Item 1. Business
Background and Description of the Business
Who we are - Simon Property Group, Inc. ("SPG"), a Delaware corporation, 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"). Simon Property Group, L.P. (the "SPG Operating Partnership"), is the primary subsidiary of SPG. Units of ownership interest ("Units") in the SPG Operating Partnership are paired ("Paired Units") with Units of 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 Companies, the Operating Partnerships, and their subsidiaries. The background and description of our business information required by this item is incorporated herein by reference to the Notes to Financial Statements, Note 1, paragraphs 1 through 8, on pages 51 and 52 of the 2001 Annual Report to Shareholders which is filed as Exhibit 13.1 to this Form 10-K.
As of December 31, 2001, we owned or held an interest in 252 income-producing properties in the United States, which consisted of 166 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 certain of these mergers and acquisitions is incorporated herein by reference to the Notes to Financial Statements, Notes 3 and 4 (acquisitions portion only), on pages 52 to 53 of the 2001 Annual Report to Shareholders filed as Exhibit 13.1 to 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 combined consolidated rent revenues and tenant reimbursements. The Properties contain an aggregate of approximately 187.4 million square feet of gross leasable area ("GLA"), of which we own 111.3 million square feet ("Owned GLA"). More than 4,100 different retailers occupy more than 20,100 stores in the Properties. Total estimated retail sales at the Properties in 2001 were approximately $39.0 billion.
SPG and a subsidiary of the SPG Operating Partnership are taxed as REITs under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), and applicable Treasury regulations relating to REIT qualification. SPG is self-administered and self-managed and does not engage or pay a REIT advisor. SPG provides management, development, leasing, accounting, finance and legal, design and construction expertise through its own personnel or, where appropriate, through outside professionals.
Operating Strategies
Our primary business objectives are to increase cash generated from operations per Paired Share 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 shareholder 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 4,170 persons at various centers and offices throughout the United States, of which approximately 1,590 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 our telephone number is (317) 636-1600.
Executive Officers of the Registrants
The following table sets forth certain information with respect to the executive officers of the Companies 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 166 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. Our 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 84.8% of total GLA, 79.3% of Owned GLA and 86.4% 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 9.1% of total GLA, 10.8% of Owned GLA and 6.0% 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, 5.8% of Owned GLA and 5.4% 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 our 252 Properties, we own 100% of 171 of the Properties and the remainder we hold 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:
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 combined 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 in the 2001 Annual Report to Shareholders, filed as Exhibit 13.1 to 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 in the 2001 Annual Report to Shareholders, filed as Exhibit 13.1 to 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 our 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 gives 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
The information set forth in Note 11 to Notes to Financial Statements on pages 72 and 73 in the 2001 Annual Report to Shareholders filed as Exhibit 13.1 regarding pending material litigation is incorporated herein by reference.
We are also subject to routine litigation, claims and administrative proceedings arising in the ordinary course of business, none of which are expected to have a material adverse effect on our 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 Registrants' Common Equity and Related Stockholder Matters
Market Information
The Paired Shares of the Companies trade on the New York Stock Exchange ("NYSE") under the symbol "SPG". The quarterly price range on the NYSE for the Paired Shares and the distributions declared per share for each quarter in the last two fiscal years are shown below:
There is no established public trading market for SPG's Class B common stock or Class C common stock. Distributions per share of the Class B and Class C common stock were identical to the other Paired Shares.
Holders
The number of holders of record of the Paired Shares was 2,455 as of March 20, 2002. Additionally, the Class B common stock is held entirely by a voting trust to which Melvin Simon, Herbert Simon, David Simon and certain of their affiliates are parties and is exchangeable on a one-for-one basis into Paired Shares, and the Class C common stock is held entirely by The Edward J. DeBartolo Corporation and is also exchangeable on a one-for-one basis into Paired Shares.
Distributions
SPG qualifies as a REIT 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 the actual cash flow of the Companies, their financial condition, capital requirements, the annual REIT distribution requirements and such other factors as the Board of Directors of the Companies deem relevant.
The Companies have an Automatic Dividend Reinvestment Plan (the "Plan") which allows shareholders to acquire additional Paired Shares by automatically reinvesting cash dividends. Paired Shares are acquired pursuant to the Plan at a price equal to the prevailing market price of such Paired Shares, without payment of any brokerage commission or service charge. Shareholders who do not participate in the Plan continue to receive cash dividends, as declared.
Unregistered Sales of Equity Securities
During the fourth quarter of 2001, the Companies issued 536,806 Paired Shares to limited partners of the Operating Partnerships in exchange for an equal number of Units. The issuance of the securities was made pursuant to the terms of the partnership agreements for the Operating Partnerships and was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(2) as an exempt private offering. The Companies subsequently registered the resale of the Paired Shares under the Securities Act in accordance with the terms of the agreements with the exchanging limited partners.
