filings.toolsSimon Property Group 10-K 2015-12-31
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**UNITED STATES SECURITIES AND EXCHANGE COMMISSION **Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
**SIMON PROPERTY GROUP, INC. **(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) | 001-14469 (Commission File No.) | 04-6268599 (I.R.S. Employer Identification No.) | ||
| 225 West Washington Street Indianapolis, Indiana 46204 (Address of principal executive offices) (ZIP Code) | ||||
| (317) 636-1600 (Registrant's telephone number, including area code) | ||||
| **Securities registered pursuant to Section 12(b) of the Act: ** |
| Title of each class | Name of each exchange on which registered | |
| Common stock, $0.0001 par value | New York Stock Exchange | |
| 83/8% Series J Cumulative Redeemable Preferred Stock, $0.0001 par value | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes ý No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12-b of the Act). Yes o No ý
The aggregate market value of shares of common stock held by non-affiliates of the Registrant was approximately $53,152 million based on the closing sale price on the New York Stock Exchange for such stock on June 30, 2015.
As of January 29, 2016, Simon Property Group, Inc. had 314,806,649 and 8,000 shares of common stock and Class B common stock outstanding, respectively.
Documents Incorporated By Reference
Portions of the Registrant's Proxy Statement in connection with its 2016 Annual Meeting of Stockholders are incorporated by reference in Part III.
**Simon Property Group, Inc. and Subsidiaries Annual Report on Form 10-K December 31, 2015 **
**TABLE OF CONTENTS **
**Part I **
Item 1. Business
**
Simon Property Group, Inc., Simon or the Company, is a Delaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. REITs will generally not be liable for federal corporate income taxes as long as they distribute not less than 100% of their REIT taxable income. Simon Property Group, L.P., or the Operating Partnership, is our majority-owned partnership subsidiary that owns all of our real estate properties and other assets. In this discussion, the terms "we", "us" and "our" refer to Simon, the Operating Partnership, and its subsidiaries.
We own, develop and manage retail real estate properties, which consist primarily of malls, Premium Outlets®, and The Mills®. As of December 31, 2015, we owned or held an interest in 209 income-producing properties in the United States, which consisted of 108 malls, 71 Premium Outlets, 14 Mills, four lifestyle centers, and 12 other retail properties in 37 states and Puerto Rico. We opened four outlets in 2015 and have three outlets and two other significant retail projects under development. In addition, we have redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants, underway at 29 properties in the U.S. and Europe. Internationally, as of December 31, 2015, we had ownership interests in nine Premium Outlets in Japan, three Premium Outlets in South Korea, two Premium Outlets in Canada, one Premium Outlet in Mexico, and one Premium Outlet in Malaysia. As of December 31, 2015, we had a noncontrolling ownership interest in a joint venture that holds five outlet properties in Europe and one outlet property in Canada. Of the five properties in Europe, two are located in Italy and one each is located in Austria, the Netherlands, and the United Kingdom. Additionally, as of December 31, 2015, we owned a 20.3% equity stake in Klépierre SA, or Klépierre, a publicly traded, Paris-based real estate company, which owns, or has an interest in, shopping centers located in 16 countries in Europe.
For a description of our operational strategies and developments in our business during 2015, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.
Other Policies
The following is a discussion of our investment policies, financing policies, conflict of interest policies and policies with respect to certain other activities. One or more of these policies may be amended or rescinded from time to time without a stockholder vote.
Investment Policies
While we emphasize equity real estate investments, we may also provide secured financing to or invest in equity or debt securities of other entities engaged in real estate activities or securities of other issuers. However, any of these investments would be subject to the percentage ownership limitations and gross income tests necessary for REIT qualification. These REIT limitations mean that we cannot make an investment that would cause our real estate assets to be less than 75% of our total assets. We must also derive at least 75% of our gross income directly or indirectly from investments relating to real property or mortgages on real property, including "rents from real property," dividends from other REITs and, in certain circumstances, interest from certain types of temporary investments. In addition, we must also derive at least 95% of our gross income from such real property investments, and from dividends, interest and gains from the sale or dispositions of stock or securities or from other combinations of the foregoing.
Subject to REIT limitations, we may invest in the securities of other issuers in connection with acquisitions of indirect interests in real estate. Such an investment would normally be in the form of general or limited partnership or membership interests in special purpose partnerships and limited liability companies that own one or more properties. We may, in the future, acquire all or substantially all of the securities or assets of other REITs, management companies or similar entities where such investments would be consistent with our investment policies.
Financing Policies
Because our REIT qualification requires us to distribute at least 90% of our REIT taxable income, we regularly access the debt markets to raise the funds necessary to finance acquisitions, develop and redevelop properties, and refinance maturing debt. We must comply with the covenants contained in our financing agreements that limit our ratio of debt to total assets or market value, as defined. For example, the Operating Partnership's line of credit and the indentures for the Operating Partnership's debt securities contain covenants that restrict the total amount of debt of the Operating Partnership to 65%, or 60% in relation to certain debt, of total assets, as defined under the related agreements, and secured debt to 50% of total assets. In addition, these agreements contain other covenants requiring compliance with financial
ratios. Furthermore, the amount of debt that we may incur is limited as a practical matter by our desire to maintain acceptable ratings for the debt securities of the Operating Partnership. We strive to maintain investment grade ratings at all times for various business reasons, including their effect on our ability to access attractive capital, but we cannot assure you that we will be able to do so in the future.
If our Board of Directors determines to seek additional capital, we may raise such capital by offering equity or incurring debt, creating joint ventures with existing ownership interests in properties, entering into joint venture arrangements for new development projects, retaining cash flows or a combination of these methods. If our Board of Directors determines to raise equity capital, it may, without stockholder approval, issue additional shares of common stock or other capital stock. Our Board of Directors may issue a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it deems appropriate. Such securities may be senior to our outstanding classes of common stock. Such securities also may include additional classes of preferred stock, which may be convertible into common stock. Existing stockholders have no preemptive right to purchase shares in any subsequent offering of our securities. Any such offering could dilute a stockholder's investment in us.
We expect most future borrowings will be made through the Operating Partnership or its subsidiaries. We might, however, incur borrowings through other entities that would be reloaned to the Operating Partnership. Borrowings may be in the form of bank borrowings, publicly and privately placed debt instruments, or purchase money obligations to the sellers of properties. Any such indebtedness may be secured or unsecured. Any such indebtedness may also have full or limited recourse to the borrower or be cross-collateralized with other debt, or may be fully or partially guaranteed by the Operating Partnership. We issue debt securities through the Operating Partnership, but we may issue our debt securities which may be convertible to common or preferred stock or be accompanied by warrants to purchase common or preferred stock. We also may sell or securitize our lease receivables. Although we may borrow to fund the payment of dividends, we currently have no expectation that we will regularly do so.
The Operating Partnership has a $4.0 billion unsecured revolving credit facility, or Credit Facility. The Credit Facility's initial borrowing capacity of $4.0 billion may be increased to $5.0 billion during its term. The initial maturity date of the Credit Facility is June 30, 2018 and can be extended for an additional year to June 30, 2019 at our sole option, subject to our continued compliance with the terms thereof. The Operating Partnership also has a $2.75 billion supplemental unsecured revolving credit facility, or Supplemental Facility, and together with the Credit Facility, the Credit Facilities. On March 2, 2015, the Operating Partnership amended and extended the Supplemental Facility. The initial borrowing capacity of $2.0 billion was increased to $2.75 billion, may be further increased to $3.5 billion during its term, will initially mature on June 30, 2019 and can be extended for an additional year to June 30, 2020 at our sole option, subject to our continued compliance with the terms thereof. The base interest rate on each of the Credit Facility and the Supplemental Facility is LIBOR plus 80 basis points with an additional facility fee of 10 basis points. The Credit Facilities provide for borrowings denominated in U.S. dollars, Euros, Yen, Sterling, Canadian dollars and Australian dollars.
On March 2, 2015, the Operating Partnership increased the maximum aggregate program size of its global unsecured commercial paper note program, or the Commercial Paper program, from $500.0 million to $1.0 billion, or the non-U.S. dollar equivalent thereof. The Operating Partnership may issue unsecured commercial paper notes, denominated in U.S. dollars, Euros and other currencies. Notes issued in non-U.S. currencies may be issued by one or more subsidiaries of the Operating Partnership and are guaranteed by the Operating Partnership. These notes are sold under customary terms in the U.S. and Euro commercial paper note markets and rank (either by themselves or as a result of the guarantee described above) pari passu with the Operating Partnership's other unsecured senior indebtedness. The Commercial Paper program is supported by the Credit Facilities and if necessary or appropriate, we may make one or more draws under either the Credit Facilities to pay amounts outstanding from time to time on the Commercial Paper program.
We may also finance our business through the following:
issuance of shares of common stock or preferred stock;
issuance of additional common units of limited partnership interest in the Operating Partnership, or units;
issuance of preferred units of limited partnership interest in the Operating Partnership, or preferred units;
issuance of other securities including unsecured notes and mortgage debt;
draws on our Credit Facilities;
borrowings under the Commercial Paper program; or
sale or exchange of ownership interests in properties.
The Operating Partnership may also issue units to contributors of properties or other partnership interests which may permit the contributor to defer tax gain recognition under the Internal Revenue Code.
We do not have a policy limiting the number or amount of mortgages that may be placed on any particular property. Mortgage financing instruments, however, typically limit additional indebtedness on such properties. Additionally, the Credit Facilities, our unsecured note indentures and other contracts may limit our ability to borrow and contain limits on mortgage indebtedness we may incur as well as certain financial covenants we must maintain.
Typically, we invest in or form special purpose entities to assist us in obtaining secured permanent financing at attractive terms. Permanent financing may be structured as a mortgage loan on a single property, or on a group of properties, and generally requires us to provide a mortgage lien on the property or properties in favor of an institutional third party, as a joint venture with a third party, or as a securitized financing. For securitized financings, we create special purpose entities to own the properties. These special purpose entities, which are common in the real estate industry, are structured so that they would not be consolidated in a bankruptcy proceeding involving a parent company. We decide upon the structure of the financing based upon the best terms then available to us and whether the proposed financing is consistent with our other business objectives. For accounting purposes, we include the outstanding securitized debt of special purpose entities owning consolidated properties as part of our consolidated indebtedness.
Conflict of Interest Policies
We maintain policies and have entered into agreements designed to reduce or eliminate potential conflicts of interest. We have adopted governance principles governing the function, conduct, selection, orientation and duties of our Board of Directors and the Company, as well as written charters for each of the standing Committees of our Board of Directors. In addition, we have a Code of Business Conduct and Ethics, which applies to all of our officers, directors, and employees and those of our subsidiaries. At least a majority of the members of our Board of Directors must qualify as independent under the listing standards of the New York Stock Exchange, or NYSE, and cannot be affiliated with the Simon family who are significant stockholders and/or unitholders in the Operating Partnership. In addition, the Audit and Compensation Committees of our Board of Directors are comprised entirely of independent members who meet the additional independence and financial sophistication requirements of the NYSE. Any transaction between us and the Simons, including property acquisitions, service and property management agreements and retail space leases, must be approved by a majority of our independent directors.
The sale by the Operating Partnership of any property that it owns may have an adverse tax impact on the Simons or other limited partners of the Operating Partnership. In order to avoid any conflict of interest between us and the Simons, our charter requires that at least three-fourths of our independent directors must authorize and require the Operating Partnership to sell any property it owns. Any such sale is subject to applicable agreements with third parties. Noncompetition agreements executed by David Simon, our Chairman and Chief Executive Officer, and Herbert Simon, our Chairman Emeritus, as well as David Simon's employment agreement contain covenants limiting their ability to participate in certain shopping center activities.
Policies With Respect To Certain Other Activities
We intend to make investments which are consistent with our qualification as a REIT, unless our Board of Directors determines that it is no longer in our best interests to so qualify as a REIT. Our Board of Directors may make such a determination because of changing circumstances or changes in the REIT requirements. We have authority to issue shares of our capital stock or other securities in exchange for property. We also have authority to repurchase or otherwise reacquire our shares or any other securities. On April 2, 2015, our Board of Directors authorized us to repurchase up to $2.0 billion of our common stock over a twenty-four month period as market conditions warrant, or the Repurchase Program. Under the Repurchase Program, we may repurchase the shares in the open market or in privately negotiated transactions. We may also issue shares of our common stock, or pay cash at our option, to holders of units in future periods upon exercise of such holders' rights under the partnership agreement of the Operating Partnership. Our policy prohibits us from making any loans to our directors or executive officers for any purpose. We may make loans to the joint ventures in which we participate. Additionally, we may make or buy interests in loans secured by real estate properties owned by others or make investments in companies that own real estate assets.
Competition
The retail industry is dynamic and competitive. We compete with numerous merchandise distribution channels including malls, outlet centers, community/lifestyle centers, and other shopping centers in the United States and abroad. We also compete with internet retailing sites and catalogs which provide retailers with distribution options beyond existing
brick and mortar retail properties. The existence of competitive alternatives could have a material adverse effect on our ability to lease space and on the level of rents we can obtain. This results in competition for both the tenants to occupy the properties that we develop and manage as well as for the acquisition of prime sites (including land for development and operating properties). We believe that there are numerous factors that make our properties highly desirable to retailers including:
the quality, location and diversity of our properties;
our management and operational expertise;
our extensive experience and relationships with retailers, lenders and suppliers; and
our mall marketing initiatives and consumer focused strategic corporate alliances.
Certain Activities
During the past three years, we have:
issued 1,155,633 shares of common stock upon the exchange of units of the Operating Partnership;
issued 254,370 restricted shares of common stock and 1,360,705 long-term incentive performance units, or LTIP units, net of forfeitures, under The Simon Property Group 1998 Stock Incentive Plan, as amended, or the 1998 Plan;
purchased 1,903,340 shares of common stock in the open market pursuant to our Repurchase Program;
redeemed 944,359 units for $172.27 per unit in cash;
issued 555,150 units in exchange for the remaining interest in a former joint venture property;
amended and extended the Credit Facility in April 2014 to increase our borrowing capacity and extend its term;
amended and extended the Supplemental Facility in March 2015 to increase our borrowing capacity and extend its term;
borrowed a maximum amount of $1.8 billion under the Credit Facilities; the outstanding amount of borrowings under the Credit Facilities as of December 31, 2015 was $1.2 billion, of which $237.8 million was related to U.S. dollar equivalent of Euro-denominated borrowings and $184.8 million was related to U.S. dollar equivalent of Yen-denominated borrowings;
established a global Commercial Paper program and increased the borrowing capacity from $500.0 million to $1.0 billion; the outstanding amount of Commercial Paper notes as of December 31, 2015 was $878.7 million, of which $188.1 million was related to U.S. dollar equivalent of Euro-denominated notes;
issued €750.0 million of unsecured notes on October 2, 2013 at a fixed interest rate of 2.375% with a maturity date of October 2, 2020; as of December 31, 2015, the U.S. dollar equivalent was $820.0 million;
issued €750.0 million of unsecured notes on November 18, 2015 at a fixed interest rate of 1.375% with a maturity date of November 18, 2022; as of December 31, 2015, the U.S. dollar equivalent was $820.0 million; and
provided annual reports containing financial statements audited by our independent registered public accounting firm and quarterly reports containing unaudited financial statements to our security holders.
