SPG Operating Partnership used the net proceeds of approximately $594.0 million to retire the $450.0 million initial tranche of the Merger Facility (see below) and to pay $142.0 million on the outstanding balance of the Credit Facility (see below).
On January 11, 2001, the SPG Operating Partnership issued $500.0 million of unsecured debt to institutional investors pursuant to Rule 144A in two tranches. The first tranche is $300.0 million bearing an interest rate of 73/8% due January 20, 2006 and the second tranche is $200.0 million bearing an interest rate of 73/4% due January 20, 2011. The net proceeds of the offering were used to repay the remaining portion of the indebtedness under the Merger Facility due March 24, 2001 and to repay a portion of the Merger Facility due September 24, 2001.
On August 6, 2001, the SPG Operating Partnership retired the third and final tranche of the Merger Facility totaling $435.0 million. The SPG Operating Partnership generated the funds used to retire this debt primarily from its $277.0 million financing of four mall properties at a fixed rate of 6.99%, its $110.0 million financing of one office complex at LIBOR plus 115 basis points, and excess cash flow.
On October 26, 2001, the SPG Operating Partnership completed the sale of $750.0 million of 6.375% senior unsecured notes due November 15, 2007. Net proceeds from the offering were initially used to reduce the outstanding balance of the Credit Facility. Ultimately, the SPG Operating Partnership plans to retire mortgage indebtedness on six wholly-owned properties and to retire $250.0 million of 9% bonds that mature in early 2002 with borrowings from the Credit Facility.
Credit Facility. The Credit Facility is a $1.25 billion unsecured revolving credit facility. During 1999, the SPG Operating Partnership obtained a three-year extension on the Credit Facility to August of 2002, with an additional one-year extension available at the SPG Operating Partnership's option. The Credit Facility bears interest at LIBOR plus 65 basis points and provides for different pricing based upon our corporate credit rating, with an additional 15 basis point facility fee on the entire $1.25 billion. The maximum and average amounts outstanding during 2001 under the Credit Facility were $863.0 million and $581.5 million, respectively. The Credit Facility is primarily used for funding acquisition, renovation and expansion and predevelopment opportunities. At December 31, 2001, the Credit Facility had an effective interest rate of 2.53%, with $1.1 billion available after outstanding borrowings and letters of credit. The Credit Facility contains financial covenants relating to a capitalization value, minimum EBITDA and unencumbered EBITDA ratios and minimum equity values.
Merger Facility. In conjunction with the merger with Corporate Property Investors, Inc. ("CPI Merger") in 1998, the SPG Operating Partnership and SPG, as co-borrowers, closed a $1.4 billion medium
term unsecured bridge loan (the "Merger Facility"). On August 6, 2001, the SPG Operating Partnership retired the third and final tranche of the Merger Facility totaling $435.0 million. The SPG Operating Partnership generated the funds used to retire this debt primarily from its $277.0 million financing of four mall properties at fixed rate of 6.99%, its $110.0 million financing of one office complex at LIBOR plus 115 basis points, and excess cash flow.
Euro Facility. On July 31, 2000 the SPG Operating Partnership entered into a Euro-denominated unsecured Credit Agreement to fund its European investment. This Credit Agreement consists of a 25 million Euros term loan and a 35 million Euros revolving credit facility. The interest rate for each loan is Euribor plus 60 basis points, with a facility fee of 15 basis points. The interest rate on 30 million Euros is swapped at 7.75%. The maturity date is July 31, 2004 including a one year extension.
Debt Maturity and Other
As of December 31, 2001, scheduled principal repayments on indebtedness were as follows:
Cash paid for interest, net of any amounts capitalized, during 2001, 2000 and 1999 was $588,889, $646,184, and $566,156, respectively.
Derivative Financial Instruments
Prior to the adoption of accounting standard SFAS 133 relating to derivatives (refer to Note 13), the SPG Operating Partnership had entered into interest rate protection agreements in the form of "cap" or "swap" arrangements with respect to certain of its mortgages and other notes payable. The total notional amount outstanding under these arrangements was $213.2 million as of December 31, 2000. The unamortized balance of these agreements was $248 as of December 31, 2000.
As of December 31, 2001, the SPG Operating Partnership has recorded derivatives at their fair values of $1.0 million included in other assets, $10.6 million included in other liabilities, and $3.7 million in mortgage and other notes payable as appropriate. These derivatives consist of LIBOR and EURIBOR based swaps, caps, collars, and cross-currency interest rate swaps with a total notional amount of $758.6 million, with maturity dates ranging from July 2003 to January 2005. Joint venture derivatives with a total asset fair value of $337 consist of interest rate caps with a total notional amount of $1.0 billion, with maturity dates ranging from January 2002 to May 2006. Within the next twelve months, the SPG Operating Partnership expects to reclassify to earnings approximately $4.6 million of expense of the current balance held in accumulated other comprehensive income.
