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. 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 U.S. federal corporate income taxes as long as they distribute not less than 100% of their REIT taxable income. Simon Property Group, L.P. is our majority-owned Delaware partnership subsidiary that owns all of our real estate properties and other assets. In this discussion, unless stated otherwise or the context otherwise requires, references to "Simon" mean Simon Property Group, Inc. and references to the "Operating Partnership" mean Simon Property Group, L.P. References to "we," "us" and "our" mean collectively Simon, the Operating Partnership and those entities/subsidiaries owned or controlled by Simon and/or the Operating Partnership. According to the Operating Partnership's partnership agreement, the Operating Partnership is required to pay all expenses of Simon.

We own, develop and manage premier shopping, dining, entertainment and mixed-use destinations, which consist primarily of Simon® malls, Premium Outlets®, and The Mills®. As of December 31, 2017, we owned or held an interest in 207 income‑producing properties in the United States, which consisted of 107 malls, 68 Premium Outlets, 14 Mills, four lifestyle centers, and 14 other retail properties in 37 states and Puerto Rico. In addition, we have redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants, underway at 25 properties in the United States, Canada and Asia. We have one outlet under development in the United States. Internationally, as of December 31, 2017, we had ownership interests in nine Premium Outlets in Japan, four Premium Outlets in South Korea, two Premium Outlets in Canada, two Premium Outlets in Malaysia and one Premium Outlet in Mexico. We also own an interest in eight Designer Outlet properties in Europe, of which six properties are consolidated, and one Designer Outlet property in Canada. Of the eight properties in Europe, two are located in Italy, two are located in the Netherlands and one each is located in Austria, France, Germany and the United Kingdom. We also have three international outlet properties under development. As of December 31, 2017, we also owned a 21.0% 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, dining, entertainment and other tenants, including:

	·		base minimum rents,

	·		overage and percentage rents based on tenants’ sales volumes, 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 revenues 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, portfolio 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 share and diluted earnings per unit increased $0.37 during 2017 to $6.24 as compared to $5.87 in 2016. The increase in diluted earnings per share and diluted earnings per unit was primarily attributable to:

	·		improved operating performance and solid core business fundamentals in 2017 and the impact of our acquisition and expansion activity,

	·		2017 gains of $21.5 million, or $0.06 per diluted share/unit, from the sales of marketable securities,

	·		increased consolidated lease settlement activity in 2017 of $23.0 million, or $0.06 per diluted share/unit,

	·		decreased interest expense in 2017 of $48.2 million, or $0.13 per diluted share/unit,

	·		a decrease in charges on early extinguishment of debt of $8.2 million, or $0.02 per diluted share/unit, and

	·		a 2016 charge on the write-off of pre-development costs of $31.5 million, or $0.08 per diluted share/unit, partially offset by

	·		a 2016 gain on acquisitions and disposals of $84.6 million, or $0.23 per diluted share/unit, related to a non-cash gain on the consolidation of additional properties of $41.4 million, or $0.11 per diluted share/unit, a gain on the disposition of our interest in seven properties of $35.1 million, or $0.10 per diluted share/unit, and a gain related to Klépierre’s sale of certain assets of which our share of the gain was $8.1 million, or $0.02 per diluted share/unit, and

	·		a 2016 gain related to the disposition of our interest in two multi-family residential investments of $29.0 million, net of taxes, or $0.08 per diluted share/unit.

Solid core business fundamentals during 2017 were primarily driven by strong leasing activity. Portfolio NOI grew by 4.5% in 2017 as compared to 2016. Comparable property NOI grew 3.2% for our portfolio of U.S. Malls, Premium Outlets, and The Mills. Total sales per square foot, or psf, increased to $628 psf at December 31, 2017 from $614 psf at

December 31, 2016 for our U.S. Malls and Premium Outlets. Average base minimum rent for U.S. Malls and Premium Outlets increased 2.9% to $53.11 psf as of December 31, 2017, from $51.59 psf as of December 31, 2016. Leasing spreads in our U.S. Malls and Premium Outlets were positive as we were able to lease available square feet at higher rents, resulting in an open/close leasing spread (based on total tenant payments — base minimum rent plus common area maintenance) of $7.42 psf ($72.68 openings compared to $65.26 closings) as of December 31, 2017, representing an 11.4% increase. Ending occupancy for our U.S. Malls and Premium Outlets decreased 1.2% to 95.6% as of December 31, 2017, from 96.8% as of December 31, 2016.