Employees
At December 31, 2015, we and our affiliates employed approximately 5,000 persons at various properties and offices throughout the United States, of which approximately 1,850 were part-time. Approximately 1,100 of these employees were located at our corporate headquarters in Indianapolis, Indiana.
Corporate Headquarters
Our corporate headquarters are located at 225 West Washington Street, Indianapolis, Indiana 46204, and our telephone number is (317) 636-1600.
Available Information
We are a large accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or Exchange Act) and are required, pursuant to Item 101 of Regulation S-K, to provide certain information regarding our website and the availability of certain documents filed with or furnished to the Securities and Exchange Commission, or SEC. Our Internet website address is www.simon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available or may be accessed free of charge through the "About Simon/Investor Relations/Financial Information" section of our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
The following corporate governance documents are also available through the "About Simon/Investor Relations/Corporate Governance" section of our Internet website or may be obtained in print form by request of our Investor Relations Department: Governance Principles, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance and Nominating Committee Charter.
In addition, we intend to disclose on our Internet website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be publicly disclosed pursuant to rules of the SEC and the NYSE.
Executive Officers of the Registrant
The following table sets forth certain information with respect to our executive officers as of February 26, 2016.
| Name | Age | Position | |||
| David Simon | 54 | Chairman and Chief Executive Officer | |||
| Richard S. Sokolov | 66 | President and Chief Operating Officer | |||
| Andrew Juster | 63 | Executive Vice President and Chief Financial Officer | |||
| David J. Contis | 57 | Senior Executive Vice President — President, Simon Malls | |||
| John Rulli | 59 | Senior Executive Vice President and Chief Administrative Officer | |||
| James M. Barkley | 64 | General Counsel and Secretary | |||
| Steven E. Fivel | 55 | Assistant General Counsel and Assistant Secretary | |||
| Steven K. Broadwater | 49 | Senior Vice President and Chief Accounting Officer | |||
| Brian J. McDade | 36 | Senior Vice President and Treasurer |
The executive officers of Simon serve at the pleasure of our Board of Directors except for David Simon and Richard S. Sokolov who are subject to employment agreements which may call for certain payments upon termination.
Mr. Simon has served as the Chairman of our Board of Simon since 2007 and Chief Executive Officer of Simon or its predecessor since 1995. Mr. Simon has also been a director of Simon or its predecessor since its incorporation in 1993. Mr. Simon was the President of Simon's predecessor from 1993 to 1996. From 1988 to 1990, Mr. Simon was Vice President of Wasserstein Perella & Company. From 1985 to 1988, he was an Associate at First Boston Corp. He is the son of the late Melvin Simon and the nephew of Herbert Simon.
Mr. Sokolov has served as President and Chief Operating Officer of Simon or its predecessor since 1996. Mr. Sokolov has also been a director of Simon or its predecessor since 1996. Mr. Sokolov was President and Chief Executive Officer of DeBartolo Realty Corporation from its incorporation in 1994 until it merged with our predecessors in 1996. Mr. Sokolov joined its predecessor, The Edward J. DeBartolo Corporation, in 1982 as Vice President and General Counsel and was named Senior Vice President, Development and General Counsel in 1986.
Mr. Juster serves as Simon's Executive Vice President and Chief Financial Officer. Mr. Juster joined Melvin Simon & Associates, Inc., or MSA, in 1989 and held various financial positions with MSA until 1993 and thereafter has held various positions with Simon. Mr. Juster became Treasurer in 2001 and was promoted to Executive Vice President in 2008 and Chief Financial Officer in 2014.
Mr. Contis serves as Simon's Senior Executive Vice President and President of Simon Malls. Mr. Contis joined Simon in 2011. Prior to joining Simon, Mr. Contis served as the President of Real Estate at Equity Group Investments, LLC. Mr. Contis has over 35 years of domestic and international real estate experience including 25 years overseeing both public and private mall portfolios.
Mr. Rulli serves as Simon's Senior Executive Vice President and Chief Administrative Officer. Mr. Rulli joined MSA in 1988 and held various positions with MSA and Simon thereafter. Mr. Rulli became Chief Administrative Officer in 2007 and was promoted to Senior Executive Vice President in 2011.
Mr. Barkley serves as Simon's General Counsel and Secretary. Mr. Barkley joined MSA in 1978 as a staff attorney and was named Assistant General Counsel in 1984. He was named General Counsel in 1992 and Secretary in 1993.
Mr. Fivel serves as Simon's Assistant General Counsel and Assistant Secretary. Prior to rejoining Simon in 2011, Mr. Fivel served in a similar capacity with a large public registrant. Mr. Fivel was previously employed by MSA from 1988 until 1993 and then by Simon from 1993 to 1996.
Mr. Broadwater serves as Simon's Senior Vice President and Chief Accounting Officer and prior to that as Simon's Vice President and Corporate Controller. Mr. Broadwater joined Simon in 2004 and was promoted to Senior Vice President and Chief Accounting Officer in 2009.
Mr. McDade serves as Simon's Senior Vice President and Treasurer. Mr. McDade joined Simon in 2007 as the Director of Capital Markets and was promoted to Senior Vice President of Capital Markets in 2013. Mr. McDade was promoted to Treasurer in 2014.
Item 1A. Risk Factors
**
The following factors, among others, could cause our actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to time. These factors may have a material adverse effect on our business, financial condition, liquidity, results of operations, funds from operations, or FFO, and prospects, which we refer to herein as a material adverse effect on us or as materially and adversely affecting us, and you should carefully consider them. Additional risks and uncertainties not presently known to us or which are currently not believed to be material may also affect our actual results. We may update these factors in our future periodic reports.
Risks Relating to Retail Operations
Overall economic and market conditions may adversely affect the general retail environment.
Our concentration in the retail real estate market means that we are subject to a number of factors that could adversely affect the retail environment generally, including, without limitation:
changes in international, national, regional and local economic conditions;
local real estate conditions, such as an oversupply of, or reduction in demand for, retail space or retail goods, decreases in rental rates, declining real estate values and the availability and creditworthiness of tenants;
levels of consumer spending, changes in consumer confidence and fluctuations in seasonal spending;
the willingness of retailers to lease space in our properties;
tenant bankruptcies and a resulting rejection of our leases;
the impact on our retail tenants and demand for retail space at our properties from the increasing use of the Internet by retailers and consumers;
perceptions by consumers of the safety, convenience and attractiveness of our properties;
increased operating costs;
changes in applicable laws and regulations, including tax, environmental, safety and zoning;
casualties and other natural disasters; and
the potential for terrorist activities.
We derive our operating results primarily from retail tenants, many of whom have been and continue to be under some degree of economic stress. A significant deterioration in the creditworthiness of our retail tenants could have a material adverse effect on us.
We may not be able to lease newly developed properties and renew leases and relet space at existing properties.
We may not be able to lease new properties to an appropriate mix of tenants. Also, when leases for our existing properties expire, the premises may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the current lease terms. To the extent that our leasing goals are not achieved, we could be materially and adversely affected.
Some of our properties depend on anchor stores or other major tenants to attract shoppers and could be adversely affected by the loss of one or more of these anchor stores or major tenants.
Our properties are typically anchored by department stores and other large nationally recognized tenants. The value of some of our properties could be materially and adversely affected if these anchors or other major tenants fail to comply with their contractual obligations or cease their operations.
For example, among department stores and other large stores — often referred to as "big box" stores — corporate merger activity typically results in the closure of duplicate or geographically overlapping store locations. Further, sustained adverse pressure on the results of our department stores and major tenants may have a similarly sustained adverse impact upon our own results. Certain department stores and other national retailers have experienced, and may continue to experience for the foreseeable future given current macroeconomic uncertainty and less-than-desirable levels of consumer
confidence, considerable decreases in customer traffic in their retail stores, increased competition from alternative retail options such as those accessible via the Internet and other forms of pressure on their business models. As pressure on these department stores and national retailers increases, their ability to maintain their stores, meet their obligations both to us and to their external lenders and suppliers, withstand takeover attempts by investors or rivals or avoid bankruptcy and/or liquidation may be impaired and result in closures of their stores or their seeking of a lease modification with us. Any lease modification could be unfavorable to us as the lessor and could decrease rents or expense recovery charges. Other tenants may be entitled to modify the economic or other terms of, or terminate, their existing leases with us in the event of such closures.
If a department store or major tenant were to close its stores at our properties, we may experience difficulty and delay and incur significant expense in replacing the tenant, as well as in leasing spaces in areas adjacent to the vacant department store or major tenant, at attractive rates, or at all. Additionally, department store or major tenant closures may result in decreased customer traffic, which could lead to decreased sales at our properties. If the sales of stores operating in our properties were to decline significantly due to the closing of anchor stores or other national retailers, adverse economic conditions, or other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of any default by a tenant, we may not be able to fully recover, and/or may experience delays and costs in enforcing our rights as landlord to recover, amounts due to us under the terms of our agreements with such parties.
We face potential adverse effects from tenant bankruptcies.
Bankruptcy filings by retailers can occur regularly in the course of our operations. If a tenant files for bankruptcy, the tenant may have the right to reject and terminate one or more of its leases with us, and we cannot be sure that it will affirm one or more of its leases and continue to make rental payments to us in a timely manner. A bankruptcy filing by, or relating to, one of our tenants would bar all efforts by us to collect pre-bankruptcy debts from that tenant, or from their property, unless we receive an order permitting us to do so from the bankruptcy court. In addition, we cannot evict a tenant solely because of its bankruptcy. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages in connection with such balances. If a bankrupt tenant vacates a space, it might not do so in a timely manner, and we might be unable to re-lease the vacated space during that time at attractive rates, or at all. Furthermore, we may be required to incur significant expense in replacing the bankrupt tenant. Any unsecured claim we hold against a bankrupt tenant might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. We continually seek to re-lease vacant spaces resulting from tenant terminations. The bankruptcy of a tenant, particularly an anchor tenant or a national tenant with multiple locations, may make the re-leasing of their space difficult and costly, and it also may be more difficult to lease the remainder of the space at the affected properties. Future tenant bankruptcies may impact our ability to successfully execute our re-leasing strategy and could materially and adversely affect us.
We face a wide range of competition that could affect our ability to operate profitably.
Our properties compete with other retail properties and other forms of retailing such as catalogs and e-commerce websites. Competition may come from malls, outlet centers, community/lifestyle centers, and other shopping centers, both existing as well as future development and redevelopment/expansion projects, as well as catalogs and e-commerce. The presence of competitive alternatives affects our ability to lease space and the level of rents we can obtain. New construction, renovations and expansions at competing sites could also negatively affect our properties.
We also compete with other major real estate investors and developers for attractive investment opportunities and prime development sites. Competition for the acquisition of existing properties and development sites may result in increased purchase prices and may adversely affect our ability to make attractive investments on favorable terms, or at all. In addition, we compete with other retail property companies for tenants and qualified management.
Risks Relating to Real Estate Investments and Operations
We face risks associated with the acquisition, development, redevelopment and expansion of properties.
We regularly acquire and develop new properties and redevelop and expand existing properties, and these activities are subject to various risks. We may not be successful in pursuing acquisition, development or redevelopment/expansion opportunities. In addition, newly acquired, developed or redeveloped/expanded properties may not perform as well as
expected, impacting our anticipated return on investment. We are subject to other risks in connection with any acquisition, development and redevelopment/expansion activities, including the following:
acquisition or construction costs of a project may be higher than projected, potentially making the project unfeasible or unprofitable;
development or redevelopment may take considerably longer than expected, delaying the commencement and amount of income from the property;
we may not be able to obtain financing or to refinance loans on favorable terms, or at all;
we may be unable to obtain zoning, occupancy or other governmental approvals;
occupancy rates and rents may not meet our projections and the project may not be profitable; and
we may need the consent of third parties such as department stores, anchor tenants, mortgage lenders and joint venture partners, and those consents may be withheld.
If a development or redevelopment/expansion project is unsuccessful, either because it is not meeting our expectations when operational or was not completed according to the project planning, we could lose our investment in the project. Further, if we guarantee the property's financing, our loss could exceed our investment in the project.
Real estate investments are relatively illiquid.
Our properties represent a substantial portion of our total consolidated assets. These investments are relatively illiquid. As a result, our ability to sell one or more of our properties or investments in real estate in response to any changes in economic, industry, or other conditions may be limited. The real estate market is affected by many factors, such as general economic conditions, availability and terms of financing, interest rates and other factors, including supply and demand for space, that are beyond our control. If we want to sell a property, we cannot assure you that we will be able to dispose of it in the desired time period or at all or that the sales price of a property will be attractive at the relevant time or even exceed the carrying value of our investment. Moreover, if a property is mortgaged, we may not be able to obtain a release of the lien on that property without the payment of the associated debt and/or a substantial prepayment penalty, which could restrict our ability to dispose of the property, even though the sale might otherwise be desirable.
Our international activities may subject us to different or greater risk from those associated with our domestic operations.
As of December 31, 2015, we held interests in joint venture properties that operate in Austria, Italy, Japan, Malaysia, Mexico, the Netherlands, South Korea, Canada, and the United Kingdom. We also have an equity stake in Klépierre, a publicly-traded European real estate company which operates in 16 countries in Europe. Accordingly, our operating results and the value of our international operations may be impacted by any unhedged movements in the foreign currencies in which those operations transact and in which our net investment in the international operation is held. We may pursue additional investment, development and redevelopment/expansion opportunities outside the United States. International investment, ownership, development and redevelopment/expansion activities carry risks that are different from those we face with our domestic properties and operations. These risks include, but are not limited to:
adverse effects of changes in exchange rates for foreign currencies;
changes in foreign political and economic environments, regionally, nationally, and locally;
challenges of complying with a wide variety of foreign laws, including corporate governance, operations, taxes and litigation;
differing lending practices;
differences in cultures;
changes in applicable laws and regulations in the United States that affect international operations;
difficulties in managing international operations; and
obstacles to the repatriation of earnings and cash.
Our international activities represented approximately 7.9% of our net operating income, or NOI, for the year ended December 31, 2015. To the extent that we expand our international activities, the above risks could increase in significance, which in turn could have a material adverse effect on us.
Risks Relating to Debt and the Financial Markets
We have a substantial debt burden that could affect our future operations.
As of December 31, 2015, our consolidated mortgages and unsecured indebtedness, excluding related premium and discount, totaled $22.5 billion. As a result of this indebtedness, we are required to use a substantial portion of our cash flows for debt service, including selected repayment at scheduled maturities, which limits our ability to use those cash flows to fund the growth of our business. We are also subject to the risks normally associated with debt financing, including the risk that our cash flows from operations will be insufficient to meet required debt service or that we will be able to refinance such indebtedness on acceptable terms, or at all. Our debt service costs generally will not be reduced if developments at the applicable property, such as the entry of new competitors or the loss of major tenants, cause a reduction in the income from the property. Our indebtedness could also have other adverse consequences on us, including reducing our access to capital or increasing our vulnerability to general adverse economic, industry and market conditions. In addition, if a property is mortgaged to secure payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value. If any of the foregoing occurs, we could be materially and adversely affected.
Disruption in the capital and credit markets may adversely affect our ability to access external financings for our growth and ongoing debt service requirements.