The SPG Operating Partnership's exposure to market risk due to changes in interest rates primarily relates to the SPG Operating Partnership's long-term debt obligations. The SPG Operating Partnership manages exposure to interest rate market risk through its risk management strategy by a combination of interest rate protection agreements to effectively fix or cap a portion of variable rate debt, or in the case of a fair value hedge, effectively convert fixed rate debt to variable rate debt. The SPG Operating Partnership is also exposed to foreign currency risk on financings of certain foreign operations. To manage foreign currency exchange rate risk as part of its risk management strategy, the SPG Operating Partnership has also entered into a foreign currency forward contract. The SPG Operating Partnership's intent is to offset gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging these exposures. The SPG Operating Partnership does not enter into either interest rate protection or foreign currency rate protection agreements for speculative purposes.
Fair Value of Financial Instruments
The carrying value of variable-rate mortgages and other loans represents their fair values. The fair values of fixed-rate mortgages and other notes payable are estimated using cash flows discounted at current borrowing rates and at current market rates, respectively. The fair values of financial instruments and related discount rate assumptions used in the estimate of fair value for fixed-rate mortgages and other notes payable are summarized as follows:
9. Rentals under Operating Leases
The SPG Operating Partnership receives rental income from the leasing of retail and mixed-use space under operating leases. Future minimum rentals to be received under noncancelable 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, 2001, are as follows:
Approximately 1.5% of future minimum rents to be received are attributable to leases with an affiliate of a limited partner in the SPG Operating Partnership.
10. Partners' Equity
Unit Issuances
As described in Note 3, as part of the consideration paid for the NED Acquisition, the SPG Operating Partnership issued 1,269,446 Paired Units valued at approximately $36,400; 2,584,227 7% Convertible Preferred Units in the SPG Operating Partnership valued at approximately $72,800; and 2,584,227 8% Redeemable Preferred Units in the SPG Operating Partnership valued at approximately $78,000. In addition, as part of the NED Acquisition, the SPG Operating Partnership issued 3,617,070 Paired Units to SPG in exchange for a note receivable, which is recorded as a reduction of partners' equity. During 2001, an additional 8,185 Paired Units were issued that were held back at the time of the acquisition pursuant to the resolution of a closing contingency.
Preferred Units
The following table summarizes each of the series of preferred Units of the SPG Operating Partnership:
SPG Properties, Inc. Merger. The Boards of Directors of SPG and SPG Properties, Inc. ("SPG Properties"), a general partner of the SPG Operating Partnership, on May 8, 2001 approved an agreement for the merger of SPG Properties into SPG in order to simplify the organizational structure of the Companies. The merger was completed and became effective on July 1, 2001. SPG previously owned
99.999% of the common stock of SPG Properties. In the merger, outstanding shares of SPG Properties' preferred stock were converted into shares of SPG preferred stock having substantially identical terms. SPG Properties' Series B preferred stock was converted to Series F preferred stock of SPG and SPG Properties' Series C preferred stock was converted to Series G preferred stock of SPG. SPG holds preferred units in the SPG Operating Partnership with economic terms substantially identical to the corresponding class of SPG preferred stock. The preferred units shown as Series as Series F and G above prior to the merger with SPG Properties represented the preferred units associated with the two classes of SPG Properties preferred stock.
On January 27, 2000, SD Property Group, Inc., a substantially wholly owned subsidiary of SPG Properties, merged with and into SPG Properties.
Series A Convertible Preferred Units. During 2001, 1,220 units of the SPG Operating Partnership's Series A Convertible Preferred Units were converted into 46,355 Paired Units. In addition, another 442 Paired Units were issued to the holders of the converted units in lieu of the cash dividends allocable to those preferred units. During 2000, 2,212 Series A Convertible Preferred Units were converted into 84,046 Paired Units. In addition, another 1,242 Paired Units were issued to the holders of the converted units in lieu of the cash dividends allocable to those preferred units. Each of the Series A Convertible Preferred Units has a liquidation preference of $1,000 and is convertible into 37.995 Paired Units, subject to adjustment under certain circumstances. The Series A Convertible Preferred Units are not redeemable, except as needed to maintain or bring the direct or indirect ownership of the capital stock of SPG into conformity with REIT requirements.
Series B Convertible Preferred Units. Each of the Series B Convertible Preferred Units has a liquidation preference of $100 and is convertible into 2.586 Paired Units, subject to adjustment under circumstances identical to those of the Series A Preferred Units. SPG may redeem the Series B Preferred Units on or after September 24, 2003 at a price beginning at 105% of the liquidation preference plus accrued dividends and declining to 100% of the liquidation preference plus accrued dividends any time on or after September 24, 2008.
Series C and D Preferred Units. In connection with the NED Acquisition, the SPG Operating Partnership issued two new series of preferred Units during 1999 as a component of the consideration for the Properties acquired. The SPG Operating Partnership authorized 2,700,000, and issued 2,584,227, 7.00% Cumulative Convertible Preferred Units (the "7.00% Preferred Units") having a liquidation value of $28.00 per Unit. During 2001, an additional 16,668 Units were issued that were held back at the time of acquisition pursuant to the resolution of a closing contingency. The 7.00% Preferred Units accrue cumulative dividends at a rate of $1.96 annually, which is payable quarterly in arrears. The 7.00% Preferred Units are convertible at the holders' option on or after August 27, 2004, into either a like number of shares of 7.00% Cumulative Convertible Preferred Stock of SPG with terms substantially identical to the 7.00% Preferred Units or Paired Units at a ratio of 0.75676 to one provided that the closing stock price of SPG's Paired Shares exceeds $37.00 for any three consecutive trading days prior to the conversion date. The SPG Operating Partnership may redeem the 7.00% Preferred Units at their liquidation value plus accrued and unpaid distributions on or after August 27, 2009, payable in Paired Units. In the event of the death of a holder of the 7.00% Preferred Units, or the occurrence of certain tax triggering events applicable to a holder, the SPG Operating Partnership may be required to redeem the 7.00% Preferred Units at liquidation value payable at the option of the SPG Operating Partnership in either cash (the payment of which may be made in four equal annual installments) or Paired Shares.