Item 6.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference to the Selected Financial Data section on pages 20 and 21 of the 2001 Annual Report to Shareholders filed as Exhibit 13.1 to this Form 10-K.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item is incorporated herein by reference to the Management's Discussion and Analysis of Financial Condition and Results of Operations section on pages 22 to 34 of the 2001 Annual Report to Shareholders filed as Exhibit 13.1 to this Form 10-K.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
The information required by this item is incorporated herein by reference to the Management's Discussion and Analysis of Financial Condition and Results of Operations section on page 29 of the 2001 Annual Report to Shareholders under the caption Liquidity and Capital Resources, filed as Exhibit 13.1 to this Form 10-K.
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 Registrants
The information required by this item is incorporated herein by reference to the Companies' definitive Proxy Statements for their annual meetings of shareholders to be filed with the Commission pursuant to Regulation 14A and the information included under the caption "Executive Officers of the Registrants" in Part I hereof.
Item 11.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the Companies' definitive Proxy Statements for their annual meetings 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 the Companies' definitive Proxy Statements for their annual meetings 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 the Companies' definitive Proxy Statements for their annual meetings 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
(a) (1) Financial Statements
The Companies' combined and individual financial statements and independent auditors' report are incorporated herein by reference to the financial statements and independent auditors' reports on pages 36 to 76 in the 2001 Annual Report to Shareholders, filed as Exhibit 13.1. In addition, the financial statements of Mill Creek Land LLC, a significant subsidiary of SRC, which are filed as Exhibit 99.1, are incorporated herein by reference.
(2) Financial Statement Schedules Page No.
Report of Independent Public Accountants
Simon Property Group, Inc. and SPG Realty Consultants, Inc. Combined Schedule III - Schedule of Real Estate and Accumulated Depreciation
Notes to Combined Schedule III
(3) Exhibits
The Exhibit Index attached hereto is hereby incorporated by reference to this Item.
(b) Reports on Form 8-K
One Form 8-K was filed during the fourth quarter ended December 31, 2001.
On November 14, 2001 under Item 5 - Other Events, the Companies reported that they made available additional ownership and operational information concerning the Companies and the SPG Operating Partnership and the properties owned or managed as of September 30, 2001, in the form of a Supplemental Information package. A copy of the package was included as an exhibit to the 8-K filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
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 Registrants 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/ BIRCH BAYH Birch Bayh
Director
March 29, 2002
/s/ MELVYN E. BERGSTEIN Melvyn E. Bergstein
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 the Board of Directors of
Simon Property Group, Inc. and SPG Realty Consultants, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of SIMON PROPERTY GROUP, INC. and SPG REALTY CONSULTANTS, INC. included in this Form 10-K and have issued our report thereon dated March 28, 2002. Our audits were 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, of Simon Property Group, Inc. and SPG Realty Consultants, Inc. is the responsibility of the Companies' 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 audits 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, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
SCHEDULE III
(Dollars in thousands)
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.
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 SPG and SRC for federal income tax purposes as of December 31, 2001 were $9,165,779 and $7,161, respectively. The impairment write-down is described in Note 4 of the Notes to Financial Statements in the 2001 Annual Report to Shareholders filed as Exhibit 13.1.
(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 Companies' 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 for the structure, 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 Simon Group or its predecessors. The date of construction represents acquisition date.
INDEX TO EXHIBITS
Exhibits
Page
2.1
Agreement and Plan of Merger among Simon DeBartolo Group, Inc. and Corporate Property Investors and Corporate Realty Consultants, Inc. (incorporated by reference to Exhibit 10.1 in the Form 8-K filed by Simon DeBartolo Group, Inc. on February 24, 1998).
3.1
Restated Certificate of Incorporation of SPG (incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the Companies on October 9, 1998).
3.2
Restated By-laws of SPG (incorporated by reference to Exhibit 3.2 of the Form 8-K filed by the Companies on October 9, 1998).
3.3
Restated Certificate of Incorporation of SRC (incorporated by reference to Exhibit 3.3 of the Form 8-K filed by the Companies on October 9, 1998).
3.4
Restated By-laws of SRC (incorporated by reference to Exhibit 3.4 of the Form 8-K filed by the Companies on October 9, 1998).
3.5
Certificate of Powers, Designations, Preferences and Rights of the 7.00% Series C Cumulative Convertible Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.1 of the Companies' Form 10-Q filed on November 15, 1999).
3.5a
Certificate of Correction Filed to Correct Certain Errors in Certificate of Powers, Designations, Preferences and Rights of the 7.00% Series C Cumulative Convertible Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.1a of the Companies' Form 10-Q filed on November 15, 1999).
3.6
Certificate of Powers, Designations, Preferences and Rights of the 8.00% Series D Cumulative Redeemable Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.2 of the Companies' Form 10-Q filed on November 15, 1999).
3.6a
Certificate of Correction Filed to Correct Certain Errors in Certificate of Powers, Designations, Preferences and Rights of the 8.00% Series D Cumulative Redeemable Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.2a of the Companies' Form 10-Q filed on November 15, 1999).
3.7
Certificate of Powers, Designations, Preferences and Rights of the 8.00% Series E Cumulative Redeemable Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.3 of the Companies' Form 10-Q filed on November 15, 1999).