We depend on external financings, principally debt financings, to fund the growth of our business and to ensure that we can meet ongoing maturities of our outstanding debt. Our access to financing depends on the willingness of lending institutions and other debt investors to grant credit to us and conditions in the capital markets in general. An economic recession may cause extreme volatility and disruption in the capital and credit markets. We rely upon the Credit Facilities as sources of funding for numerous transactions. Our access to these funds is dependent upon the ability of each of the participants to the Credit Facilities to meet their funding commitments to us. When markets are volatile, access to capital and credit markets could be disrupted over an extended period of time and one or more financial institutions may not have the available capital to meet their previous commitments to us. The failure of one or more participants to the Credit Facilities to meet their funding commitments to us could have a material adverse effect on us, including as a result of making it difficult to obtain the financing we may need for future growth and/or meeting our debt service requirements. We cannot assure you that we will be able to obtain the financing we need for the future growth of our business or to meet our debt service requirements, or that a sufficient amount of financing will be available to us on favorable terms, or at all.
Adverse changes in our credit rating could affect our borrowing capacity and borrowing terms.
The Operating Partnership's outstanding senior unsecured notes, Credit Facilities, the Commercial Paper program, and Simon's preferred stock are periodically rated by nationally recognized credit rating agencies. The credit ratings are based on our operating performance, liquidity and leverage ratios, financial condition and prospects, and other factors viewed by the credit rating agencies as relevant to our industry and the economic outlook in general. Our credit rating can affect the amount of capital we can access, as well as the terms of any financing we obtain. Since we depend primarily on debt financing to fund the growth of our business, an adverse change in our credit rating, including actual changes and changes in outlook, or even the initiation of a review of our credit rating that could result in an adverse change, could have a material adverse effect on us.
The agreements that govern our indebtedness contain various covenants that impose restrictions on us that might affect our ability to operate freely.
We have a variety of unsecured debt, including the Credit Facilities, and secured property-level debt. Certain of the agreements that govern our indebtedness contain covenants, including, among other things, limitations on our ability to incur secured and unsecured indebtedness, sell all or substantially all of our assets and engage in mergers and certain acquisitions. In addition, certain of the agreements that govern our indebtedness contain financial covenants that require us to maintain certain financial ratios, including certain coverage ratios. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous to us. In addition, our ability to comply with these provisions might be affected by events beyond our control. Failure to comply with any of our financing covenants could result in an event of default, which, if not cured or waived, could accelerate the related indebtedness as well as other of our indebtedness, which could have a material adverse effect on us.
Our hedging interest rate protection arrangements may not effectively limit our interest rate risk.
We selectively manage our exposure to interest rate risk by a combination of interest rate protection agreements to effectively fix or cap all or a portion of our variable rate debt. In addition, we refinance fixed rate debt at times when we believe rates and other terms are appropriate. Our efforts to manage these exposures may not be successful.
Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations or that we could be required to fund our contractual payment obligations under such arrangements in relatively large amounts or on short notice. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations, liquidity or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.
Risks Relating to Income Taxes
We have elected to be taxed as a REIT in the United States and certain of our international operations currently receive favorable tax treatment.
We are subject to certain income-based taxes, both domestically and internationally, and other taxes, including state and local taxes, franchise taxes, and withholding taxes on dividends from certain of our international investments. We currently receive favorable tax treatment in various domestic and international jurisdictions through tax rules and regulations or through international treaties. Should we no longer receive such benefits, the amount of taxes we pay may increase.
In the United States, we have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have been organized and operated in a manner which allows us to qualify for taxation as a REIT under the Internal Revenue Code. We intend to continue to operate in this manner. However, our qualification and taxation as a REIT depend upon our ability to meet, through actual annual operating results, asset diversification, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Internal Revenue Code. REIT qualification is governed by highly technical and complex provisions for which there are only limited judicial or administrative interpretations. Accordingly, there is no assurance that we have operated or will continue to operate in a manner so as to qualify or remain qualified as a REIT.
If we fail to comply with those provisions, we may be subject to monetary penalties or ultimately to possible disqualification as a REIT. If such events occurs, and if available relief provisions do not apply:
we will not be allowed a deduction for distributions to stockholders in computing our REIT taxable income;
we will be subject to corporate level income tax, including any applicable alternative minimum tax, on our REIT taxable income at regular corporate rates; and
unless entitled to relief under relevant statutory provisions, we will also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost.
REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
In order for us to qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, we generally must distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders each year, so that federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT, but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than "the required minimum distribution amount" specified under federal income tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code.
From time to time, we might generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves, or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to access capital on unfavorable terms (the receipt of which cannot be assured), sell assets at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions, capital
expenditures or repayment of debt, or make taxable distributions of our capital stock or debt securities to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Further, amounts distributed will not be available to fund the growth of our business. Thus, compliance with the REIT requirements may adversely affect our ability to execute our business plan.
Complying with REIT requirements might cause us to forego otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.
To qualify to be taxed as a REIT for federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consist of cash, cash items, government securities and "real estate assets" (as defined in the Internal Revenue Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a taxable REIT subsidiary, or TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
Additionally, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we might be required to liquidate or forego otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
In addition to the asset tests set forth above, to qualify to be taxed as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our shares. We might be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.
New partnership tax audit rules could have a material adverse effect on us.
The recently enacted Bipartisan Budget Act of 2015 changes the rules applicable to federal income tax audits of partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner's distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it is uncertain how these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirect invest being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes had we owned the assets of the partnership directly. The new partnership tax audit rules will apply to the Operating Partnership and its subsidiaries that are classified as partnerships for federal income tax purposes. The changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury, or the Treasury, and, accordingly, there can be no assurance that these rules will not have a material adverse effect on us.
Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could have a material adverse effect on us or our investors.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process, and by the IRS and the Treasury. Changes to the tax laws or interpretations thereof by the IRS and the Treasury, with or without retroactive application, could materially and adversely affect us or our investors. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT and/or the federal income tax consequences to us and our investors of such qualification.
Risks Relating to Joint Ventures
We have limited control with respect to some properties that are partially owned or managed by third parties, which may adversely affect our ability to sell or refinance them.
As of December 31, 2015, we owned interests in 94 income-producing properties with other parties. Of those, 13 properties are included in our consolidated financial statements. We account for the other 81 properties, or the joint venture properties, as well as our investment in Klépierre and our joint ventures with Seritage Growth Properties, or Seritage, and Hudson's Bay Company, or HBC, using the equity method of accounting. We serve as general partner or property manager for 58 of these 81 properties; however, certain major decisions, such as approving the operating budget and selling, refinancing and redeveloping the properties require the consent of the other owners. Of the properties for which we do not serve as general partner or property manager, 20 are in our international joint ventures. The international properties are managed locally by joint ventures in which we share control of the properties with our partner. The other owners have participating rights that we consider substantive for purposes of determining control over the properties' assets. The remaining joint venture properties, Klépierre (a publicly traded, Paris-based real estate company), and our joint venture with HBC are managed by third parties.
These investments, and other future similar investments could involve risks that would not be present were a third party not involved, including the possibility that partners or other owners might become bankrupt, suffer a deterioration in their creditworthiness, or fail to fund their share of required capital contributions. Partners or other owners could have economic or other business interests or goals that are inconsistent with our own business interests or goals, and could be in a position to take actions contrary to our policies or objectives.
These investments, and other future similar investments, also have the potential risk of creating impasses on decisions, such as a sale or financing, because neither we nor our partner or other owner has full control over the partnership or joint venture. Disputes between us and partners or other owners might result in litigation or arbitration that could increase our expenses and prevent our officers and/or directors from focusing their time and efforts on our business. Consequently, actions by, or disputes with, partners or other owners might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we risk the possibility of being liable for the actions of our partners or other owners.
The Operating Partnership guarantees debt or otherwise provides support for a number of joint venture properties.
Joint venture debt is the liability of the joint venture and is typically secured by a mortgage on the joint venture property, which is non-recourse to us. Nevertheless, the joint venture's failure to satisfy its debt obligations could result in the loss of our investment therein. As of December 31, 2015, the Operating Partnership guaranteed joint venture related mortgage indebtedness of $353.7 million (of which we have a right of recovery from our venture partners of $112.8 million). A default by a joint venture under its debt obligations may expose us to liability under a guaranty. We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such fundings are not typically required contractually or otherwise.
Risks Relating to Environmental Matters
As owners of real estate, we can face liabilities for environmental contamination.
Federal, state and local laws and regulations relating to the protection of the environment may require us, as a current or previous owner or operator of real property, to investigate and clean up hazardous or toxic substances or petroleum product releases at a property or at impacted neighboring properties. These laws often impose liability regardless of whether the property owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. These laws and regulations may require the abatement or removal of asbestos containing materials in the event of damage, demolition or renovation, reconstruction or expansion of a property and also govern emissions of and exposure to asbestos fibers in the air. Those laws and regulations also govern the installation, maintenance and removal of underground storage tanks used to store waste oils or other petroleum products. Many of our properties contain, or at one time contained, asbestos containing materials or underground storage tanks (primarily related to auto service center establishments or emergency electrical generation equipment). We may be subject to regulatory action and may also be held liable to third parties for personal injury or property damage incurred by the parties in connection with any such laws and regulations or hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances, and related liabilities, may be substantial and could materially and adversely affect us. The presence of hazardous or toxic substances, or the failure to remediate the related contamination, may also adversely affect our ability to sell, lease or redevelop a property or to borrow money using a property as collateral.
Our efforts to identify environmental liabilities may not be successful.
Although we believe that our portfolio is in substantial compliance with federal, state and local environmental laws and regulations regarding hazardous or toxic substances, this belief is based on limited testing. Nearly all of our properties have been subjected to Phase I or similar environmental audits. These environmental audits have not revealed, nor are we aware of, any environmental liability that we believe is reasonably likely to have a material adverse effect on us. However, we cannot assure you that:
previous environmental studies with respect to the portfolio reveal all potential environmental liabilities;
any previous owner, occupant or tenant of a property did not create any material environmental condition not known to us;
the current environmental condition of the portfolio will not be affected by tenants and occupants, by the condition of nearby properties, or by other unrelated third parties; or
future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations or the interpretation thereof) will not result in environmental liabilities.
We face possible risks associated with climate change.
We cannot determine with certainty whether global warming or cooling is occurring and, if so, at what rate. To the extent climate change causes changes in weather patterns, our properties in certain markets could experience increases in storm intensity and rising sea-levels. Over time, these conditions could result in volatile or decreased demand for retail space at certain of our properties or, in extreme cases, our inability to operate the properties at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) insurance on favorable terms, or at all, and increasing the cost of energy and snow removal at our properties. Moreover, compliance with new laws or regulations related to climate change, including compliance with "green" building codes, may require us to make improvements to our existing properties or increase taxes and fees assessed on us or our properties. At this time, there can be no assurance that climate change will not have a material adverse effect on us.
Other Factors Affecting Our Business
Some of our potential losses may not be covered by insurance.
We maintain insurance coverage with third-party carriers who provide a portion of the coverage for specific layers of potential losses, including commercial general liability, fire, flood, extended coverage and rental loss insurance on all of our properties in the United States. The initial portion of coverage not provided by third-party carriers is either insured through our wholly-owned captive insurance companies or other financial arrangements controlled by us. A third-party carrier has, in turn, agreed, if required, to provide evidence of coverage for this layer of losses under the terms and conditions of the carrier's policy. A similar policy written through our captive insurance companies also provides initial coverage for property insurance and certain windstorm risks at the properties located in coastal windstorm locations.
There are some types of losses, including lease and other contract claims, that generally are not insured or are subject to large insurance deductibles. If an uninsured loss or a loss in excess of insured limits occurs, or a loss for which a large deductible occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue it could generate, but may remain obligated for any mortgage debt or other financial obligation related to the property.
We currently maintain insurance coverage against acts of terrorism on all of our properties in the United States on an "all risk" basis in the amount of up to $1 billion. The current federal laws which provide this coverage are expected to operate through 2020. However, the U.S. government could in the future terminate its reinsurance of terrorism, which would increase the risk of uninsured losses for terrorist acts. Despite the existence of this insurance coverage, or actual or threatened terrorist attacks or other activity where we operate could materially and adversely affect us.
We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign
governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems). Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
A breach or significant and extended disruption in the functioning of our systems, including our primary website, could damage our reputation and cause us to lose customers, tenants and revenues, generate third party claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues, and we may not be able to recover these expenses in whole or in any part from our service providers or responsible parties, or their or our insurers.
Our success depends, in part, on our ability to attract and retain talented employees, and the loss of any one of our key personnel could adversely impact our business.
The success of our business depends, in part, on the leadership and performance of our executive management team and key employees, and our ability to attract, retain and motivate talented employees could significantly impact our future performance. Competition for these individuals is intense, and we cannot assure you that we will retain our key executive management team and employees or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing any one or more of these persons could have a material adverse effect on us.
Provisions in our charter and by-laws and in the Operating Partnership's partnership agreement could prevent a change of control.
Our charter contains a general restriction on the accumulation of shares in excess of 8% of our capital stock. The charter permits the members of the Simon family and related persons to own up to 18% of our capital stock. Ownership is determined by the lower of the number of outstanding shares, voting power or value controlled. Our Board of Directors may, by majority vote, permit exceptions to those levels in circumstances where our Board of Directors determines our ability to qualify as a REIT will not be jeopardized. These restrictions on ownership may have the effect of delaying, deferring or preventing a transaction or a change in control that might otherwise be in the best interest of our stockholders. Other provisions of our charter and by-laws could have the effect of delaying or preventing a change of control even if some stockholders deem such a change to be in their best interests. These include provisions preventing holders of our common stock from acting by written consent and requiring that up to four directors in the aggregate may be elected by holders of Class B common stock. In addition, certain provisions of the Operating Partnership's partnership agreement could have the effect of delaying or preventing a change of control. These include a provision requiring the consent of a majority in interest of units in order for us, as general partner of the Operating Partnership, to, among other matters, engage in a merger transaction or sell all or substantially all of our assets.
Item 1B. Unresolved Staff Comments
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None.
Item 2. Properties
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United States Properties
Our U.S. properties primarily consist of malls, Premium Outlets, The Mills, lifestyle centers and other retail properties. These properties contain an aggregate of approximately 184.2 million square feet of gross leasable area, or GLA.
Malls typically contain at least one traditional department store anchor or a combination of anchors and big box retailers with a wide variety of smaller stores connecting the anchors. Additional stores are usually located along the perimeter of the parking area. Our 108 malls are generally enclosed centers and range in size from approximately 465,000 to 2.6 million square feet of GLA. Our malls contain in the aggregate more than 13,700 occupied stores, including approximately 517 anchors, which are predominately national retailers.
Premium Outlets generally contain a wide variety of designer and manufacturer stores located in open-air centers. Our 71 Premium Outlets range in size from approximately 150,000 to 870,000 square feet of GLA. The Premium Outlets are generally located within a close proximity to major metropolitan areas and/or tourist destinations.
The 14 properties in The Mills generally range in size from 1.2 million to 2.3 million square feet of GLA and are located in major metropolitan areas. They have a combination of traditional mall, outlet center, and big box retailers and entertainment uses.
We also have interests in four lifestyle centers and 12 other retail properties. The lifestyle centers range in size from 160,000 to 900,000 square feet of GLA. The other retail properties range in size from approximately 150,000 to 730,000 square feet of GLA and are considered non-core to our business model. In total, the lifestyle centers and other retail properties represent approximately 1.0% of our total operating income before depreciation and amortization.