The SPG Operating Partnership also authorized 2,700,000, and issued 2,584,227, 8.00% Cumulative Redeemable Preferred Units (the "8.00% Preferred Units") having a liquidation value of $30.00. During 2001, an additional 16,668 Units were issued that were held back at the time of acquisition pursuant to the resolution of a closing contingency. The 8.00% Preferred Units accrue cumulative dividends at a rate of $2.40 annually, which is payable quarterly in arrears. The 8.00% Preferred Units are each paired with one 7.00% Preferred Unit or with the Paired Units into which the 7.00% Preferred Units may be converted. The SPG Operating Partnership may redeem the 8.00% Preferred Units at their liquidation value plus accrued and unpaid distributions on or after August 27, 2009, payable in either new preferred units of the SPG Operating Partnership having the same terms as the 8.00% Preferred Units, except that the distribution coupon rate would be reset to a then determined market rate, or in Paired Units. The 8.00% Preferred Units are convertible at the holders' option on or after August 27, 2004, into 8.00% Cumulative Redeemable Preferred Stock of SPG with terms substantially identical to the 8.00% Preferred Units. In the event of the death of a holder of the 8.00% Preferred Units, or the occurrence of certain tax triggering events applicable to a holder, the SPG Operating Partnership may be required to redeem the 8.00% Preferred Units owned by such holder at their liquidation value payable at the option of the SPG Operating Partnership in either cash (the payment of which may be made in four equal annual installments) or Paired Shares.
Series E Cumulative Redeemable Preferred Units. As part of the consideration for the purchase of ownership in Mall of America, SPG issued 1,000,000 shares of Series E Cumulative Redeemable Preferred Stock (the "Series E Preferred Stock") for $24,242, net of issuance costs. The Series E Preferred Stock is redeemable beginning August 27, 2004 at the liquidation value of $25 per share. The carrying value is being accreted to the liquidation value over the non-redeemable period. SPG contributed the interest in Mall of America to the SPG Operating Partnership in exchange for cash and the preferred units with economic terms identical to the Series E Preferred Stock.
Series F Cumulative Redeemable Preferred Units. SPG Properties, formerly a general partner of the SPG Operating Partnership, previously had outstanding 8,000,000 shares of 8.75% Series B Cumulative Redeemable Preferred Stock and also held preferred units in the SPG Operating Partnership with economic terms substantially identical to the corresponding class of SPG Properties preferred stock. As part of the merger of SPG and SPG Properties, SPG issued 8,000,000 shares of 8.75% Series F Cumulative Redeemable Preferred Stock (the "Series F Preferred Shares") in exchange for SPG Properties' 8.75% Series B Cumulative Redeemable Stock on a share-for-share basis. The Series F Preferred Shares may be redeemed any time on or after September 29, 2006, at a liquidation value of $25.00 per share, plus accrued and unpaid dividends. The liquidation value (other than the portion thereof consisting of accrued and unpaid dividends) is payable solely out of the sale proceeds of other capital shares of SPG, which may include other series of preferred shares. SPG holds preferred units in the SPG Operating Partnership with economic terms substantially identical to those of the Series F Preferred Shares.
Series G Cumulative Step-Up Premium RateSM Preferred Units. SPG Properties, formerly a general partner of the SPG Operating Partnership, also previously had outstanding 3,000,000 shares of its 7.89% Series C Cumulative Step-Up Premium RateSM Preferred Stock and also held preferred units in the SPG Operating Partnership with economic terms substantially identical to the corresponding class of SPG Properties preferred stock. As part of the merger of SPG and SPG Properties, SPG issued 3,000,000 shares of 7.89% Series G Cumulative Step-Up Premium RateSM Preferred Stock (the "Series G Preferred Shares") in exchange for SPG Properties' 7.89% Series C Cumulative Step-Up Premium RateSM Preferred Stock on a share-for-share basis. The Series G Preferred Shares have a liquidation value of $50.00 per
share. Beginning October 1, 2012, the rate increases to 9.89% per annum. Management intends to redeem the Series G Preferred Shares prior to October 1, 2012. Beginning September 30, 2007, SPG may redeem the Series G Preferred Shares in whole or in part, using only the sale proceeds of other capital stock of SPG, at a liquidation value of $50.00 per share, plus accrued and unpaid distributions, if any, thereon. Additionally, the Series G Preferred Shares have no stated maturity and are not subject to any mandatory redemption provisions, nor are they convertible into any other securities of SPG. SPG holds preferred units in the SPG Operating Partnership with economic terms substantially identical to those of the Series G Preferred Stock.