Our effective overall borrowing rate at December 31, 2017 on our consolidated indebtedness decreased 14 basis points to 3.25% as compared to 3.39% at December 31, 2016. This reduction was primarily due to a decrease in the effective overall borrowing rate on fixed rate debt of 16 basis points (3.30% at December 31, 2017 as compared to 3.46% at December 31, 2016) partially offset by an increase in the effective overall borrowing rate on variable rate debt of 45 basis points (2.19% at December 31, 2017 as compared to 1.74% at December 31, 2016). At December 31, 2017, the weighted average years to maturity of our consolidated indebtedness was 7.0 years as compared to 7.4 years at December 31, 2016.

Our financing activity for the year ended December 31, 2017 and material subsequent events included:

	·		Increasing our borrowings under the Operating Partnership’s global unsecured commercial paper note program, or the Commercial Paper program, by $104.1 million through the issuance of U.S. dollar denominated notes.

	·		Repaying our Euro denominated borrowings of $79.3 million (U.S. dollar equivalent) under the Commercial Paper program.

	·		Completing the issuance, on June 1, 2017, of $600.0 million of senior unsecured notes at a fixed annual interest rate of 2.63% with a maturity date of June 15, 2022 and $750.0 million of senior unsecured notes at a fixed annual interest rate of 3.38% with a maturity date of June 15, 2027.

	·		Completing the issuance, on December 11, 2017, of $600.0 million of senior unsecured notes at a fixed annual interest rate of 2.75% with a maturity date of June 1, 2023 and $750.0 million of senior unsecured notes at a fixed annual interest rate of 3.38% with a maturity date of December 1, 2027.

	·		Redeeming at par $600 million of senior unsecured notes with a fixed interest rate of 2.15%.

	·		Completing the early redemption of a series of senior unsecured notes comprising $1.25 billion with a fixed interest rate of 5.65%. We recorded a $128.6 million loss on extinguishment of debt in the second quarter of 2017 as a result of the early redemption.

	·		Redeeming at par $750.0 million of senior unsecured notes with a fixed interest rate of 1.50% on January 3, 2018.

United States Portfolio Data

The portfolio data discussed in this overview includes the following key operating statistics: ending occupancy, average base minimum rent per square foot, and total sales per square foot for our domestic assets. We include acquired properties in this data beginning in the year of acquisition and remove disposed properties in the year of disposition. For comparative information purposes, we separate the information related to The Mills from our other U.S. operations. We also do not include any information for properties located outside the United States.

The following table sets forth these key operating statistics for:

	·		properties that are consolidated in our consolidated financial statements,

	·		properties we account for under the equity method of accounting as joint ventures, and

	·		the foregoing two categories of properties on a total portfolio basis.

					%/Basis Points					%/Basis Points
		2017			Change (1)		2016			Change (1)		2015
U.S. Malls and Premium Outlets:
Ending Occupancy
Consolidated			95.8	%	-130	bps		97.1	%	+70	bps		96.4	%
Unconsolidated			95.1	%	-70	bps		95.8	%	+50	bps		95.3	%
Total Portfolio			95.6	%	-120	bps		96.8	%	+70	bps		96.1	%
Average Base Minimum Rent per Square Foot
Consolidated		$	51.34		2.8	%	$	49.94		5.4	%	$	47.39
Unconsolidated		$	57.58		3.0	%	$	56.19		4.8	%	$	53.64
Total Portfolio		$	53.11		2.9	%	$	51.59		5.4	%	$	48.96
Total Sales per Square Foot
Consolidated		$	613		2.2	%	$	600		(1.2)	%	$	607
Unconsolidated		$	671		1.7	%	$	660		(0.8)	%	$	665
Total Portfolio		$	628		2.3	%	$	614		(1.0)	%	$	620
The Mills:
Ending Occupancy			98.4	%	0	bps		98.4	%	-10	bps		98.5	%
Average Base Minimum Rent per Square Foot		$	30.98		6.6	%	$	29.07		7.1	%	$	27.14
Total Sales per Square Foot		$	587		3.8	%	$	565		(0.5)	%	$	568

	(1)		Percentages may not recalculate due to rounding. Percentage and basis point changes are representative of the change from the comparable prior period.