As of December 31, 2015, approximately 96.1% of the owned GLA in malls and Premium Outlets was leased and approximately 98.5% of the owned GLA for The Mills was leased.
We wholly own 137 of our properties, effectively control 13 properties in which we have a joint venture interest, and hold the remaining 59 properties through unconsolidated joint venture interests. We are the managing or co-managing general partner or member of 206 properties in the United States. Certain of our joint venture properties are subject to various rights of first refusal, buy-sell provisions, put and call rights, or other sale or marketing rights for partners which are customary in real estate partnership agreements and the industry. We and our partners in these joint ventures may initiate these provisions (subject to any applicable lock up or similar restrictions) which may result in either the sale of our interest or the use of available cash or borrowings, or the use of Operating Partnership units, to acquire the joint venture interest from our partner.
On April 13, 2015, we announced a joint venture with Sears Holdings, or Sears, whereby Sears contributed 10 of its properties located at our malls to the joint venture in exchange for a 50% noncontrolling interest in the joint venture. Seritage Growth Properties, or Seritage, a public REIT recently formed by Sears, now holds Sears' interest in the joint venture.
The following property table summarizes certain data for our malls, Premium Outlets, The Mills, lifestyle centers and other retail properties located in the United States, including Puerto Rico, as of December 31, 2015.
Simon Property Group, Inc. and Subsidiaries Property Table U.S. Properties
| Property Name | State | City (CBSA) | Ownership Interest (Expiration if Lease) (3) | Legal Ownership | Year Built or Acquired | Occupancy (5) | Total GLA | Retail Anchors and Selected Major Tenants | |||||||||||||
| Malls | |||||||||||||||||||||
| 1. | Apple Blossom Mall | VA | Winchester | Fee | 49.1 | % (4) | Acquired 1999 | 92.4% | 473,103 | Belk, JCPenney, Sears, Carmike Cinemas | |||||||||||
| 2. | Auburn Mall | MA | Auburn | Fee | 56.4 | % (4) | Acquired 1999 | 99.4% | 586,242 | Macy's (9), Sears | |||||||||||
| 3. | Aventura Mall (1) | FL | Miami Beach (Miami) | Fee | 33.3 | % (4) | Built 1983 | 96.8% | 2,105,023 | Bloomingdale's, Macy's (9), JCPenney, Sears, Nordstrom, Equinox Fitness Clubs, AMC Theatres | |||||||||||
| 4. | Avenues, The | FL | Jacksonville | Fee | 25.0 | % (4)(2) | Built 1990 | 94.1% | 1,113,547 | Belk, Dillard's, JCPenney, Sears, Forever 21 | |||||||||||
| 5. | Bangor Mall | ME | Bangor | Fee | 87.6 | % | Acquired 2003 | 92.0% | 652,622 | Macy's, JCPenney, Sears, Dick's Sporting Goods | |||||||||||
| 6. | Barton Creek Square | TX | Austin | Fee | 100.0 | % | Built 1981 | 99.9% | 1,429,521 | Nordstrom, Macy's, Dillard's (9), JCPenney, Sears, AMC Theatre | |||||||||||
| 7. | Battlefield Mall | MO | Springfield | Fee and Ground Lease (2056) | 100.0 | % | Built 1970 | 94.1% | 1,201,628 | Macy's, Dillard's (9), JCPenney, Sears, MC Sporting Goods | |||||||||||
| 8. | Bay Park Square | WI | Green Bay | Fee | 100.0 | % | Built 1980 | 91.4% | 711,732 | Younkers (9), Kohl's, ShopKo, Marcus Cinema 16 | |||||||||||
| 9. | Brea Mall | CA | Brea (Los Angeles) | Fee | 100.0 | % | Acquired 1998 | 97.2% | 1,319,477 | Nordstrom, Macy's (9), JCPenney, Sears | |||||||||||
| 10. | Briarwood Mall | MI | Ann Arbor | Fee | 50.0 | % (4) | Acquired 2007 | 99.4% | 979,005 | Macy's, JCPenney, Sears, Von Maur, MC Sporting Goods | |||||||||||
| 11. | Broadway Square | TX | Tyler | Fee | 100.0 | % | Acquired 1994 | 97.6% | 627,562 | Dillard's, JCPenney, Sears | |||||||||||
| 12. | Burlington Mall | MA | Burlington (Boston) | Fee and Ground Lease (2048) (7) | 100.0 | % | Acquired 1998 | 95.6% | 1,317,293 | Macy's, Lord & Taylor, Sears, Nordstrom, Crate & Barrel, Primark (6) | |||||||||||
| 13. | Cape Cod Mall | MA | Hyannis | Fee and Ground Leases (2029-2073) (7) | 56.4 | % (4) | Acquired 1999 | 93.5% | 722,482 | Macy's (9), Sears, Best Buy, Marshalls, Barnes & Noble, Regal Cinema | |||||||||||
| 14. | Castleton Square | IN | Indianapolis | Fee | 100.0 | % | Built 1972 | 96.8% | 1,381,813 | Macy's, Von Maur, JCPenney, Sears, Dick's Sporting Goods, AMC Theatres | |||||||||||
| 15. | Cielo Vista Mall | TX | El Paso | Fee and Ground Lease (2022) (7) | 100.0 | % | Built 1974 | 99.4% | 1,245,876 | Macy's, Dillard's (9), JCPenney, Sears, Cinemark Theatres | |||||||||||
| 16. | Coconut Point | FL | Estero | Fee | 50.0 | % (4) | Built 2006 | 96.8% | 1,205,033 | Dillard's, Barnes & Noble, Bed Bath & Beyond, Best Buy, DSW, Office Max, PetsMart, Ross, Cost Plus World Market, T.J. Maxx, Hollywood Theatres, Super Target, Michael's, Sports Authority | |||||||||||
| 17. | Coddingtown Mall | CA | Santa Rosa | Fee | 50.0 | % (4) | Acquired 2005 | 74.2% | 823,563 | Macy's, JCPenney, Whole Foods, Target, Nordstrom Rack (6) | |||||||||||
| 18. | College Mall | IN | Bloomington | Fee and Ground Lease (2048) (7) | 100.0 | % | Built 1965 | 96.0% | 636,593 | Macy's, Sears (15), Target, Dick's Sporting Goods, Bed Bath & Beyond, 365 by Whole Foods (6) | |||||||||||
| 19. | Columbia Center | WA | Kennewick | Fee | 100.0 | % | Acquired 1987 | 98.2% | 772,469 | Macy's (9), JCPenney, Sears, Barnes & Noble, Regal Cinema, DSW, Home Goods (6) | |||||||||||
| 20. |
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Item 3. Legal Proceedings
**
We are involved from time-to-time in various legal and regulatory proceedings that arise in the ordinary course of our business, including, but not limited to, commercial disputes, environmental matters, and litigation in connection with transactions such as acquisitions and divestitures. We believe that our current proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations. We record a liability when a loss is considered probable, and the amount can be reasonably estimated.
Item 4. Mine Safety Disclosures
**
Not applicable.
**Part II **
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
**
Market Information
Our common stock trades on the New York Stock Exchange under the symbol "SPG". The quarterly price range for the shares and the dividends declared per share for each quarter in the last two fiscal years are shown below:
| High | Low | Close | Declared Dividends | ||||||||||
| 2014 | |||||||||||||
| 1st Quarter | $ | 164.93 | $ | 149.60 | $ | 164.00 | $ | 1.25 | |||||
| 2nd Quarter | 177.31 | 162.56 | 166.28 | 1.30 | |||||||||
| 3rd Quarter | 173.31 | 162.43 | 164.42 | 1.30 | |||||||||
| 4th Quarter | 188.18 | 163.41 | 182.11 | 1.30 | |||||||||
| 2015 | |||||||||||||
| 1st Quarter | $ | 206.31 | $ | 178.84 | $ | 195.64 | $ | 1.40 | |||||
| 2nd Quarter | 202.28 | 170.99 | 173.02 | 1.50 | |||||||||
| 3rd Quarter | 200.23 | 171.87 | 183.72 | 1.55 | |||||||||
| 4th Quarter | 208.14 | 180.55 | 194.44 | 1.60 |
There is no established public trading market for Simon's Class B common stock. Dividends on the Class B common stock are identical to the common stock.
Holders
The number of holders of record of common stock outstanding was 1,274 as of December 31, 2015. The Class B common stock is subject to two voting trusts as to which Herbert Simon and David Simon are the trustees. Shares of Class B common stock convert automatically into an equal number of shares of common stock upon the occurrence of certain events and can be converted into shares of common stock at the option of the holders.
Dividends
We must pay a minimum amount of dividends to maintain our status as a REIT. Our future dividends and future distributions of the Operating Partnership will be determined by our Board of Directors, in its sole discretion, based on actual and projected financial condition, liquidity and results of operations, cash available for dividends and limited partner distributions, cash reserves as deemed necessary for capital and operating expenditures, financing covenants, if any, and the amount required to maintain our status as a REIT.
Common stock cash dividends during 2015 aggregated $6.05 per share. Common stock cash dividends during 2014 aggregated $5.15 per share. In January 2016, our Board of Directors declared a quarterly cash dividend of $1.60 per share of common stock payable on February 29, 2016 to stockholders of record on February 12, 2016.
We offer a dividend reinvestment plan that allows our stockholders to acquire additional shares by automatically reinvesting cash dividends. Shares are acquired pursuant to the plan at a price equal to the prevailing market price of such shares, without payment of any brokerage commission or service charge.
Unregistered Sales of Equity Securities
During the fourth quarter of 2015, we issued an aggregate of 2,489 shares of common stock to limited partners of the Operating Partnership in exchange for an equal number of units pursuant to the partnership agreement of the Operating Partnership, as follows:
1,989 shares on December 14, 2015, and
500 shares on November 9, 2015.
In each case, the issuance of the shares of common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Issuances Under Equity Compensation Plans
For information regarding the securities authorized for issuance under our equity compensation plans, see Item 12 of this Annual Report on Form 10-K.
Issuer Purchases of Equity Securities
There were no purchases of equity securities made during the fourth quarter of 2015.
Item 6. Selected Financial Data
**
The following tables set forth selected financial data. The selected financial data should be read in conjunction with the financial statements and notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations. Other data we believe is important in understanding trends in our business is also included in the tables.
| As of or for the Year Ended December 31, | ||||||||||||||||
| 2015 (1) | 2014 (2) | 2013 | 2012 | 2011 | ||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| OPERATING DATA: | ||||||||||||||||
| Total consolidated revenue | $ | 5,266,103 | $ | 4,870,818 | $ | 4,543,849 | $ | 4,256,157 | $ | 3,728,454 | ||||||
| Consolidated income from continuing operations | 2,139,375 | 1,622,165 | 1,366,793 | 1,563,242 | 1,086,040 | |||||||||||
| Consolidated net income | 2,139,375 | 1,651,526 | 1,551,590 | 1,719,632 | 1,245,900 | |||||||||||
| Net income attributable to common stockholders | $ | 1,824,383 | $ | 1,405,251 | $ | 1,316,304 | $ | 1,431,159 | $ | 1,021,462 | ||||||
| BASIC AND DILUTED EARNINGS PER SHARE: | ||||||||||||||||
| Income from continuing operations | $ | 5.88 | $ | 4.44 | $ | 3.73 | $ | 4.29 | $ | 3.03 | ||||||
| Discontinued operations | — | 0.08 | 0.51 | 0.43 | 0.45 | |||||||||||
| | | | | | | | | | | | | | | | | |
| Net income attributable to common stockholders | $ | 5.88 | $ | 4.52 | $ | 4.24 | $ | 4.72 | $ | 3.48 | ||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | 310,103 | 310,731 | 310,255 | 303,137 | 293,504 | |||||||||||
| Diluted weighted average shares outstanding | 310,103 | 310,731 | 310,255 | 303,138 | 293,573 | |||||||||||
| Dividends per share (3) | $ | 6.05 | $ | 5.15 | $ | 4.65 | $ | 4.10 | $ | 3.50 | ||||||
| BALANCE SHEET DATA: | ||||||||||||||||
| Cash and cash equivalents | $ | 701,134 | $ | 612,282 | $ | 1,691,006 | $ | 1,153,532 | $ | 776,039 | ||||||
| Total assets | 30,650,673 | 29,532,330 | 33,324,574 | 32,586,606 | 26,216,925 | |||||||||||
| Mortgages and other indebtedness | 22,502,173 | 20,852,993 | 22,669,917 | 22,186,848 | 17,431,588 | |||||||||||
| Total equity | 5,216,369 | 5,951,505 | $ | 6,822,632 | $ | 6,893,089 | $ | 5,544,288 | ||||||||
| OTHER DATA: | ||||||||||||||||
| Cash flow provided by (used in): | ||||||||||||||||
| Operating activities | $ | 3,024,685 | $ | 2,730,420 | $ | 2,700,996 | $ | 2,513,072 | $ | 2,005,887 | ||||||
| Investing activities | (1,462,720 | ) | (897,266 | ) | (948,088 | ) | (3,580,671 | ) | (994,042 | ) | ||||||
| Financing activities | (1,473,113 | ) | (2,937,735 | ) | (1,220,563 | ) | 1,453,467 | (1,009,913 | ) | |||||||
| Ratio of Earnings to Fixed Charges and Preferred Stock Dividends | 2.70x | 2.39x | 2.22x | 2.43x | 1.99x | |||||||||||
| Funds from Operations (FFO) (4) | $ | 3,571,237 | $ | 3,235,298 | $ | 3,205,693 | $ | 2,884,915 | $ | 2,438,765 | ||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Dilutive FFO allocable to common stockholders | $ | 3,057,193 | $ | 2,765,819 | $ | 2,744,770 | $ | 2,420,348 | $ | 2,021,932 | ||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Diluted FFO per share | $ | 9.86 | $ | 8.90 | $ | 8.85 | $ | 7.98 | $ | 6.89 |
(1)
During the year ended December 31, 2015, we recorded a $121.0 million loss on extinguishment of debt associated with the early redemption of two series of unsecured senior notes, reducing diluted FFO and diluted earnings per share by $0.33. We also recorded a gain on sale of marketable securities of $80.2 million, increasing diluted FFO and diluted earnings per share by $0.22.
(2)
During the year ended December 31, 2014, we recorded a $127.6 million loss on extinguishment of debt associated with five unsecured note tender offers and one early unsecured note redemption, reducing diluted FFO and diluted earnings per share by $0.35. We also recorded transaction expenses related to the spin-off of WP Glimcher Inc. (formerly known as Washington Prime Group Inc.), or Washington Prime, of $38.2 million or $0.10 per share. 2014 FFO includes results for five months of Washington Prime of $146.2 million or $0.40 per share.
(3)
Represents dividends declared per period.
(4)
FFO is a non-GAAP financial measure that we believe provides useful information to investors. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for a definition and reconciliation of FFO to consolidated net income and FFO per share to net income per share.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
**
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto that are included in this Annual Report on Form 10-K.
Overview
Simon Property Group, Inc., Simon or the Company, is a Delaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. REITs will generally not be liable for federal corporate income taxes as long as they distribute not less than 100% of their REIT taxable income. Simon Property Group, L.P., or the Operating Partnership, is our majority-owned partnership subsidiary that owns all of our real estate properties and other assets. In this discussion, the terms "we", "us" and "our" refer to Simon, the Operating Partnership, and its subsidiaries.