Notes Receivable from Former CPI Shareholders
Notes receivable of $19,113 from former CPI shareholders, which result from securities issued under CPI's executive compensation program and were assumed in the CPI Merger, are reflected as a deduction from capital in excess of par value in the statements of partners' equity in the accompanying financial statements. Certain of such notes totaling $1,465 bear interest at rates ranging from 6.00% to 7.50% and become due during 2002. The remainder of the notes do not bear interest and become due at the time the underlying Units are sold.
The Simon Property Group 1998 Stock Incentive Plan
The SPG Operating Partnership and SPG have a stock incentive plan (the "1998 Plan"), which provides for the grant of equity-based awards during a ten-year period, in the form of options to purchase Paired Shares ("Options"), stock appreciation rights ("SARs"), restricted stock grants and performance unit awards (collectively, "Awards"). Options may be granted which are qualified as "incentive stock options" within the meaning of Section 422 of the Code and Options which are not so qualified. The Companies have reserved for issuance 6,300,000 Paired Shares under the 1998 Plan. Additionally, the partnership agreements require the Companies to sell Paired Shares to the Operating Partnerships, at fair value, sufficient to satisfy the exercising of stock options, and for the Companies to purchase Paired Units for cash in an amount equal to the fair market value of such Paired Shares.
Administration. The 1998 Plan is administered by SPG's Compensation Committee (the "Committee"). The Committee, in its sole discretion, determines which eligible individuals may participate and the type, extent and terms of the Awards to be granted to them. In addition, the Committee interprets the 1998 Plan and makes all other determinations deemed advisable for the administration of the 1998 Plan. Options granted to employees ("Employee Options") become exercisable over the period determined by the Committee. The exercise price of an Employee Option may not be less than the fair market value of the Paired Shares on the date of grant. Employee Options generally vest over a three-year period and expire ten years from the date of grant.
Director Options. The 1998 Plan provides for automatic grants of Options to directors ("Director Options") of the Companies who are not also employees of the SPG Operating Partnership or its affiliates ("Eligible Directors"). Under the 1998 Plan, each Eligible Director is automatically granted Director Options to purchase 5,000 Paired Shares upon the director's initial election to the Board of Directors, and upon each reelection, an additional 3,000 Director Options multiplied by the number of calendar years that have elapsed since such person's last election to the Board of Directors. The exercise price of the options is equal to the fair market value of the Paired Shares on the date of grant. Director Options become vested and exercisable on the first anniversary of the date of grant or at such earlier time as a
"change in control" of the Companies (as defined in the 1998 Plan). Director Options terminate 30 days after the optionee ceases to be a member of the Board of Directors.
Restricted Stock. The 1998 Plan also provides for shares of restricted common stock of the Companies to be granted to certain employees at no cost to those employees, subject to growth targets established by the Compensation Committee (the "Restricted Stock Program"). Restricted stock vests annually in four installments of 25% each beginning on January 1 following the year in which the restricted stock is awarded. The cost of restricted stock grants, which is based upon the stock's fair market value at the time such stock is earned, awarded and issued, is charged to partners' equity and subsequently amortized against earnings of the SPG Operating Partnership over the vesting period. Through December 31, 2001 a total of 2,697,806 Paired Shares, net of forfeitures, were awarded. Information regarding restricted stock awards are summarized in the following table for each of the years presented:
The SPG Operating Partnership accounts for stock-based compensation programs using the intrinsic value method. This method measures compensation expense as the excess, if any, of the quoted market price of the stock at the grant date over the amount the employee must pay to acquire the stock. Options granted to Directors in 2001 vest over a twelve-month period while the employee options granted in 2001 vest over three years. The impact on pro forma net income and earnings per share as a result of applying the fair value method, as prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, which requires entities to measure compensation costs measured at the grant date based on the fair value of the award, was not material.
The fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with the following assumptions:
The weighted average remaining contract life for options outstanding as of December 31, 2001 was 6.78 years.
Information relating to Director Options and Employee Options from December 31, 1998 through December 31, 2001 is as follows:
(1)Represents the weighted average price when multiple prices exist.
Exchange Rights
Limited partners in the Operating Partnerships have the right to exchange all or any portion of their Paired Units for Paired shares of common stock on a one-for-one basis or cash, as selected by the Board of Directors. The amount of cash to be paid if the exchange right is exercised and the cash option is selected will be based on the trading price of the Companies' common stock at that time. The Companies have reserved 63,930,350 Paired Shares for possible issuance upon the exchange of Paired Units.
11. Commitments and Contingencies
Litigation
Triple Five of Minnesota, Inc., a Minnesota corporation, v. Melvin Simon, et. al. On or about November 9, 1999, Triple Five of Minnesota, Inc. ("Triple Five") commenced an action in the District Court for the State of Minnesota, Fourth Judicial District, against, among others, Mall of America, certain members of the Simon family and entities allegedly controlled by such individuals, and the SPG Operating Partnership. Two transactions form the basis of the complaint: (i) the sale by Teachers Insurance and Annuity Association of America of one-half of its partnership interest in Mall of America Company and
Minntertainment Company to the SPG Operating Partnership and related entities (the "Teachers Sale"); and (ii) a financing transaction involving a loan in the amount of $312,000 obtained from The Chase Manhattan Bank ("Chase") that is secured by a mortgage placed on Mall of America's assets (the "Chase Mortgage"). The complaint, which contains twelve counts, seeks remedies of damages, rescission, constructive trust, accounting, and specific performance. Although the complaint names all defendants in several counts, the SPG Operating Partnership is specifically identified as a defendant in connection with the Teachers Sale. The litigation is currently in the discovery stage. The SPG Operating Partnership believes that the Triple Five litigation is without merit and intends to defend the action vigorously. The SPG Operating Partnership believes that the Triple Five litigation will not have a material adverse effect on the SPG Operating Partnership. Given the early stage of the litigation it is not possible to provide an assurance of the ultimate outcome of the litigation or an estimate of the amount or range of potential loss, if any.