Ending Occupancy Levels and Average Base Minimum Rent per Square Foot. Ending occupancy is the percentage of gross leasable area, or GLA, which is leased as of the last day of the reporting period. We include all company owned space except for mall anchors, mall majors, mall freestanding and mall outlots in the calculation. Base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy.

Total Sales per Square Foot. Total sales include total reported retail tenant sales on a trailing 12‑month basis at owned GLA (for mall stores with less than 10,000 square feet) in the malls and The Mills and stores with less than 20,000 square feet in the Premium Outlets. Retail sales at owned GLA affect revenue and profitability levels because sales determine the amount of minimum rent that can be charged, the percentage rent realized, and the recoverable expenses (common area maintenance, real estate taxes, etc.) that tenants can afford to pay.

Current Leasing Activities

During 2017, we signed 849 new leases and 1,302 renewal leases (excluding mall anchors and majors, new development, redevelopment and leases with terms of one year or less) with a fixed minimum rent across our U.S. Malls and Premium Outlets portfolio, comprising approximately 6.7 million square feet, of which 5.0 million square feet related to consolidated properties. During 2016, we signed 960 new leases and 1,270 renewal leases with a fixed minimum rent, comprising approximately 7.3 million square feet, of which 5.4 million square feet related to consolidated properties. The average annual initial base minimum rent for new leases was $59.45 per square foot in 2016 and $58.60 per square foot in 2017 with an average tenant allowance on new leases of $39.29 per square foot and $50.53 per square foot, respectively.

Japan Data

The following are selected key operating statistics for our Premium Outlets in Japan. The information used to prepare these statistics has been supplied by the managing venture partner.

			December 31,			%/basis point		December 31,			%/basis point		December 31,
			2017			Change		2016			Change		2015
Ending Occupancy				99.9%		40 bps			99.5%		-30 bps			99.8%
Total Sales per Square Foot			¥	105,138		5.17%		¥	99,971		-1.60%		¥	101,574
Average Base Minimum Rent per Square Foot			¥	5,062		0.48%		¥	5,038		1.43%		¥	4,967

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. From time to time, we reevaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. For a summary of our significant accounting policies, see Note 3 of the notes to the consolidated financial statements.

	·		We, as a lessor, retain substantially all of the risks and benefits of ownership of the investment properties and account for our leases as operating leases. We accrue minimum rents on a straight‑line basis over the terms of their respective leases. Substantially all of our retail tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. We recognize overage rents only when each tenant’s sales exceed its sales threshold.

	·		We review investment properties for impairment on a property‑by‑property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not limited to, a decline in a property’s cash flows, occupancy or comparable sales per square foot. We measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization plus its residual value is less than the carrying value of the property. To the extent impairment has occurred, we charge to income the excess of carrying value of the property over its estimated fair value. We may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. We also review our investments, including investments in unconsolidated entities, if events or circumstances change indicating that the carrying amount of our investments may not be recoverable. We will record an impairment charge if we determine that a decline in the fair value of the investments below carrying value is other‑than‑temporary. Changes in economic and operating conditions that occur subsequent to our review of recoverability of investment property and other investments could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

	·		To maintain Simon’s status as a REIT, we must distribute at least 90% of REIT taxable income in any given year and meet certain asset and income tests. We monitor our business and transactions that may potentially impact Simon’s REIT status. In the unlikely event that we fail to maintain Simon’s REIT status, and available relief provisions do not apply, we would be required to pay U.S. federal income taxes at regular corporate income tax rates during the period Simon did not qualify as a REIT. If Simon lost its REIT status, it could not elect to be taxed as a REIT for four taxable years following the year during which qualification was lost unless its failure was due to reasonable cause and certain other conditions were met. As a result, failing to maintain REIT status would result in a significant increase in the income tax expense recorded and paid during those periods.