We own, develop and manage retail real estate properties, which consist primarily of malls, Premium Outlets®, and The Mills®. As of December 31, 2015, we owned or held an interest in 209 income-producing properties in the United States, which consisted of 108 malls, 71 Premium Outlets, 14 Mills, four lifestyle centers, and 12 other retail properties in 37 states and Puerto Rico. We opened four outlets in 2015 and have three outlets and two other significant retail projects under development. In addition, we have redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants, underway at 29 properties in the U.S. and Europe. Internationally, as of December 31, 2015, we had ownership interests in nine Premium Outlets in Japan, three Premium Outlets in South Korea, two Premium Outlets in Canada, one Premium Outlet in Mexico, and one Premium Outlet in Malaysia. As of December 31, 2015, we had a noncontrolling ownership interest in a joint venture that holds five outlet properties in Europe and one outlet property in Canada. Of the five properties in Europe, two are located in Italy and one each is located in Austria, the Netherlands, and the United Kingdom. Additionally, as of December 31, 2015, we owned a 20.3% equity stake in Klépierre SA, or Klépierre, a publicly traded, Paris-based real estate company, which owns, or has an interest in, shopping centers located in 16 countries in Europe.
We generate the majority of our revenues from leases with retail tenants including:
base minimum rents,
overage and percentage rents based on tenants' sales volume, and
recoverable expenditures such as property operating, real estate taxes, repair and maintenance, and advertising and promotional expenditures.
Revenues of our management company, after intercompany eliminations, consist primarily of management fees that are typically based upon the revenues of the property being managed.
We invest in real estate properties to maximize total financial return which includes both operating cash flows and capital appreciation. We seek growth in earnings, funds from operations, or FFO, and cash flows by enhancing the profitability and operation of our properties and investments. We seek to accomplish this growth through the following:
attracting and retaining high quality tenants and utilizing economies of scale to reduce operating expenses,
expanding and re-tenanting existing highly productive locations at competitive rental rates,
selectively acquiring or increasing our interests in high quality real estate assets or portfolios of assets,
generating consumer traffic in our retail properties through marketing initiatives and strategic corporate alliances, and
selling selective non-core assets.
We also grow by generating supplemental revenue from the following activities:
establishing our malls as leading market resource providers for retailers and other businesses and consumer-focused corporate alliances, including payment systems (such as handling fees relating to the sales of bank-issued prepaid cards), national marketing alliances, static and digital media initiatives, business development, sponsorship, and events,
offering property operating services to our tenants and others, including waste handling and facility services, and the provision of energy services,
selling or leasing land adjacent to our properties, commonly referred to as "outlots" or "outparcels," and
generating interest income on cash deposits and investments in loans, including those made to related entities.
We focus on high quality real estate across the retail real estate spectrum. We expand or redevelop properties to enhance profitability and market share of existing assets when we believe the investment of our capital meets our risk-reward criteria. We selectively develop new properties in markets we believe are not adequately served by existing retail outlet properties.
We routinely review and evaluate acquisition opportunities based on their ability to enhance our portfolio. Our international strategy includes partnering with established real estate companies and financing international investments with local currency to minimize foreign exchange risk.
To support our growth, we employ a three-fold capital strategy:
provide the capital necessary to fund growth,
maintain sufficient flexibility to access capital in many forms, both public and private, and
manage our overall financial structure in a fashion that preserves our investment grade credit ratings.
We consider FFO, net operating income, or NOI, and comparable property NOI (NOI for properties owned and operated in both periods under comparison) to be key measures of operating performance that are not specifically defined by accounting principles generally accepted in the United States, or GAAP. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Reconciliations of these measures to the most comparable GAAP measure are included below in this discussion.
Results Overview
Diluted earnings per common share increased $1.36 during 2015 to $5.88 as compared to $4.52 in 2014. The increase in diluted earnings per common share was primarily attributable to:
improved operating performance and core business fundamentals in 2015 and the impact of our acquisition and expansion activity,
decreased interest expense in 2015 of $68.9 million, or $0.19 per diluted share,
increased consolidated lease settlement activity of $25.9 million, or $0.07 per diluted share,
a 2015 gain of $80.2 million, or $0.22 per diluted share, from the sale of marketable securities, and
a 2015 gain on acquisitions and disposals of $250.5 million, or $0.69 per diluted share, related to a non-cash gain on Klépierre's acquisition of Corio N.V., or Corio, of $206.9 million, or $0.57 per diluted share, and gains of $43.6 million, or $0.12 per diluted share, due to the disposition of our interests in three unconsolidated properties,
partially offset by the loss of $29.3 million ($67.5 million from operations net of $38.2 million of transaction expenses), or $0.08 per diluted share ($0.18 from operations net of $0.10 of transaction expenses), from the spin-off of WP Glimcher Inc. (formerly known as Washington Prime Group Inc.), or Washington Prime, and
a 2014 gain on acquisitions and disposals of $158.3 million, or $0.44 per diluted share, primarily related to Klépierre's sale of a portfolio of 126 retail galleries of which our share of the gain was $133.9 million, or $0.37 per diluted share.
Core business fundamentals improved during 2015, primarily driven by higher tenant sales and strong leasing activity. Portfolio NOI grew by 7.1% in 2015 as compared to 2014. Comparable property NOI also grew 3.7% for our portfolio of U.S. Malls, Premium Outlets, and The Mills. Total sales per square foot, or psf, increased 0.1% from $619 psf at December 31, 2014, to $620 psf at
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Item 7A. Qualitative and Quantitative Disclosure About Market Risk
**
Our exposure to market risk due to changes in interest rates primarily relates to our long-term debt obligations. We manage exposure to interest rate market risk through our risk management strategy by a combination of interest rate protection agreements to effectively fix or cap a portion of variable rate debt. We are also exposed to foreign currency risk on financings of certain foreign operations. Our intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures. We do not enter into either interest rate protection or foreign currency rate protection agreements for speculative purposes.
We may enter into treasury lock agreements as part of anticipated issuances of senior notes. Upon completion of the debt issuance, the cost of these instruments is recorded as part of accumulated other comprehensive income (loss) and is amortized to interest expense over the life of the debt agreement.
Our future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR, which was at historically low levels during 2015. Based upon consolidated indebtedness and interest rates at December 31, 2015, a 50 basis point increase in the market rates of interest would decrease future earnings and cash flows by approximately $10.5 million, and would decrease the fair value of debt by approximately $501.2 million.
Item 8. Financial Statements and Supplementary Data
**
**Report of Independent Registered Public Accounting Firm **
The Board of Directors and Stockholders of Simon Property Group, Inc.:
We have audited Simon Property Group, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2015 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Simon Property Group, Inc. and Subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Simon Property Group, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Simon Property Group, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2015 of Simon Property Group, Inc. and Subsidiaries, and our report dated February 26, 2016 expressed an unqualified opinion thereon.
| /s/ ERNST & YOUNG LLP | ||
| Indianapolis, Indiana February 26, 2016 |
**Report of Independent Registered Public Accounting Firm **
The Board of Directors and Stockholders of Simon Property Group, Inc.:
We have audited the accompanying consolidated balance sheets of Simon Property Group, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2015. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, Inc. and Subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Simon Property Group, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 26, 2016, expressed an unqualified opinion thereon.
| /s/ ERNST & YOUNG LLP | ||
| Indianapolis, Indiana February 26, 2016 |
**Simon Property Group, Inc. and Subsidiaries **Consolidated Balance Sheets (Dollars in thousands, except share amounts)
| December 31, 2015 | December 31, 2014 | ||||||
| ASSETS: | |||||||
| Investment properties at cost | $ | 33,463,124 | $ | 31,318,532 | |||
| Less — accumulated depreciation | 9,915,386 | 8,950,747 | |||||
| | | | | | | | |
| 23,547,738 | 22,367,785 | ||||||
| Cash and cash equivalents | 701,134 | 612,282 | |||||
| Tenant receivables and accrued revenue, net | 624,605 | 580,197 | |||||
| Investment in unconsolidated entities, at equity | 2,481,574 | 2,378,800 | |||||
| Investment in Klepierre, at equity | 1,943,363 | 1,786,477 | |||||
| Deferred costs and other assets | 1,352,259 | 1,806,789 | |||||
| | | | | | | | |
| Total assets | $ | 30,650,673 | $ | 29,532,330 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| LIABILITIES: | |||||||
| Mortgages and unsecured indebtedness | $ | 22,502,173 | $ | 20,852,993 | |||
| Accounts payable, accrued expenses, intangibles, and deferred revenues | 1,323,801 | 1,259,681 |
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
**
None.
Item 9A. Controls and Procedures
**
As of December 31, 2015
Management's Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment and criteria, we believe that, as of December 31, 2015, our internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
The audit report of Ernst & Young LLP on their assessment of our internal control over financial reporting as of December 31, 2015 is set forth within Item 8 of this Form 10-K.
Management's Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective at a reasonable assurance level.
As of March 31, 2015, June 30, 2015 and September 30, 2015
Management's Evaluation of Disclosure Controls and Procedures
As part of our year-end reporting procedures and controls, we identified a non-cash gain of $206.9 million, solely relating to our equity method investment in Klépierre SA ("Klépierre") and its acquisition of Corio N.V. ("Corio") and issuance of shares to Corio shareholders in January 2015, that should have been, but was not, recorded in the first quarter of 2015. Notwithstanding this omission, we did disclose the Corio transaction in the footnotes to our 2015 first quarter
financial statements, including: the dilution of our ownership interest in Klépierre as a result of Klépierre's issuance of shares to Corio shareholders; the number of Klépierre shares we owned; and Klépierre's quoted market price per share at March 31, 2015 (Klépierre is listed on Euronext Paris).
On January 13, 2016, we amended our quarterly reports on Form 10-Q for the quarters ended March 31, 2015, June 30, 2015 and September 30, 2015 to record the $206.9 million non-cash gain in the interim financial statements contained therein. In amending these quarterly reports, we did not revise management's conclusions regarding the effectiveness of disclosure controls and procedures as stated in the originally filed quarterly reports.
This accounting error occurred due to a deficiency in our internal control over interim financial reporting — specifically, a design defect in our internal control over interim financial reporting of equity method investees as a result of our not applying the guidance in ASC-323-10-40-1 when preparing our interim financial statements. Because of this deficiency, which existed until the fourth quarter of 2015, any dilution in our ownership caused by the issuance of additional shares of capital stock by either of the two joint ventures accounted for under the equity method that have the ability to issue such shares, which would result in the need to recognize a gain or loss due to the application of ASC-323-10-40-1, would not have been timely recorded in our interim financial statements. As "disclosure controls and procedures" is defined to include those controls that are designed to ensure that information required to be disclosed in Exchange Act reports is "recorded" within the time periods specified in the Commission's rules and forms, upon further consideration, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015, June 30, 2015 and September 30, 2015. Based on this re-evaluation, our Chief Executive Officer and Chief Financial Officer have now concluded that our disclosure controls and procedures as of such dates were not effective at a reasonable assurance level.
The procedures performed by the company which identified the appropriate accounting for these transactions by our equity method investees were part of our year-end internal control procedures. We have now implemented additional procedures as part of our quarterly internal control procedures. As a result, this deficiency in our internal control over financial reporting has been remediated and tested as of December 31, 2015.
During the Quarter Ended December 31, 2015
Changes in Internal Control Over Financial Reporting
As discussed above, during the quarter ended December 31, 2015, we implemented procedures encompassing the guidance in ASC-323-10-40-1 as part of our quarterly internal control procedures.
Item 9B. Other Information
**
During the fourth quarter of the year covered by this Annual Report on Form 10-K, the Audit Committee of our Board of Directors approved certain audit, audit-related and non-audit tax compliance and tax consulting services to be provided by Ernst & Young LLP, the Company's independent registered public accounting firm. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act as added by Section 202 of the Sarbanes-Oxley Act of 2002.
**Part III **
Item 10. Directors, Executive Officers and Corporate Governance
**
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2016 annual meeting of stockholders to be filed with the Securities and Exchange Commission, or SEC, pursuant to Regulation 14A and the information included under the caption "Executive Officers of the Registrant" in Part I hereof.
Item 11. Executive Compensation
**
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2016 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
**
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2016 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions and Director Independence
**
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2016 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A.
Item 14. Principal Accountant Fees and Services
**
The information required by this item is incorporated herein by reference to the definitive proxy statement for our 2016 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A.