Carlo Agostinelli et al. v. DeBartolo Realty Corp. et al. On October 16, 1996, a complaint was filed in the Court of Common Pleas of Mahoning County, Ohio, captioned Carlo Agostinelli et al. v. DeBartolo Realty Corp. et al. The named defendants are SD Property Group, Inc., an indirect 99%-owned subsidiary of SPG, and DeBartolo Properties Management, Inc., a subsidiary of the Management Company, and the plaintiffs are 27 former employees of the defendants. In the complaint, the plaintiffs alleged that they were recipients of deferred stock grants under the DeBartolo Realty Corporation ("DRC") Stock Incentive Plan (the "DRC Plan") and that these grants immediately vested under the DRC Plan's "change in control" provision as a result of the merger with DRC. Plaintiffs asserted that the defendants' refusal to issue them approximately 542,000 shares of DRC common stock, which is equivalent to approximately 370,000 Paired Shares computed at the 0.68 exchange ratio used in the DRC Merger, constituted a breach of contract and a breach of the implied covenant of good faith and fair dealing under Ohio law. Plaintiffs sought damages equal to such number of shares of DRC common stock, or cash in lieu thereof, equal to all deferred stock ever granted to them under the DRC Plan, dividends on such stock from the time of the grants, compensatory damages for breach of the implied covenant of good faith and fair dealing, and punitive damages. The plaintiffs and the defendants each filed motions for summary judgment. On October 31, 1997, the Court of Common Pleas entered a judgment in favor of the defendants granting their motion for summary judgment. The plaintiffs appealed this judgment to the Seventh District Court of Appeals in Ohio. On August 18, 1999, the District Court of Appeals reversed the summary judgment order in favor of the defendants entered by the Common Pleas Court and granted plaintiffs' cross motion for summary judgment, remanding the matter to the Common Pleas Court for the determination of plaintiffs' damages. The defendants petitioned the Ohio Supreme Court asking that they exercise their discretion to review and reverse the Appellate Court decision, but the Ohio Supreme Court did not grant the petition for review. The case was remanded to the Court of Common Pleas of Mahoning County, Ohio, to conduct discovery relevant to each plaintiff's damages and the counterclaims asserted by the SPG Operating Partnership. The Trial Court referred these matters to a Magistrate. Plaintiffs filed a Supplemental Motion for Summary Judgment on the question of damages. The Magistrate ruled on the counterclaims and found in Defendants' favor on one of them. On December 27, 2000, the Trial Court rendered judgment for the plaintiffs in the combined total amount of approximately $12,000, which includes a set-off of approximately $2,000 with impact to two of the plaintiffs. Defendants have appealed this judgment and plaintiffs have cross-appealed. The judgment has accrued interest at 10% per annum from and after the DRC Merger Date of August 6, 1996. The SPG Operating Partnership recorded a $12,000 loss in the third quarter of 1999 related to this litigation as an unusual item. On December 19, 2001, the Court of Appeals affirmed in part, reversed in part and remanded for limited trial with respect to the issues of plaintiffs' entitlement to dividends declared before the merger and with respect to the amount of shares claimed by one of the plaintiffs. The
Court of Appeals overruled defendants' assignments of error. Defendants have petitioned the Ohio Supreme Court for review. The SPG Operating Partnership believes that established reserves are adequate and the ultimate outcome will not have a material adverse impact on its results of operations.
The SPG Operating Partnership currently is not subject to any other material litigation other than routine litigation, claims and administrative proceedings arising in the ordinary course of business. On the basis of consultation with counsel, management believes that such routine litigation, claims and administrative proceedings will not have a material adverse impact on the SPG Operating Partnership's financial position or its results of operations.
Lease Commitments
As of December 31, 2001, a total of 32 of the consolidated Properties are subject to ground leases. The termination dates of these ground leases range from 2002 to 2090. These ground leases generally require payments by the SPG Operating Partnership of a fixed annual rent, or a fixed annual rent plus a participating percentage over a base rate. Ground lease expense incurred by the SPG Operating Partnership for the years ended December 31, 2001, 2000 and 1999, was $13,786, $13,654, and $13,365, respectively.
Future minimum lease payments due under such ground leases for each of the next five years ending December 31 and thereafter are as follows:
Energy management services
On September 30, 1999, Simon Property Group, L.P. entered into a multi-year contract with Enron Energy Services ("Enron") for Enron to supply or manage all of the energy commodity requirements for the wholly-owned properties and many of the SPG Operating Partnership's joint venture partnerships. The contract includes electricity, natural gas and maintenance of energy conversion assets and electrical systems including lighting. As a result of the December bankruptcy filing by Enron, the SPG Operating Partnership assumed total control over the management of its energy assets throughout the Portfolio, including the purchase and payment of utilities and maintenance and repair of energy related equipment. There was no service interruption to the SPG Operating Partnership's malls or tenants and the SPG Operating Partnership does not anticipate adverse financial consequences from the Enron bankruptcy.