	·		We make estimates as part of our valuation of the purchase price of acquisitions (including the components of excess investment in joint ventures) to the various components of the acquisition based upon the relative fair value of each component. The most significant components of our valuations are typically the determination of relative fair value to the buildings as‑if‑vacant, land and market value of in‑place leases. In the case of the fair value of buildings and fair value of land and other intangibles, our estimates of the values of these components will affect the amount of depreciation or amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the market value of in‑place leases, we make our best estimates of the tenants’ ability to pay rents based upon the tenants’ operating performance at the property, including the competitive position of the property in its market as well as sales psf, rents psf, and overall occupancy cost for the tenants in place at the acquisition date. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in‑place leases.

	·		A variety of costs are incurred in the development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves judgment. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre‑construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy and cease capitalization of costs upon opening.

Results of Operations

In addition to the activity discussed above in the “Results Overview” section, the following acquisitions, dispositions, and openings of consolidated properties affected our consolidated results in the comparative periods:

	·		On April 21, 2017, through our European investee, we acquired Rosada Designer Outlet, a 247,500 square foot center in Roosendaal, Netherlands. We have a 94% interest in this center.

	·		On April 13, 2017, through our European investee, we opened Provence Designer Outlet, a 269,000 square foot center in Miramas, France. We have a 90% interest in this new center.

	·		During 2016, we disposed of three retail properties.

	·		During the first quarter of 2016, we consolidated two Designer Outlet properties in Europe that had previously been accounted for under the equity method. During the third quarter of 2016, we consolidated two more Designer Outlet properties in Europe, which were previously accounted for under the equity method.

	·		On October 29, 2015, we opened Tampa Premium Outlets, a 441,000 square foot outlet center in Lutz (Tampa), Florida.

	·		On October 1, 2015, we opened Tucson Premium Outlets, a 366,000 square foot outlet center in Marana (Tucson), Arizona.

	·		On January 15, 2015, we acquired a 100% interest in Jersey Gardens (renamed The Mills at Jersey Gardens) in Elizabeth, New Jersey and University Park Village in Fort Worth, Texas.

In addition to the activities discussed above and in “Results Overview”, the following acquisitions, dispositions, and openings of joint venture properties affected our income from unconsolidated entities in the comparative periods:

	·		During 2017, we disposed of our interest in one retail property.

	·		On September 14, 2017, we and our partner opened The Shops at Clearfork, a 500,000 square foot center in Fort Worth, Texas. We have a 45% noncontrolling interest in this new center.

	·		On June 29, 2017, we and our partner opened Norfolk Premium Outlets, a 332,000 square foot center in Norfolk, Virginia. We have a 65% noncontrolling interest in this new center.

	·		On June 15, 2017, we and our partner opened Genting Highlands Premium Outlets in Kuala Lumpur, Malaysia. We have a 50% noncontrolling interest in this 278,000 square foot center.

	·		On April 6, 2017, we and our partner opened Siheung Premium Outlets, a 444,400 square foot center in Siheung (Seoul), South Korea. We have a 50% noncontrolling interest in this new center.

	·		During 2016, we disposed of our interests in four retail properties.

	·		On November 3, 2016, we and our partner opened a 500,000 square foot retail component of Brickell City Centre in Miami, Florida. We have a 25.0% noncontrolling interest in the retail component of this center.

	·		On October 27, 2016, we and our partner opened Clarksburg Premium Outlets, a 392,000 square foot outlet center in Clarksburg, Maryland. We have a 66.0% noncontrolling interest in this new center.

	·		On September 15, 2016, we were part of a consortium that completed the acquisition of Aéropostale, out of bankruptcy. Our noncontrolling interest in the retail operations venture and in the licensing venture is 49.05% and 28.45%, respectively.

	·		On June 24, 2016, we and our partner opened a 355,000 square foot outlet center in Columbus, Ohio. We have a 50% noncontrolling interest in this new center.

	·		On April 14, 2016, we acquired a 50.0% noncontrolling interest in The Shops at Crystals, a 262,000 square foot mall in Las Vegas, Nevada.