**Part IV **
Item 15. Exhibits and Financial Statement Schedules
**
**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, INC. | ||||
| By | /s/ DAVID SIMON David Simon Chairman of the Board of Directors and Chief Executive Officer |
February 26, 2016
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 | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | February 26, 2016 | ||
| /s/ HERBERT SIMON Herbert Simon | Chairman Emeritus and Director | February 26, 2016 | ||
| /s/ RICHARD S. SOKOLOV Richard S. Sokolov | President, Chief Operating Officer and Director | February 26, 2016 | ||
| /s/ MELVYN E. BERGSTEIN Melvyn E. Bergstein | Director | February 26, 2016 | ||
| /s/ LARRY C. GLASSCOCK Larry C. Glasscock | Director | February 26, 2016 | ||
| /s/ REUBEN S. LEIBOWITZ Reuben S. Leibowitz | Director | February 26, 2016 | ||
| /s/ J. ALBERT SMITH, JR. J. Albert Smith, Jr. | Director | February 26, 2016 | ||
| /s/ KAREN N. HORN Karen N. Horn | Director | February 26, 2016 |
| Signature | Capacity | Date | ||
| /s/ ALLAN HUBBARD Allan Hubbard | Director | February 26, 2016 | ||
| /s/ DANIEL C. SMITH Daniel C. Smith | Director | February 26, 2016 | ||
| /s/ GARY RODKIN Gary Rodkin | Director | February 26, 2016 | ||
| /s/ ANDREW JUSTER Andrew Juster | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 26, 2016 | ||
| /s/ STEVEN K. BROADWATER Steven K. Broadwater | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 26, 2016 |
SCHEDULE III
**Simon Property Group, Inc. and Subsidiaries **Real Estate and Accumulated Depreciation December 31, 2015 (Dollars in thousands)
| Cost Capitalized Subsequent to Acquisition (3) | Gross Amounts At Which Carried At Close of Period | ||||||||||||||||||||||||||||||
| Initial Cost (3) | |||||||||||||||||||||||||||||||
| Date of Construction or Acquisition | |||||||||||||||||||||||||||||||
| Name | Location | Encumbrances (6) | Land | Buildings and Improvements | Land | Buildings and Improvements | Land | Buildings and Improvements | Total (1) | Accumulated Depreciation (2) | |||||||||||||||||||||
| Malls | |||||||||||||||||||||||||||||||
| Bangor Mall | Bangor, ME | $ | 80,000 | $ | 5,478 | $ | 59,740 | $ | — | $ | 13,599 | $ | 5,478 | $ | 73,339 | $ | 78,817 | $ | 35,268 | 2004 (5) | |||||||||||
| Barton Creek Square | Austin, TX | — | 2,903 | 20,929 | 7,983 | 67,405 | 10,886 | 88,334 | 99,220 | 56,790 | 1981 | ||||||||||||||||||||
| Battlefield Mall | Springfield, MO | 124,467 | 3,919 | 27,231 | 3,000 | 63,987 | 6,919 | 91,218 | 98,137 | 64,580 | 1970 | ||||||||||||||||||||
| Bay Park Square | Green Bay, WI | — | 6,358 | 25,623 | 4,106 | 25,912 | 10,464 | 51,535 | 61,999 | 28,944 | 1980 | ||||||||||||||||||||
| Brea Mall | Brea (Los Angeles), CA | — | 39,500 | 209,202 | — | 45,970 | 39,500 | 255,172 | 294,672 | 120,465 | 1998 (4) | ||||||||||||||||||||
| Broadway Square | Tyler, TX | — | 11,306 | 32,431 | — | 27,175 | 11,306 | 59,606 | 70,912 | 33,195 | 1994 (4) | ||||||||||||||||||||
| Burlington Mall | Burlington (Boston), MA | — | 46,600 | 303,618 | 19,600 | 99,494 | 66,200 | 403,112 | 469,312 | 186,168 | 1998 (4) | ||||||||||||||||||||
| Castleton Square | Indianapolis, IN | — | 26,250 | 98,287 | 7,434 | 76,214 | 33,684 | 174,501 | 208,185 | 93,721 | 1972 | ||||||||||||||||||||
| Cielo Vista Mall | El Paso, TX | — | 1,005 | 15,262 | 608 | 56,005 | 1,613 | 71,267 | 72,880 | 43,202 | 1974 | ||||||||||||||||||||
| College Mall | Bloomington, IN | — | 1,003 | 16,245 | 720 | 46,585 | 1,723 | 62,830 | 64,553 | 37,926 | 1965 | ||||||||||||||||||||
| Columbia Center | Kennewick, WA | — | 17,441 | 66,580 | — | 28,108 | 17,441 | 94,688 | 112,129 | 49,309 | 1987 | ||||||||||||||||||||
| Copley Place | Boston, MA | — | — | 378,045 | — | 164,956 | — | 543,001 | 543,001 | 202,102 | 2002 (4) | ||||||||||||||||||||
| Coral Square | Coral Springs (Miami), FL | — | 13,556 | 93,630 | — | 21,636 | 13,556 | 115,266 | 128,822 | 78,296 | 1984 | ||||||||||||||||||||
| Cordova Mall | Pensacola, FL | — | 18,626 | 73,091 | 7,321 | 64,641 | 25,947 | 137,732 | 163,679 | 58,541 | 1998 (4) | ||||||||||||||||||||
| Domain, The | Austin, TX | 195,224 | 40,436 | 197,010 | — | 139,994 | 40,436 | 337,004 | 377,440 | 110,570 | 2005 | ||||||||||||||||||||
| Empire Mall | Sioux Falls, SD | 190,000 | 35,998 | 192,186 | — | 23,833 | 35,998 | 216,019 | 252,017 | 30,463 | 1998 (5) | ||||||||||||||||||||
| Fashion Mall at Keystone, The | Indianapolis, IN | — | — | 120,579 | 29,145 | 90,392 | 29,145 | 210,971 | 240,116 | 94,575 | 1997 (4) | ||||||||||||||||||||
| Firewheel Town Center | Garland (Dallas), TX | — | 8,485 | 82,716 | — | 27,079 | 8,485 | 109,795 | 118,280 | 47,765 | 2004 | ||||||||||||||||||||
| Forum Shops at Caesars, The | Las Vegas, NV | — | — | 276,567 | — | 241,471 | — | 518,038 | 518,038 | 219,881 | 1992 | ||||||||||||||||||||
| Greenwood Park Mall | Greenwood (Indianapolis), IN | 74,710 | 2,423 | 23,445 | 5,253 | 116,410 | 7,676 | 139,855 | 147,531 | 71,929 | 1979 | ||||||||||||||||||||
| Haywood Mall | Greenville, SC | — | 11,585 | 133,893 | 6 | 36,461 | 11,591 | 170,354 | 181,945 | 93,940 | 1998 (4) | ||||||||||||||||||||
| Independence Center | Independence (Kansas City), MO | 200,000 | 5,042 | 45,798 | — | 43,166 | 5,042 | 88,964 | 94,006 | 46,127 | 1994 (4) | ||||||||||||||||||||
| Ingram Park Mall | San Antonio, TX | 135,491 | 733 | 17,163 | 37 | 23,970 | 770 | 41,133 | 41,903 | 28,372 | 1979 | ||||||||||||||||||||
| King of Prussia | King of Prussia (Philadelphia), PA | 75,641 | 175,063 | 1,128,200 | — | 241,420 | 175,063 | 1,369,620 | 1,544,683 | 194,201 | 2003 (5) | ||||||||||||||||||||
| La Plaza Mall | McAllen, TX | — | 87,912 | 9,828 | 6,569 | 54,620 | 94,481 | 64,448 | 158,929 | 32,951 | 1976 | ||||||||||||||||||||
| Lakeline Mall | Cedar Park (Austin), TX | — | 10,088 | 81,568 | 14 | 17,689 | 10,102 | 99,257 | 109,359 | 54,030 | 1995 | ||||||||||||||||||||
| Lenox Square | Atlanta, GA | — | 38,058 | 492,411 | — | 116,271 | 38,058 | 608,682 | 646,740 | 278,923 | 1998 (4) | ||||||||||||||||||||
| Livingston Mall | Livingston (New York), NJ | — | 22,214 | 105,250 | — | 45,506 | 22,214 | 150,756 | 172,970 | 69,295 | 1998 (4) | ||||||||||||||||||||
| Mall of Georgia | Buford (Atlanta), GA | — | 47,492 | 326,633 | — | 20,673 | 47,492 | 347,306 | 394,798 | 156,378 | 1999 (5) | ||||||||||||||||||||
| McCain Mall | N. Little Rock, AR | — | — | 9,515 | 10,530 | 27,992 | 10,530 | 37,507 | 48,037 | 11,225 | 1973 | ||||||||||||||||||||
| Menlo Park Mall | Edison (New York), NJ | — | 65,684 | 223,252 | — | 65,851 | 65,684 | 289,103 | 354,787 | 145,610 | 1997 (4) | ||||||||||||||||||||
| Midland Park Mall | Midland, TX | 80,362 | 687 | 9,213 | — | 24,594 | 687 | 33,807 | 34,494 | 20,849 | 1980 | ||||||||||||||||||||
| Miller Hill Mall | Duluth, MN | — | 2,965 | 18,092 | 1,811 | 40,222 | 4,776 | 58,314 | 63,090 | 37,094 | 1973 | ||||||||||||||||||||
| Montgomery Mall | North Wales (Philadelphia), PA | 100,000 | 27,105 | 86,915 | — | 61,554 | 27,105 | 148,469 | 175,574 | 53,682 | 2004 (5) | ||||||||||||||||||||
| North East Mall | Hurst (Dallas), TX | — | 128 | 12,966 | 19,010 | 151,594 | 19,138 | 164,560 | 183,698 | 99,013 | 1971 | ||||||||||||||||||||
| Northgate Mall | Seattle, WA | — | 24,369 | 115,992 | — | 106,816 | 24,369 | 222,808 | 247,177 | 105,543 | 1987 |
**Simon Property Group, Inc. and Subsidiaries **Real Estate and Accumulated Depreciation December 31, 2015 (Dollars in thousands)
| Cost Capitalized Subsequent to Acquisition (3) | Gross Amounts At Which Carried At Close of Period | ||||||||||||||||||||||||||||||
| Initial Cost (3) | |||||||||||||||||||||||||||||||
| Date of Construction or Acquisition | |||||||||||||||||||||||||||||||
| Name | Location | Encumbrances (6) | Land | Buildings and Improvements | Land | Buildings and Improvements | Land | Buildings and Improvements | Total (1) | Accumulated Depreciation (2) | |||||||||||||||||||||
| Ocean County Mall | Toms River (New York), NJ | — | 20,404 | 124,945 | — | 31,772 | 20,404 | 156,717 | 177,121 | 76,563 | 1998 (4) | ||||||||||||||||||||
| Orland Square | Orland Park (Chicago), IL | — | 35,514 | 129,906 | — | 50,868 | 35,514 | 180,774 | 216,288 | 89,356 | 1997 (4) | ||||||||||||||||||||
| Oxford Valley Mall | Langhorne (Philadelphia), PA | 65,249 | 24,544 | 100,287 | — | 20,367 | 24,544 | 120,654 | 145,198 | 72,266 | 2003 (4) | ||||||||||||||||||||
| Penn Square Mall | Oklahoma City, OK | 310,000 | 2,043 | 155,958 | — | 49,533 | 2,043 | 205,491 | 207,534 | 102,945 | 2002 (4) | ||||||||||||||||||||
| Pheasant Lane Mall | Nashua, NH | — | 3,902 | 155,068 | 550 | 46,296 | 4,452 | 201,364 | 205,816 | 86,814 | 2004 (5) | ||||||||||||||||||||
| Phipps Plaza | Atlanta, GA | — | 15,005 | 210,610 | — | 59,887 | 15,005 | 270,497 | 285,502 | 122,663 | 1998 (4) | ||||||||||||||||||||
| Plaza Carolina | Carolina (San Juan), PR | 225,000 | 15,493 | 279,560 | — | 62,451 | 15,493 | 342,011 | 357,504 | 124,038 | 2004 (4) | ||||||||||||||||||||
| Prien Lake Mall | Lake Charles, LA | — | 1,842 | 2,813 | 3,053 | 49,413 | 4,895 | 52,226 | 57,121 | 24,866 | 1972 | ||||||||||||||||||||
| Rockaway Townsquare | Rockaway (New York), NJ | — | 41,918 | 212,257 | — | 44,919 | 41,918 | 257,176 | 299,094 | 120,410 | 1998 (4) | ||||||||||||||||||||
| Roosevelt Field | Garden City (New York), NY | — | 163,160 | 702,008 | 1,246 | 339,761 | 164,406 | 1,041,769 | 1,206,175 | 371,047 | 1998 (4) | ||||||||||||||||||||
| Ross Park Mall | Pittsburgh, PA | — | 23,541 | 90,203 | — | 91,305 | 23,541 | 181,508 | 205,049 | 102,132 | 1986 | ||||||||||||||||||||
| Santa Rosa Plaza | Santa Rosa, CA | — | 10,400 | 87,864 | — | 26,267 | 10,400 | 114,131 | 124,531 | 52,621 | 1998 (4) | ||||||||||||||||||||
| Shops at Chestnut Hill, The | Chestnut Hill (Boston), MA | 120,000 | 449 | 25,102 | 43,257 | 102,405 | 43,706 | 127,507 | 171,213 | 17,569 | 2002 (5) | ||||||||||||||||||||
| Shops at Nanuet, The | Nanuet, NY | — | 28,125 | 143,120 | — | 10,175 | 28,125 | 153,295 | 181,420 | 14,340 | 2013 | ||||||||||||||||||||
| Shops at Riverside, The | Hackensack (New York), NJ | 130,000 | 13,521 | 238,746 | — | 16,255 | 13,521 | 255,001 | 268,522 | 34,240 | 2007 (4) (5) | ||||||||||||||||||||
| South Hills Village | Pittsburgh, PA | — | 23,445 | 125,840 | 1,472 | 58,817 | 24,917 | 184,657 | 209,574 | 80,596 | 1997 (4) | ||||||||||||||||||||
| South Shore Plaza | Braintree (Boston), MA | — | 101,200 | 301,495 | — | 159,976 | 101,200 | 461,471 | 562,671 | 195,016 | 1998 (4) | ||||||||||||||||||||
| Southdale Center | Edina (Minneapolis), MN | 152,990 | 40,172 | 184,967 | — | 45,050 | 40,172 | 230,017 | 270,189 | 30,404 | 2007 (4) (5) | ||||||||||||||||||||
| SouthPark | Charlotte, NC | 184,908 | 42,092 | 188,055 | 100 | 186,322 | 42,192 | 374,377 | 416,569 | 167,958 | 2002 (4) | ||||||||||||||||||||
| Southridge Mall | Greendale (Milwaukee), WI | 123,922 | 12,359 | 130,111 | 2,389 | 18,403 | 14,748 | 148,514 | 163,262 | 26,086 | 2007 (4) (5) | ||||||||||||||||||||
| St. Charles Towne Center | Waldorf (Washington, DC), MD | — | 7,710 | 52,934 | 1,180 | 30,898 | 8,890 | 83,832 | 92,722 | 52,033 | 1990 | ||||||||||||||||||||
| Stanford Shopping Center | Palo Alto (San Jose), CA | — | — | 339,537 | — | 104,531 | — | 444,068 | 444,068 | 133,697 | 2003 (4) | ||||||||||||||||||||
| Summit Mall | Akron, OH | 65,000 | 15,374 | 51,137 | — | 47,643 | 15,374 | 98,780 | 114,154 | 49,922 | 1965 | ||||||||||||||||||||
| Tacoma Mall | Tacoma (Seattle), WA | — | 37,803 | 125,826 | — | 87,545 | 37,803 | 213,371 | 251,174 | 106,676 | 1987 | ||||||||||||||||||||
| Tippecanoe Mall | Lafayette, IN | — | 2,897 | 8,439 | 5,517 | 48,227 | 8,414 | 56,666 | 65,080 | 40,768 | 1973 | ||||||||||||||||||||
| Town Center at Boca Raton | Boca Raton (Miami), FL | — | 64,200 | 307,317 | — | 176,802 | 64,200 | 484,119 | 548,319 | 229,468 | 1998 (4) | ||||||||||||||||||||
| Town Center at Cobb | Kennesaw (Atlanta), GA | 195,052 | 32,355 | 158,225 | — | 18,869 | 32,355 | 177,094 | 209,449 | 94,183 | 1998 (5) | ||||||||||||||||||||
| Towne East Square | Wichita, KS | — | 8,525 | 18,479 | 4,108 | 45,317 | 12,633 | 63,796 | 76,429 | 42,464 | 1975 | ||||||||||||||||||||
| Treasure Coast Square | Jensen Beach, FL | — | 11,124 | 72,990 | 3,067 | 37,728 | 14,191 | 110,718 | 124,909 | 61,410 | 1987 | ||||||||||||||||||||
| Tyrone Square | St. Petersburg (Tampa), FL | — | 15,638 | 120,962 | 1,459 | 50,226 | 17,097 | 171,188 | 188,285 | 85,056 | 1972 | ||||||||||||||||||||
| University Park Mall | Mishawaka, IN | — | 16,768 | 112,158 | 7,000 | 58,184 | 23,768 | 170,342 | 194,110 | 137,801 | 1996 (4) | ||||||||||||||||||||
| Walt Whitman Shops | Huntington Station (New York), NY | 113,933 | 51,700 | 111,258 | 3,789 | 126,352 | 55,489 | 237,610 | 293,099 | 94,988 | 1998 (4) | ||||||||||||||||||||
| White Oaks Mall | Springfield, IL | 50,000 | 3,024 | 35,692 | 2,102 | 62,858 | 5,126 | 98,550 | 103,676 | 44,361 | 1977 | ||||||||||||||||||||