Insurance
The SPG Operating Partnership's portfolio-wide general liability and property insurance policies expired on December 31, 2001. The SPG Operating Partnership renewed these policies, the cost of which is predominantly passed through to tenants, at similar coverage levels, but at price increases aggregating
approximately 30% due to the impacts of September 11, 2001. All of the Portfolio Properties have insurance coverage for 2002. The exception to coverage levels is in the area of terrorism, which is excluded in the SPG Operating Partnership's new property coverage. Management believes that the SPG Operating Partnership is in compliance with all insurance provisions of its debt agreements even though the SPG Operating Partnership lacks terrorism insurance coverage.
Environmental Matters
Nearly all of the Properties have been subjected to Phase I or similar environmental audits. Such audits have not revealed nor is management aware of any environmental liability that management believes would have a material adverse impact on the SPG Operating Partnership's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all Properties were sold, disposed of or abandoned.
12. Related Party Transactions
On April 1, 2001, the SPG Operating Partnership became the managing general partner of SPG Administrative Services Partnership L.P. ("ASP"). In addition, the SPG Operating Partnership acquired an additional 24% partnership interest in ASP from the Management Company. Prior to acquiring the additional interest, ASP was recapitalized with $29.1 million from the Management Company, which was funded by the SPG Operating Partnership through the note receivable from the Management Company, and $0.2 million from the SPG Operating Partnership which was funded through a reduction of ASP's note payable with the SPG Operating Partnership. The SPG Operating Partnership gained control of ASP as a result of the transactions and ASP is consolidated in the SPG Operating Partnership's results since April 1, 2001. ASP was previously consolidated as part of the Management Company. The change in control and consolidation of ASP will not have a material impact on the results of operations of the SPG Operating Partnership and the other aspects of the transaction were not material. ASP employs the majority of the SPG Operating Partnership's employees and was organized to provide services for the Management Company and its affiliates as well as multiple entities controlled by the SPG Operating Partnership.
On December 28, 2000, Montgomery Ward LLC and certain of its related entities ("Ward") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On March 1, 2001, Kimco Realty Corporation lead the formation of a limited liability company, Kimsward LLC ("Kimsward"). Kimsward acquired the right from the Bankruptcy Court to designate persons or entities to whom the Ward real estate assets were to be sold. The Management Company's interest in Kimsward was 18.5%. During 2001 the Management Company recorded $18.3 million of equity in income from Kimsward. In addition, the SPG Operating Partnership charged the Management Company a $5.7 million fee for services rendered to the Management Company in connection with the Kimsward transactions, which is included in other income in the accompanying statements of operations. The remaining investment in Kimsward at December 31, 2001 is not material.
The SPG Operating Partnership transferred its $2.2 million note receivable from the SRC Operating Partnership to the Management Company in exchange for an increase in the note receivable from the Management Company to the SPG Operating Partnership.
13. New Accounting Pronouncements
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 further clarifies the criteria to recognize intangible
assets separately from goodwill and requires the purchase method of accounting for all acquisitions. SFAS 141 is effective for the SPG Operating Partnership for any business combination that is completed after June 30, 2001. SFAS No. 142 requires that goodwill is no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired by the SPG Operating Partnership after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the SPG Operating Partnership is required to adopt SFAS 142 on January 1, 2002 at which time amortization of the remaining book value of goodwill will cease and the new impairment-only approach will apply and may not be applied retroactively. The SPG Operting Partnership does not expect any impairment on goodwill from the adoption of SFAS 142 and the impact of SFAS 142 will be to eliminate the amortization of goodwill thereby increasing the SPG Operating Partnership's income before allocation to limited partners by approximately $1.2 million annually.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." In addition, SFAS No. 144 supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of a business. SFAS No. 144 is a broad statement that provides a framework for the evaluation of impairment of long-lived assets, the treatment for assets held for sale or to be otherwise disposed of, and the reporting of discontinued operations. The effective date for adoption of SFAS No. 144 is January 1, 2002. The SPG Operating Partnership is currently evaluating the impact of SFAS No. 144. SFAS No. 144 will also require the SPG Operating Partnership to reclassify the results of operations of properties sold which are not already classified as held for sale out of operating income into discontinued operations for all years presented.
On January 1, 2001 the SPG Operating Partnership adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as amended in June of 2000 by SFAS 138, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and requires the SPG Operating Partnership to record on the balance sheet all derivative instruments at fair value and to recognize certain non-cash changes in these fair values either in the income statement or other comprehensive income, as appropriate under SFAS 133. SFAS 133 currently impacts the accounting for the SPG Operating Partnership's interest rate and foreign currency rate risk protection agreements.