3.8
Certificate of Powers, Designations, Preferences and Rights of the 83/4% Series F Cumulative Redeemable Preferred Stock, $.0001 Par Value (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed by Simon Property Group, Inc. on May 9, 2001 (Reg. No. 333-60526)).
3.9
Certificate of Powers, Designations, Preferences and Rights of the 7.89% Series G Cumulative Step-Up Premium Rate Preferred Stock, $.0001 Par Value (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 filed by Simon Property Group, Inc. on May 9, 2001 (Reg. No. 333-60526)).
4.1
Supplemental Indenture, dated as of June 22, 1998, by and among the SPG Operating Partnership and The Chase Manhattan Bank, as trustee, relating to the Securities (incorporated by reference to Exhibit 4.2 to the Registration Statement of Simon DeBartolo Group, L.P. on Form S-4 (Reg. No. 333-63645)).
4.2
Issuance Agreement, dated as of September 24, 1998, between SPG and SRC (incorporated by reference to Exhibit 4.5 of the Form 8-K filed by the Companies on October 9, 1998).
4.3
Trust Agreement, dated as of October 30, 1979 among shareholders of CPI, SRC and First Jersey National Bank, as Trustee (incorporated by reference to Exhibit 4.7 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
4.4
Trust Agreement, dated as of August 26, 1994, among the holders of the 6.50% First Series Preference Shares of CPI, SRC and Bank of Montreal Trust Company, as Trustee (incorporated by reference to Exhibit 4.8 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
9.1
Amended and Restated Voting Trust Agreement, Voting Agreement and Proxy between MSA, on the one hand, and Melvin Simon, Herbert Simon and David Simon, on the other hand (incorporated by reference to Exhibit 9.1 of the 2000 Form 10-K filed by Simon Property Group, Inc. and SRC, Inc.).
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
Form of SPG Indemnity Agreement between SPG and its directors and officers. (incorporated by reference to Exhibit 10.7 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
10.3
Registration Rights Agreement (the "Agreement"), dated as of August 9, 1996, by and among the "Simon Family Members" (as defined in the Agreement), SPG, JCP Realty, Inc., Brandywine Realty, Inc., and the Estate of Edward J. DeBartolo Sr., Edward J. DeBartolo, Jr., Marie Denise DeBartolo York, and the Trusts and other entities listed on Schedule 2 of the Agreement, and any of their respective successors-in-interest and permitted assigns. (incorporated by reference to Exhibit 10.60 of the 1996 Form 10-K filed by Simon DeBartolo Group, Inc.)
10.4
SPG Registration Rights Agreement, dated as of September 24, 1998, by and among SPG and the persons named therein. (incorporated by reference to Exhibit 4.4 of the Form 8-K filed by SPG on October 9, 1998).
10.5(a)
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(a)
Form of Employment Agreement between Hans C. Mautner and the Companies (incorporated by reference to Exhibit 10.63 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
10.7(a)
Form of Incentive Stock Option Agreement between the Companies and Hans C. Mautner pursuant to the SPG Operating Partnership 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.59 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
10.8(a)
Form of Nonqualified Stock Option Agreement between the Companies and Hans C. Mautner pursuant to the SPG Operating Partnership 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.61 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399)).
10.9(a)
CPI Executive Severance Policy, as amended and restated effective as of August 11, 1998 (incorporated by reference to Exhibit 10.65 of the Form S-4 filed by CPI on August 13, 1998 (Reg. No. 333-61399) ).
10.10(a)
Employment Agreement between Hans C. Mautner and Simon Global Limited (incorporated by reference to Exhibit 10.10 of the 2000 Form 10-K filed by Simon Property Group, Inc. and SRC, Inc.)
10.11(a)
First Amendment to Employment Agreement Dated September 23, 1998 between Hans C. Mautner and Simon Property Group, Inc. (incorporated by reference to Exhibit 10.11 of the 2000 Form 10-K filed by Simon Property Group, Inc. and SRC, Inc.).
10.12(a)
Employment Agreement between Richard S. Sokolov, Simon Property Group, Inc., and Simon Property Group Administrative Services Partnership, L.P. Dated March 26, 1996 (incorporated by reference to Exhibit 10.12 of the 2000 Form 10-K filed by Simon Property Group, Inc. and SRC, Inc.)
13.1
Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements of the Registrants as contained in the Registrants' 2001 Annual Report to Shareholders.
21.1
List of Subsidiaries of the Company.
23.1
Consent of Arthur Andersen LLP.
99.1
Financial Statements of Mill Creek Land LLC
99.2
Letter regarding Arthur Andersen LLP assurances as to certain audit related matters
(a)Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.
Part I
Item 1. Business
Item 2. Properties
Additional Information
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 Registrants' Common Equity and Related Stockholder 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 Registrants
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
SIGNATURES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC. NOTES TO SCHEDULE III AS OF DECEMBER 31, 2001 (Dollars in thousands)
INDEX TO EXHIBITS