| Wolfchase Galleria | Memphis, TN | 225,000 | 15,881 | 128,276 | — | 16,002 | 15,881 | 144,278 | 160,159 | 77,313 | 2002 (4) | ||||||||||||||||||||
| Woodland Hills Mall | Tulsa, OK | 90,370 | 34,211 | 187,123 | — | 27,751 | 34,211 | 214,874 | 249,085 | 106,778 | 2004 (5) |
**Simon Property Group, Inc. and Subsidiaries **Real Estate and Accumulated Depreciation December 31, 2015 (Dollars in thousands)
| Cost Capitalized Subsequent to Acquisition (3) | Gross Amounts At Which Carried At Close of Period | ||||||||||||||||||||||||||||||
| Initial Cost (3) | |||||||||||||||||||||||||||||||
| Date of Construction or Acquisition | |||||||||||||||||||||||||||||||
| Name | Location | Encumbrances (6) | Land | Buildings and Improvements | Land | Buildings and Improvements | Land | Buildings and Improvements | Total (1) | Accumulated Depreciation (2) | |||||||||||||||||||||
| Premium Outlets | |||||||||||||||||||||||||||||||
| Albertville Premium Outlets | Albertville (Minneapolis), MN | — | 3,900 | 97,059 | — | 7,651 | 3,900 | 104,710 | 108,610 | 41,127 | 2004 (4) | ||||||||||||||||||||
| Allen Premium Outlets | Allen (Dallas), TX | — | 13,855 | 43,687 | 9,132 | 14,883 | 22,987 | 58,570 | 81,557 | 26,551 | 2004 (4) | ||||||||||||||||||||
| Aurora Farms Premium Outlets | Aurora (Cleveland), OH | — | 2,370 | 24,326 | — | 5,075 | 2,370 | 29,401 | 31,771 | 19,612 | 2004 (4) | ||||||||||||||||||||
| Birch Run Premium Outlets | Birch Run (Detroit), MI | 100,460 | 11,477 | 77,856 | — | 5,212 | 11,477 | 83,068 | 94,545 | 21,469 | 2010 (4) | ||||||||||||||||||||
| Calhoun Premium Outlets | Calhoun, GA | 19,309 | 1,745 | 12,529 | — | 1,187 | 1,745 | 13,716 | 15,461 | 6,683 | 2010 (4) | ||||||||||||||||||||
| Camarillo Premium Outlets | Camarillo (Los Angeles), CA | — | 16,670 | 224,721 | 395 | 65,372 | 17,065 | 290,093 | 307,158 | 104,629 | 2004 (4) | ||||||||||||||||||||
| Carlsbad Premium Outlets | Carlsbad (San Diego), CA | — | 12,890 | 184,990 | 96 | 6,034 | 12,986 | 191,024 | 204,010 | 64,132 | 2004 (4) | ||||||||||||||||||||
| Carolina Premium Outlets | Smithfield (Raleigh), NC | 47,409 | 3,175 | 59,863 | 5,311 | 6,101 | 8,486 | 65,964 | 74,450 | 30,147 | 2004 (4) | ||||||||||||||||||||
| Chicago Premium Outlets | Aurora (Chicago), IL | — | 659 | 118,005 | 13,050 | 94,636 | 13,709 | 212,641 | 226,350 | 54,598 | 2004 (4) | ||||||||||||||||||||
| Cincinnati Premium Outlets | Monroe (Cincinnati), OH | — | 14,117 | 71,520 | — | 5,199 | 14,117 | 76,719 | 90,836 | 24,572 | 2008 | ||||||||||||||||||||
| Clinton Crossing Premium Outlets | Clinton, CT | — | 2,060 | 107,556 | 1,532 | 3,831 | 3,592 | 111,387 | 114,979 | 44,404 | 2004 (4) | ||||||||||||||||||||
| Columbia Gorge Premium Outlets | Troutdale (Portland), OR | — | 7,900 | 16,492 | — | 2,189 | 7,900 | 18,681 | 26,581 | 10,423 | 2004 (4) | ||||||||||||||||||||
| Desert Hills Premium Outlets | Cabazon (Palm Springs), CA | — | 3,440 | 338,679 | — | 98,699 | 3,440 | 437,378 | 440,818 | 121,914 | 2004 (4) | ||||||||||||||||||||
| Edinburgh Premium Outlets | Edinburgh (Indianapolis), IN | — | 2,857 | 47,309 | — | 15,158 | 2,857 | 62,467 | 65,324 | 27,262 | 2004 (4) | ||||||||||||||||||||
| Ellenton Premium Outlets | Ellenton (Tampa), FL | 178,000 | 15,807 | 182,412 | — | 5,159 | 15,807 | 187,571 | 203,378 | 56,859 | 2010 (4) | ||||||||||||||||||||
| Folsom Premium Outlets | Folsom (Sacramento), CA | — | 9,060 | 50,281 | — | 4,544 | 9,060 | 54,825 | 63,885 | 26,112 | 2004 (4) | ||||||||||||||||||||
| Gaffney Premium Outlets | Gaffney (Greenville/Charlotte), SC | 35,042 | 4,056 | 32,371 | — | 2,672 | 4,056 | 35,043 | 39,099 | 11,354 | 2010 (4) | ||||||||||||||||||||
| Gilroy Premium Outlets | Gilroy (San Jose), CA | — | 9,630 | 194,122 | — | 10,697 | 9,630 | 204,819 | 214,449 | 79,050 | 2004 (4) | ||||||||||||||||||||
| Grand Prairie Premium Outlets | Grand Prairie (Dallas), TX | 120,000 | 9,497 | 196,271 | — | — | 9,497 | 196,271 | 205,768 | 22,660 | 2012 | ||||||||||||||||||||
| Grove City Premium Outlets | Grove City (Pittsburgh), PA | 140,000 | 6,421 | 121,880 | — | 4,380 | 6,421 | 126,260 | 132,681 | 39,372 | 2010 (4) | ||||||||||||||||||||
| Gulfport Premium Outlets | Gulfport, MS | 50,000 | — | 27,949 | — | 2,434 | — | 30,383 | 30,383 | 9,717 | 2010 (4) | ||||||||||||||||||||
| Hagerstown Premium Outlets | Hagerstown (Baltimore/Washington, DC), MD | 84,410 | 3,576 | 85,883 | — | 2,333 | 3,576 | 88,216 | 91,792 | 22,933 | 2010 (4) | ||||||||||||||||||||
| Houston Premium Outlets | Cypress (Houston), TX | — | 8,695 | 69,350 | — | 45,070 | 8,695 | 114,420 | 123,115 | 35,097 | 2007 | ||||||||||||||||||||
| Jackson Premium Outlets | Jackson (New York), NJ | — | 6,413 | 104,013 | 3 | 6,218 | 6,416 | 110,231 | 116,647 | 37,818 | 2004 (4) | ||||||||||||||||||||
| Jersey Shore Premium Outlets | Tinton Falls (New York), NJ | — | 15,390 | 50,979 | — | 75,287 | 15,390 | 126,266 | 141,656 | 41,045 | 2007 | ||||||||||||||||||||
| Johnson Creek Premium Outlets | Johnson Creek, WI | — | 2,800 | 39,546 | — | 6,951 | 2,800 | 46,497 | 49,297 | 17,956 | 2004 (4) | ||||||||||||||||||||
| Kittery Premium Outlets | Kittery, ME | — | 11,832 | 94,994 | — | 8,099 | 11,832 | 103,093 | 114,925 | 33,778 | 2004 (4) | ||||||||||||||||||||
| Las Americas Premium Outlets | San Diego, CA | 174,269 | 45,168 | 251,878 | — | 6,713 | 45,168 | 258,591 | 303,759 | 63,471 | 2007 (4) | ||||||||||||||||||||
| Las Vegas North Premium Outlets | Las Vegas, NV | — | 25,435 | 134,973 | 16,536 | 147,840 | 41,971 | 282,813 | 324,784 | 81,049 | 2004 (4) | ||||||||||||||||||||
| Las Vegas South Premium Outlets | Las Vegas, NV | — | 13,085 | 160,777 | — | 31,102 | 13,085 | 191,879 | 204,964 | 59,268 | 2004 (4) | ||||||||||||||||||||
| Lebanon Premium Outlets | Lebanon (Nashville), TN | — | 1,758 | 10,189 | — | 741 | 1,758 | 10,930 | 12,688 | 4,164 | 2010 (4) | ||||||||||||||||||||
| Lee Premium Outlets | Lee, MA | 48,201 | 9,167 | 52,212 | — | 1,510 | 9,167 | 53,722 | 62,889 | 16,887 | 2010 (4) | ||||||||||||||||||||
| Leesburg Corner Premium Outlets | Leesburg (Washington, DC), VA | — | 7,190 | 162,023 | — | 5,292 | 7,190 | 167,315 | 174,505 | 66,955 | 2004 (4) |
**Simon Property Group, Inc. and Subsidiaries **Real Estate and Accumulated Depreciation December 31, 2015 (Dollars in thousands)
| Cost Capitalized Subsequent to Acquisition (3) | Gross Amounts At Which Carried At Close of Period | ||||||||||||||||||||||||||||||
| Initial Cost (3) | |||||||||||||||||||||||||||||||
| Date of Construction or Acquisition | |||||||||||||||||||||||||||||||
| Name | Location | Encumbrances (6) | Land | Buildings and Improvements | Land | Buildings and Improvements | Land | Buildings and Improvements | Total (1) | Accumulated Depreciation (2) | |||||||||||||||||||||
| Liberty Village Premium Outlets | Flemington (New York), NJ | — | 5,670 | 28,904 | — | 1,660 | 5,670 | 30,564 | 36,234 | 16,815 | 2004 (4) | ||||||||||||||||||||
| Lighthouse Place Premium Outlets | Michigan City (Chicago, IL), IN | — | 6,630 | 94,138 | — | 9,051 | 6,630 | 103,189 | 109,819 | 45,349 | 2004 (4) | ||||||||||||||||||||
| Merrimack Premium Outlets | Merrimack, NH | 128,876 | 17,028 | 118,428 | — | 1,117 | 17,028 | 119,545 | 136,573 | 19,546 | 2012 | ||||||||||||||||||||
| Napa Premium Outlets | Napa, CA | — | 11,400 | 45,023 | — | 4,808 | 11,400 | 49,831 | 61,231 | 20,261 | 2004 (4) | ||||||||||||||||||||
| North Bend Premium Outlets | North Bend (Seattle), WA | — | 2,143 | 36,197 | — | 3,645 | 2,143 | 39,842 | 41,985 | 13,875 | 2004 (4) | ||||||||||||||||||||
| North Georgia Premium Outlets | Dawsonville (Atlanta), GA | — | 4,300 | 132,325 | — | 3,174 | 4,300 | 135,499 | 139,799 | 51,543 | 2004 (4) | ||||||||||||||||||||
| Orlando International Premium Outlets | Orlando, FL | — | 31,998 | 472,815 | — | 3,148 | 31,998 | 475,963 | 507,961 | 99,605 | 2010 (4) | ||||||||||||||||||||
| Orlando Vineland Premium Outlets | Orlando, FL | — | 14,040 | 304,410 | 36,023 | 79,938 | 50,063 | 384,348 | 434,411 | 121,507 | 2004 (4) | ||||||||||||||||||||
| Osage Beach Premium Outlets | Osage Beach, MO | — | 9,460 | 85,804 | — | 7,176 | 9,460 | 92,980 | 102,440 | 38,512 | 2004 (4) | ||||||||||||||||||||
| Petaluma Village Premium Outlets | Petaluma (San Francisco), CA | — | 13,322 | 13,710 | — | 3,178 | 13,322 | 16,888 | 30,210 | 9,542 | 2004 (4) | ||||||||||||||||||||
| Philadelphia Premium Outlets | Limerick (Philadelphia), PA | — | 16,676 | 105,249 | — | 17,114 | 16,676 | 122,363 | 139,039 | 48,133 | 2006 | ||||||||||||||||||||
| Phoenix Premium Outlets | Chandler (Phoenix), AZ | — | — | 63,724 | — | — | — | 63,724 | 63,724 | 9,960 | 2013 | ||||||||||||||||||||
| Pismo Beach Premium Outlets | Pismo Beach, CA | 33,850 | 4,317 | 19,044 | — | 1,866 | 4,317 | 20,910 | 25,227 | 7,621 | 2010 (4) | ||||||||||||||||||||
| Pleasant Prairie Premium Outlets | Pleasant Prairie (Chicago, IL/Milwaukee), WI | 34,560 | 16,823 | 126,686 | — | 4,508 | 16,823 | 131,194 | 148,017 | 30,877 | 2010 (4) | ||||||||||||||||||||
| Puerto Rico Premium Outlets | Barceloneta, PR | 125,000 | 20,586 | 114,021 | — | 4,737 | 20,586 | 118,758 | 139,344 | 27,930 | 2010 (4) | ||||||||||||||||||||
| Queenstown Premium Outlets | Queenstown (Baltimore), MD | 66,150 | 8,129 | 61,950 | — | 3,831 | 8,129 | 65,781 | 73,910 | 16,751 | 2010 (4) | ||||||||||||||||||||
| Rio Grande Valley Premium Outlets | Mercedes (McAllen), TX | — | 12,229 | 41,547 | — | 32,538 | 12,229 | 74,085 | 86,314 | 33,103 | 2005 | ||||||||||||||||||||
| Round Rock Premium Outlets | Round Rock (Austin), TX | — | 14,706 | 82,252 | — | 3,631 | 14,706 | 85,883 | 100,589 | 38,818 | 2005 | ||||||||||||||||||||
| San Francisco Premium Outlets | Livermore (San Francisco), CA | — | 21,925 | 308,694 | 40,046 | 50,266 | 61,971 | 358,960 | 420,931 | 33,858 | 2012 | ||||||||||||||||||||
| San Marcos Premium Outlets | San Marcos (Austin/San Antonio), TX | — | 13,180 | 287,179 | — | 8,249 | 13,180 | 295,428 | 308,608 | 61,969 | 2010 (4) | ||||||||||||||||||||
| Seattle Premium Outlets | Tulalip (Seattle), WA | — | — | 103,722 | — | 54,487 | — | 158,209 | 158,209 | 53,196 | 2004 (4) | ||||||||||||||||||||
| St. Augustine Premium Outlets | St. Augustine (Jacksonville), FL | — | 6,090 | 57,670 | 2 | 10,128 | 6,092 | 67,798 | 73,890 | 29,324 | 2004 (4) | ||||||||||||||||||||
| Tampa Premium Outlets | Lutz (Tampa), FL | — | 14,298 | 97,188 | — | — | 14,298 | 97,188 | 111,486 | 1,146 | 2015 | ||||||||||||||||||||
| The Crossings Premium Outlets | Tannersville, PA | 114,827 | 7,720 | 172,931 | — | 14,177 | 7,720 | 187,108 | 194,828 | 64,181 | 2004 (4) | ||||||||||||||||||||
| Tucson Premium Outlets | Marana (Tucson), AZ | — | 12,508 | 69,677 | — | — | 12,508 | 69,677 | 82,185 | 666 | 2015 | ||||||||||||||||||||
| Vacaville Premium Outlets | Vacaville, CA | — | 9,420 | 84,850 | — | 13,957 | 9,420 | 98,807 | 108,227 | 43,736 | 2004 (4) | ||||||||||||||||||||
| Waikele Premium Outlets | Waipahu (Honolulu), HI | — | 22,630 | 77,316 | — | 18,519 | 22,630 | 95,835 | 118,465 | 33,442 | 2004 (4) | ||||||||||||||||||||
| Waterloo Premium Outlets | Waterloo, NY | — | 3,230 | 75,277 | — | 8,656 | 3,230 | 83,933 | 87,163 | 36,662 | 2004 (4) | ||||||||||||||||||||
| Williamsburg Premium Outlets | Williamsburg, VA | 97,517 | 10,323 | 223,789 | — | 4,684 | 10,323 | 228,473 | 238,796 | 48,100 | 2010 (4) | ||||||||||||||||||||
| Woodburn Premium Outlets | Woodburn (Portland), OR | — | 9,414 | 150,414 | — | 536 | 9,414 | 150,950 | 160,364 | 17,456 | 2013 (4) | ||||||||||||||||||||
| Woodbury Common Premium Outlets | Central Valley (New York), NY | — | 11,110 | 862,559 | 1,658 | 176,467 | 12,768 | 1,039,026 | 1,051,794 | 301,038 | 2004 (4) | ||||||||||||||||||||
| Wrentham Village Premium Outlets | Wrentham (Boston), MA | — | 4,900 | 282,031 | — | 9,637 | 4,900 | 291,668 | 296,568 | 105,572 | 2004 (4) |
**Simon Property Group, Inc. and Subsidiaries **Real Estate and Accumulated Depreciation December 31, 2015 (Dollars in thousands)
| Cost Capitalized Subsequent to Acquisition (3) | Gross Amounts At Which Carried At Close of Period | ||||||||||||||||||||||||||||||
| Initial Cost (3) | |||||||||||||||||||||||||||||||
| Date of Construction or Acquisition | |||||||||||||||||||||||||||||||
| Name | Location | Encumbrances (6) | Land | Buildings and Improvements | Land | Buildings and Improvements | Land | Buildings and Improvements | Total (1) | Accumulated Depreciation (2) | |||||||||||||||||||||
| The Mills | |||||||||||||||||||||||||||||||
| Arizona Mills | Tempe (Phoenix), AZ | 161,834 | 41,936 | 297,289 | — | 9,686 | 41,936 | 306,975 | 348,911 | 21,076 | 2007 (4) (5) | ||||||||||||||||||||
| Great Mall | Milpitas (San Jose), CA | — | 70,496 | 463,101 | — | 15,318 | 70,496 | 478,419 | 548,915 | 64,259 | 2007 (4) (5) | ||||||||||||||||||||
| Gurnee Mills | Gurnee (Chicago), IL | 321,000 | 41,133 | 297,911 | — | 9,722 | 41,133 | 307,633 | 348,766 | 42,976 | 2007 (4) (5) | ||||||||||||||||||||
| Mills at Jersey Gardens, The | Elizabeth, NJ | 350,000 | 120,417 | 865,605 | — | 3,088 | 120,417 | 868,693 | 989,110 | 33,444 | 2015 (4) | ||||||||||||||||||||