On adoption of SFAS 133, the SPG Operating Partnership recorded the difference between the fair value of the derivative instruments and the previous carrying amount of those derivatives on its balance sheet and in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with APB 20 "Accounting Changes." On adoption, the SPG Operating Partnership's net fair value of derivatives was ($2.0) million, of which $3.1 million was recorded in other liabilities and $1.1 million was recorded in other assets. In addition, $2.0 million of unrecognized loss was recorded in other comprehensive income as a cumulative effect of accounting change and an expense of $1.7 million was recorded as a cumulative effect of accounting change in the statement of operations, which includes the SPG Operating Partnership's $1.5 million share of joint venture cumulative effect of accounting change.
On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), which addressed certain revenue recognition policies, including the accounting for
overage rent by a landlord. SAB 101 requires overage rent to be recognized as revenue only when each tenant's sales exceeds its sales threshold. The SPG Operating Partnership previously recognized overage rent based on reported and estimated sales through the end of the period, less the applicable prorated base sales amount. The SPG Operating Partnership adopted SAB 101 effective January 1, 2000 and recorded a loss from the cumulative effect of an accounting change of $12.3 million in the first quarter of 2000, which includes the SPG Operating Partnership's $1.8 million share from unconsolidated entities.
14. Quarterly Financial Data (Unaudited)
Consolidated summarized quarterly 2001 and 2000 data is as follows:
(1)- The fourth quarter of 2001 includes an impairment charge of $47.0 million.
(2)- The second quarter of 2000 includes an impairment charge of $10.6 million.
SIGNATURES
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.
SIMON PROPERTY GROUP, L.P.
By:
Simon Property Group, Inc.,
Managing General Partner
By
/s/ DAVID SIMON David Simon
Chief Executive Officer
March 29, 2002
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/ DAVID SIMON David Simon
Chief Executive Officer
and Director (Principal Executive Officer)
March 29, 2002
/s/ HERBERT SIMON Herbert Simon
Co-Chairman of the Board of Directors
March 29, 2002
/s/ MELVIN SIMON Melvin Simon
Co-Chairman of the Board of Directors
March 29, 2002
/s/ HANS C. MAUTNER Hans C. Mautner
Vice Chairman of the Board of Directors
March 29, 2002
/s/ RICHARD SOKOLOV Richard Sokolov
President, Chief Operating Officer
and Director
March 29, 2002
/s/ MELVYN E. BERGSTEIN Melvyn E. Bergstein
Director
March 29, 2002
/s/ BIRCH BAYH Birch Bayh
Director
March 29, 2002
/s/ PIETER S. VAN DEN BERG Pieter S. van den Berg
Director
March 29, 2002
/s/ G. WILLIAM MILLER G. William Miller
Director
March 29, 2002
/s/ FREDRICK W. PETRI Fredrick W. Petri
Director
March 29, 2002
/s/ J. ALBERT SMITH J. Albert Smith
Director
March 29, 2002
/s/ PHILIP J. WARD Philip J. Ward
Director
March 29, 2002
/s/ M. DENISE DEBARTOLO YORK M. Denise DeBartolo York
Director
March 29, 2002
/s/ STEPHEN E. STERRETT Stephen E. Sterrett
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
March 29, 2002
/s/ JOHN DAHL John Dahl
Senior Vice President
(Principal Accounting Officer)
March 29, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Simon Property Group, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of SIMON PROPERTY GROUP, L.P. included in this Form 10-K and have issued our report thereon dated March 28, 2002. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule, "Schedule III: Real Estate and Accumulated Depreciation", as of December 31, 2001, is the responsibility of Simon Property Group, L.P.'s management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
March 28, 2002.
SIMON PROPERTY GROUP, LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, LP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, L.P.
NOTES TO SCHEDULE III AS OF DECEMBER 31, 2001
(Dollars in thousands)
(1) Reconciliation of Real Estate Properties:
The changes in real estate assets for the years ended December 31, 2001, 2000, and 1999 are as follows:
The unaudited aggregate cost for the SPG Operating Partnership for federal income tax purposes as of December 31, 2001 was $9,105,384. The impairment write-down is described in Note 4 of the Notes to Financial Statements in Part IV of this Form 10-K.
(2) Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation and amortization for the years ended December 31, 2001, 2000, and 1999 are as follows:
Depreciation of the SPG Operating Partnership's investment in buildings and improvements reflected in the statements of operations is calculated over the estimated original lives of the assets as follows:
•Buildings and Improvements - typically 35 years, 15 years for landscaping and parking lot, and 10 years for HVAC equipment.
•Tenant Inducements - shorter of lease term or useful life
(3) Initial cost represents net book value at December 20, 1993 except for acquired properties. Impairment write-downs are a reduction to initial cost.
(4) Not developed/constructed by the SPG Operating Partnership or its predecessors. The date of construction represents acquisition date.
INDEX TO EXHIBITS
Exhibits
Page
2.1
Form of Joint Purchase Agreement among Westfield American Limited Partnership, Simon Property Group, L.P. and The Rouse Company
2.2
Form of Purchase Agreement by and among Rodamco North America N.V; Westfield America Limited Partnership; Westfield Growth, LP; Simon Property Group, L.P.; Hoosier Acquisition, LLC; The Rouse Company; and Terrapin Acquisition LLC
3.1
Seventh Amended and Restated Limited Partnership Agreement of the SPG Operating Partnership (Incorporated by reference to Exhibit 3.1 of its Annual Report on Form 10-K for 2001 Filed by the SPG Operating Partnership).