	·		On February 1, 2016, through our European investee, we and our partner acquired a 75.0% noncontrolling interest in an outlet center in Ochtrup, Germany.

	·		During 2015, we disposed of our interests in three retail properties.

	·		During the third quarter of 2015, we closed on our joint venture with Hudson’s Bay Company, or HBC, whereby we currently have an 11.7% noncontrolling interest in a newly formed entity, HBS Global Properties, or HBS. HBC contributed 42 of its properties in the U.S. to HBS. Later in the third quarter of 2015, the joint venture acquired an additional 41 properties in Germany concurrently with HBC’s acquisition of Galeria Holding, the parent company of Germany’s leading department store, Kaufhof, as further discussed in Note 7 of the notes to the consolidated financial statements. All of the joint venture’s properties have been leased to affiliates of HBC.

	·		On August 13, 2015, we and our partner opened Gloucester Premium Outlets, a 370,000 square foot outlet center. We have a 50% noncontrolling interest in this new center.

	·		On July 9, 2015, through our European investee, we and our partner opened Vancouver Designer Outlet, a 242,000 square foot outlet center. We have a 45% noncontrolling interest in this new center.

For the purposes of the following comparisons between the years ended December 31, 2017 and 2016 and the years ended December 31, 2016 and 2015, the above transactions are referred to as the property transactions. In the following discussions of our results of operations, “comparable” refers to properties we owned and operated in both years in the year‑to‑year comparisons.

During the third quarter of 2017, two of our wholly-owned properties located in Puerto Rico sustained significant damage as a result of Hurricane Maria. For purposes of the below comparisons, these properties are also included in the property transactions due to the fact they were not open for business during the entirety of the periods being compared.

Year Ended December 31, 2017 vs. Year Ended December 31, 2016

Minimum rents increased $81.5 million during 2017, of which the property transactions accounted for $30.2 million of the increase. Comparable rents increased $51.3 million, or 1.6%, primarily attributable to an increase in base minimum rents as well as incremental revenue from our redevelopment and expansion activity. Overage rent decreased $14.0 million primarily as a result of an increase in the overage breakpoints as compared to 2016.

Tenant reimbursements increased $38.1 million, due to a $10.0 million increase attributable to the property transactions and a $28.1 million, or 2.0%, increase in the comparable properties due to annual fixed contractual increases related to common area maintenance and real estate tax recoveries.

Management fees and other revenues decreased $22.6 million related to final fees from Washington Prime in 2016 and lower development fees as compared to 2016.

Total other income increased $20.4 million, primarily due to a $23.0 million increase in lease settlement income, gains on the sales of marketable securities of $21.5 million, an $8.4 million increase in Simon Brand Venture and gift card revenues, a $3.0 million increase in dividend and net other revenue, and a $2.7 million increase in land and other non-retail

real estate sales, partially offset by a $38.2 million pre-tax gain during 2016 on the sale of our interests in two multi-family residential investments.

Depreciation and amortization expense increased $22.8 million primarily due to the additional depreciable assets related to the property transactions and our continued redevelopment and expansion activities.

Provision for credit losses increased $4.0 million as a result of an increase in tenant bankruptcies as compared to 2016.

Home and regional office costs decreased $23.3 million as a result of expense management and lower personnel expenses, including executive compensation.

General and administrative expenses decreased $13.1 million due to expense management and lower personnel expenses, including executive compensation.

Other expenses increased $14.5 million primarily due to an increase in legal fees and expenses.

Interest expense decreased $48.2 million primarily due to the net impact of our financing activities during 2017 and 2016 and the reduction in our effective overall borrowing rate as previously discussed.

During 2017, we recorded a loss on extinguishment of debt of $128.6 million as a result of an early redemption of a series of senior unsecured notes. During 2016, we recorded a loss on extinguishment of debt of $136.8 million as a result of an early redemption of senior unsecured notes.

Income and other taxes decreased $6.3 million primarily as a result of a taxable gain on the sale of a multi-family residential investment during 2016.

Income from unconsolidated entities increased $46.9 million primarily as a result of favorable results of operations from our international joint venture investments, our investment in Aéropostale and our acquisition and development activity.