| Opry Mills | Nashville, TN | 350,800 | 51,000 | 327,503 | — | 10,063 | 51,000 | 337,566 | 388,566 | 46,444 | 2007 (4) (5) | ||||||||||||||||||||
| Potomac Mills | Woodbridge (Washington, DC), VA | 410,000 | 61,755 | 425,370 | — | 34,324 | 61,755 | 459,694 | 521,449 | 64,120 | 2007 (4) (5) | ||||||||||||||||||||
| Sawgrass Mills | Sunrise (Miami), FL | — | 194,002 | 1,641,153 | 5,395 | 94,365 | 199,397 | 1,735,518 | 1,934,915 | 218,917 | 2007 (4) (5) | ||||||||||||||||||||
| Community Centers | |||||||||||||||||||||||||||||||
| ABQ Uptown | Albuquerque, NM | — | 6,374 | 75,333 | 4,054 | 4,522 | 10,428 | 79,855 | 90,283 | 14,299 | 2011 (4) | ||||||||||||||||||||
| University Park Village | Fort Worth, TX | 55,000 | 18,031 | 100,354 | — | 2,362 | 18,031 | 102,716 | 120,747 | 3,542 | 2015 (4) | ||||||||||||||||||||
| Other Properties | |||||||||||||||||||||||||||||||
| Florida Keys Outlet Center | Florida City, FL | 17,000 | 1,560 | 1,748 | — | 3,017 | 1,560 | 4,765 | 6,325 | 1,738 | 2010 (4) | ||||||||||||||||||||
| Huntley Outlet Center | Huntley, IL | — | 3,477 | 2,027 | — | 345 | 3,477 | 2,372 | 5,849 | 1,462 | 2010 (4) | ||||||||||||||||||||
| Lincoln Plaza | King of Prussia (Philadelphia), PA | — | — | 21,299 | — | 2,925 | — | 24,224 | 24,224 | 14,042 | 2003 (4) | ||||||||||||||||||||
| Naples Outlet Center | Naples, FL | — | 1,514 | 519 | — | 107 | 1,514 | 626 | 2,140 | 458 | 2010 (4) | ||||||||||||||||||||
| Outlet Marketplace | Orlando, FL | — | 3,367 | 1,557 | — | 1,891 | 3,367 | 3,448 | 6,815 | 1,209 | 2010 (4) | ||||||||||||||||||||
| Development Projects | |||||||||||||||||||||||||||||||
| Other pre-development costs | — | 68,319 | 15,607 | — | — | 68,319 | 15,607 | 83,926 | 78 | ||||||||||||||||||||||
| Other | — | 2,615 | 10,873 | — | — | 2,615 | 10,873 | 13,488 | 5,423 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 6,570,833 | $ | 3,081,047 | $ | 23,341,842 | $ | 336,669 | $ | 6,373,327 | $ | 3,417,716 | $ | 29,715,169 | $ | 33,132,885 | $ | 9,696,420 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Simon Property Group, Inc. and Subsidiaries
Notes to Schedule III as of December 31, 2015
(Dollars in thousands)
All periods presented exclude properties which were spun-off to Washington Prime as further discussed in Note 3 to the consolidated financial statements.
(1)
Reconciliation of Real Estate Properties:
The changes in real estate assets for the years ended December 31, 2015, 2014, and 2013 are as follows:
| 2015 | 2014 | 2013 | ||||||||
| Balance, beginning of year | $ | 31,014,133 | $ | 30,048,230 | $ | 29,263,463 | ||||
| Acquisitions and consolidations (5) | 1,190,944 | 393,351 | 288,835 | |||||||
| Improvements | 995,964 | 791,453 | 874,240 | |||||||
| Disposals and deconsolidations | (68,156 | ) | (218,901 | ) | (378,308 | ) | ||||
| | | | | | | | | | | |
| Balance, close of year | $ | 33,132,885 | $ | 31,014,133 | $ | 30,048,230 | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The unaudited aggregate cost of real estate assets for federal income tax purposes as of December 31, 2015 was $29,771,725.
(2)
Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation for the years ended December 31, 2015, 2014, and 2013 are as follows:
| 2015 | 2014 | 2013 | ||||||||
| Balance, beginning of year | $ | 8,740,928 | $ | 7,896,614 | $ | 7,055,622 | ||||
| Depreciation expense | 1,018,078 | 997,482 | 948,811 | |||||||
| Disposals and deconsolidations | (62,586 | ) | (153,168 | ) | (107,819 | ) | ||||
| | | | | | | | | | | |
| Balance, close of year | $ | 9,696,420 | $ | 8,740,928 | $ | 7,896,614 | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation of our investment in buildings and improvements reflected in the consolidated statements of operations and comprehensive income is calculated over the estimated original lives of the assets as noted below.
Buildings and Improvements — typically 10-35 years for the structure, 15 years for landscaping and parking lot, and 10 years for HVAC equipment.
Tenant Allowances and Improvements — shorter of lease term or useful life.
(3)
Initial cost generally represents net book value at December 20, 1993, except for acquired properties and new developments after December 20, 1993. Initial cost also includes any new developments that are opened during the current year. Costs of disposals and impairments of property are first reflected as a reduction to cost capitalized subsequent to acquisition.
(4)
Not developed/constructed by us or our predecessors. The date of construction represents the initial acquisition date for assets in which we have acquired multiple interests.
(5)
Initial cost for these properties is the cost at the date of consolidation for properties previously accounted for under the equity method of accounting.
(6)
Encumbrances represent face amount of mortgage debt and exclude any premiums or discounts.
**EXHIBIT INDEX **
| **Exhibits ** | |||
| 2.1 | Separation and Distribution Agreement by and among the Registrant, Simon Property Group, L.P., Washington Prime Group Inc. and Washington Prime Group, L.P., dated as of May 27, 2014 (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed May 29, 2014). | ||
| 3.1 | Restated Certificate of Incorporation of the Registrant (incorporated by reference to Appendix A of the Registrant's Proxy Statement on Schedule 14A filed March 27, 2009, SEC File No. 001-14469). | ||
| 3.2 | Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed March 25, 2009, SEC File No. 001-14469). | ||
| 3.3 | Certificate of Powers, Designations, Preferences and Rights of the 83/8% Series J Cumulative Redeemable Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed October 20, 2004, SEC File No. 001-14469). | ||
| 3.4 | Certificate of Designation of Series A Junior Participating Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed May 15, 2014). | ||
| 9.1 | Second Amended and Restated Voting Trust Agreement, Voting Agreement and Proxy dated as of March 1, 2004 between Melvin Simon & Associates, Inc., 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 Registrant's Quarterly Report on Form 10-Q filed May 10, 2004, SEC File No. 001-14469). | ||
| 9.2 | Voting Trust Agreement, Voting Agreement and Proxy dated as of March 1, 2004 between David Simon, Melvin Simon and Herbert Simon (incorporated by reference to Exhibit 9.2 of the Registrant's Quarterly Report on Form 10-Q filed May 10, 2004, SEC File No. 001-14469). | ||
| 10.1 | Eighth Amended and Restated Limited Partnership Agreement of Simon Property Group, L.P. dated as of May 8, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 9, 2008, SEC File No. 001-14469). | ||
| 10.2 | Form of the Indemnity Agreement between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.7 of the Registrant's Form S-4 filed August 13, 1998 (Reg. No. 333-61399)). | ||
| 10.3 | Registration Rights Agreement, dated as of September 24, 1998, by and among the Registrant and the persons named therein (incorporated by reference to Exhibit 4.4 of the Registrant's Current Report on Form 8-K filed October 9, 1998, SEC File No. 001-14469). | ||
| 10.4 | Registration Rights Agreement, dated as of August 27, 1999 by and among the Registrant and the persons named therein (incorporated by reference to Exhibit 4.4 of the Registration Statement on Form S-3 filed March 24, 2004 (Reg. No. 333-113884)). | ||
| 10.5 | Registration Rights Agreement, dated as of November 14, 1997, by and between O'Connor Retail Partners, L.P. and Simon DeBartolo Group, Inc. (incorporated by reference to Exhibit 4.8 of the Registration Statement on Form S-3 filed December 7, 2001 (Reg. No. 333-74722)). | ||
| 10.6 | Amended and Restated $4,000,000,000 Credit Agreement dated as of April 7, 2014 (incorporated by reference to Exhibit 99.2 of Simon Property Group, L.P.'s Current Report on Form 8-K filed April 8, 2014). | ||
| 10.7 | Form of Global Dealer Agreement, dated October 6, 2014 (incorporated by reference to Exhibit 10.2 of Simon Property Group, L.P.'s Current Report on Form 8-K filed October 7, 2014). | ||
| 10.8 | * | Simon Property Group, L.P. Amended and Restated 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed April 10, 2014). | |
| 10.9 | * | Form of Nonqualified Stock Option Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K filed March 16, 2005, SEC File No. 001-14469). |
| **Exhibits ** | |||
| 10.10 | * | Form of Performance-Based Restricted Stock Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K filed February 28, 2007, SEC File No. 001-14469). | |
| 10.11 | * | Form of Non-Employee Director Restricted Stock Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 of the Registrant's Annual Report on Form 10-K filed March 16, 2005, SEC File No. 001-14469). | |
| 10.12 | * | Employment Agreement among Richard S. Sokolov, the Registrant, and Simon Property Group Administrative Services Partnership, L.P. dated January 1, 2007 (incorporated by reference to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K filed February 26, 2008, SEC File No. 001-14469). | |
| 10.13 | * | Employment Agreement between the Registrant and David Simon effective as of July 6, 2011 (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed July 7, 2011). | |
| 10.14 | * | First Amendment to Employment Agreement between the Registrant and David Simon, dated as of March 29, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed April 4, 2013). | |
| 10.15 | * | Non-Qualified Deferred Compensation Plan dated as of December 31, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q filed November 5, 2009, SEC File No. 001-14469). | |
| 10.16 | * | Amendment — 2008 Performance Based-Restricted Stock Agreement dated as of March 6, 2009 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q filed November 5, 2009, SEC File No. 001-14469). | |
| 10.17 | * | Form of Series 2010 LTIP Unit (Three Year Program) Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed March 19, 2010). | |
| 10.18 | * | Form of Series 2010 LTIP Unit (Two Year Program) Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed March 19, 2010). | |
| 10.19 | * | Form of Series 2010 LTIP Unit (One Year Program) Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed March 19, 2010). | |
| 10.20 | * | Simon Property Group Series CEO LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K filed July 7, 2011). | |
| 10.21 | * | First Amendment to Simon Property Group Series CEO LTIP Unit Award Agreement dated as of December 22, 2011 (incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-K filed February 28, 2012). | |
| 10.22 | * | Second Amendment to Simon Property Group Series CEO LTIP Unit Award Agreement, dated as of March 29, 2013 (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed April 4, 2013). | |
| 10.23 | * | Simon Property Group Amended and Restated Series CEO LTIP Unit Award Agreement, dated as of December 31, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed January 2, 2014). | |
| 10.24 | * | Form of Simon Property Group Series 2011 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.6 of the Registrant's Current Report on Form 8-K filed July 7, 2011). | |
| 10.25 | * | Form of Simon Property Group Series 2012 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q filed May 8, 2012). |
| **Exhibits ** | |||
| 10.26 | * | Simon Property Group Amended and Restated Series 2012 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed April 28, 2014). | |
| 10.27 | * | Form of Simon Property Group Series 2013 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed April 4, 2013). | |
| 10.28 | * | Form of Simon Property Group Executive Officer LTIP Waiver, dated April 18, 2014 (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed April 28, 2014). | |
| 10.29 | * | Simon Property Group CEO LTIP Unit Adjustment Waiver, dated April 18, 2014 (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed April 28, 2014). | |
| 10.30 | * | Form of Simon Property Group Series 2014 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q filed May 7, 2014). | |
| 10.31 | Amended and Restated $2,750,000,000 Credit Agreement dated as of March 2, 2015 (incorporated by reference to Exhibit 10.1 of Simon Property Group, L.P.'s Current Report on Form 8-K filed March 3, 2015). | ||
| 10.32 | Notice of Increase of Maximum Amount Under Global Dealer Agreement dated as of February 27, 2015 (incorporated by reference to Exhibit 10.2 of Simon Property Group, L.P.'s Current Report on Form 8-K filed March 3, 2015). | ||
| 10.33 | * | Form of Simon Property Group Series 2015 LTIP Unit Award Agreement (incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2015 filed on January 13, 2016). | |
| 12.1 | Statement regarding computation of ratios. | ||
| 21.1 | List of Subsidiaries of the Registrant. | ||
| 23.1 | Consent of Ernst & Young LLP. | ||
| 31.1 | Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 101.INS | XBRL Instance Document | ||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.