3.2
Certificate of Powers, Designations, Preferences and Rights of the 7.00% Series C Cumulative Convertible Preferred Units, $0.0001 Par Value (incorporated by reference to Exhibit 3.1 of the Form 10-Q filed by the SPG Operating Partnership on November 15, 1999).
3.3
Certificate of Powers, Designations, Preferences and Rights of the 8.00% Series D Cumulative Redeemable Preferred Units, $0.0001 Par Value (incorporated by reference to Exhibit 3.2 of the Form 10-Q filed by the SPG Operating Partnership on November 15, 1999).
3.4
Certificate of Powers, Designations, Preferences and Rights of the 8.00% Series E Cumulative Redeemable Preferred Units, $0.0001 Par Value (incorporated by reference to Exhibit 3.3 of the Form 10-Q filed by the SPG Operating Partnership on November 15, 1999).
4.1(a)
Indenture, dated as of November 26, 1996, by and among the SPG Operating Partnership and The Chase Manhattan Bank, as trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed on October 21, 1996 (Reg. No. 333-11491)).
4.2(a)
Supplemental Indenture, dated as of June 22, 1998, by and among the SPG Operating Partnership and The Chase Manhattan Bank, as trustee, (incorporated by reference to Exhibit 4.2 to the Registration Statement of Simon DeBartolo Group, L.P. on Form S-4 filed on September 18, 1998 (Reg. No. 333-63645)).
10.1
Third Amended and Restated Credit Agreement Dated as of August 25, 1999 (incorporated by reference to Exhibit 10.1 of the Form 10-Q filed by the SPG Operating Partnership on November 15, 1999).
10.2
Credit Agreement dated March 24, 2000 (incorporated by reference to Exhibit 4.1 of the Form 10-Q filed by the SPG Operating Partnership on November 14, 2000).
10.3
Credit Agreement dated September 22, 2000 (incorporated by reference to Exhibit 4.2 of the Form 10-Q filed by the SPG Operating Partnership on November 14, 2000).
10.4
Limited Partnership Agreement of SPG Realty Consultants, L.P. (incorporated by reference to Exhibit 4.2 of the Form 8-K filed by the Companies on October 9, 1998).
10.5(b)
The SPG Operating Partnership 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
10.6(c)
Option Agreement to acquire the Excluded Retail Properties (Previously filed as Exhibit 10.10).
10.7(c)
Option Agreement to acquire the Excluded Properties-Land (Previously filed as Exhibit 10.11).
10.8(c)
Option Agreements dated as of December 1, 1993 between the Management Company and Simon Property Group LP. (Previously filed as Exhibit 10.20.)
10.9(c)
Option Agreement dated as of December 1, 1993 to acquire Development Land. (Previously filed as Exhibit 10.22.)
10.10(c)
Option Agreement dated December 1, 1993 between the Management Company and Simon Property Group L.P. (Previously filed as Exhibit 10.25.)
10.11
Purchase Option and Right of First Refusal Agreement between DRP, LP and EJDC (for SouthPark Center Development Site) (Incorporated by reference to the 1994 DRC Form 10-K Exhibit 10(p)(2).)
10.12
Acquisition Option Agreement between DRP, LP and Lakeland Square Associates (for Lakeland Square) (Incorporated by reference to the 1994 DRC Form 10-K Exhibit 10(s)(2).)
10.13
Limited Partnership Agreement of SDG Macerich Properties, L.P. (Incorporated by reference to Exhibit 10.63 of SDG's 1997 Form 10-K).
10.14
Credit Agreement dated February 28, 2002
21.1
List of Subsidiaries of the SPG Operating Partnership.
23.1
Consent of Arthur Andersen LLP.
99.1
Letter regarding Arthur Andersen LLP assurances as to certain audit-related matters
(a)Does not include supplemental indentures which authorize the issuance of debt securities which do not exceed 10% of the total assets of the Registrant on a consolidated basis. The Registrant agrees to file copies of any such supplemental indentures upon the request of the Commission.
(b)Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.
(c)Incorporated by reference to the exhibit indicated filed with the Annual Report on Form 10-K for the year ended December 31, 1993 by Simon Property Group, L.P., a predecessor of the SPG Operating Partnership.
Part I
Item 1. Business
Item 2. Properties
MORTGAGE AND OTHER DEBT ON PORTFOLIO PROPERTIES (Dollars in thousands)
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for the Registrant and Related Unitholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Simon Property Group, L.P. Consolidated Balance Sheets (Dollars in thousands)
Simon Property Group, L.P. Consolidated Statements of Operations and Comprehensive Income (Dollars in thousands, except per unit amounts)
Simon Property Group, L.P. Consolidated Statements of Cash Flows (Dollars in thousands)
Simon Property Group, L.P. Consolidated Statements of Partners' Equity (Dollars in thousands)
SIMON PROPERTY GROUP, L.P. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per unit amounts and where indicated as in millions or billions)
SIGNATURES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SIMON PROPERTY GROUP, L.P. NOTES TO SCHEDULE III AS OF DECEMBER 31, 2001 (Dollars in thousands)
INDEX TO EXHIBITS