During 2017, we recorded a $5.0 million gain related to Klépierre’s sale of certain assets, partially offset by the disposition of our interest in one unconsolidated retail property that resulted in a loss of $1.3 million. During 2016, we recorded a gain related to Klépierre’s sale of certain assets, our sale of three consolidated retail properties and disposition of our interests in four unconsolidated retail properties. The aggregate gain on the transactions was $43.2 million. We also recorded a non-cash remeasurement gain of $41.4 million related to the change in control of our interest in the European outlet properties as further discussed in Note 7 of the notes to the consolidated financial statements.

Year Ended December 31, 2016 vs. Year Ended December 31, 2015

Minimum rents increased $216.2 million during 2016, of which the property transactions accounted for $73.5 million of the increase. Comparable rents increased $142.7 million, or 4.6%, primarily attributable to an increase in base minimum rents as well as incremental revenue from our redevelopment and expansion activity. Overage rent decreased $32.6 million as a result of decreased tenant sales and an increase in the overage breakpoints as compared to 2015.

Tenant reimbursements increased $49.2 million, due to a $22.2 million increase attributable to the property transactions and a $27.0 million, or 1.9%, increase in the comparable properties due to annual fixed contractual increases related to common area maintenance and real estate tax recoveries.

Total other income decreased $49.1 million, primarily due to an $80.2 million gain on the sale of marketable securities recorded during 2015 and a $25.0 million decrease in lease settlement income, partially offset by a $36.2 million pre-tax gain on the sale of our investments in two multi-family residential investments during 2016, a $7.6 million increase in land sale activity and an increase in Simon Brand Ventures and gift card revenue of $13.1 million.

Depreciation and amortization expense increased $75.1 million primarily due to the additional depreciable assets related to the property transactions and our continued redevelopment and expansion activities.

Other expenses increased $14.1 million primarily due to the write off of pre-development costs of $31.5 million related to the Copley residential tower project that we are no longer pursuing, partially offset by a decrease in legal fees and expenses and a more favorable net foreign currency revaluation impact on foreign currency‑denominated assets and liabilities during 2015.

Interest expense decreased $66.1 million primarily due to the net impact of our financing activities during 2016 and 2015 and the reduction in our effective overall borrowing rate.

During 2016, we recorded a loss on extinguishment of debt of $136.8 million as a result of an early redemption of senior unsecured notes. During 2015, we recorded a loss on extinguishment of debt of $121.0 million as a result of an early redemption of senior unsecured notes.

Income and other taxes increased $9.5 million as a result of taxes due on the sale of one of the multi-family residential investments and taxes related to certain of our international investments.

Income from unconsolidated entities increased $68.5 million primarily due to favorable results of operations and financing activity of joint venture properties as well as our acquisition and development activity.

During 2016, we recorded a gain related to Klépierre’s sale of certain assets, our sale of three consolidated retail properties and disposition of our interests in four unconsolidated retail properties. The aggregate gain on the transactions was $43.2 million. We also recorded a non-cash remeasurement gain of $41.4 million related to the change in control of our interest in the European outlet properties as further discussed in Note 7 of the notes to the consolidated financial statements. During 2015, we disposed of our interests in three unconsolidated retail properties, resulting in a gain of $43.6 million and we recorded a non‑cash gain on Klépierre’s acquisition of Corio of $206.9 million as discussed in Note 7 of the notes to the consolidated financial statements.

Simon’s net income attributable to noncontrolling interests decreased $15.8 million primarily due to a decrease in the net income of the Operating Partnership.

Liquidity and Capital Resources

Because we own long‑lived income‑producing assets, our financing strategy relies primarily on long‑term fixed rate debt. Floating rate debt comprised only 4.6% of our total consolidated debt at December 31, 2017. We also enter into interest rate protection agreements to manage our interest rate risk. We derive most of our liquidity from positive net cash flow from operations and distributions of capital from unconsolidated entities that totaled $4.0 billion in the aggregate during 2017. The Operating Partnership has a $4.0 billion unsecured revolving credit facility, or Credit Facility. The Operating Partnership also has a $3.5 billion supplemental unsecured revolving credit facility, or Supplemental Facility, and together with the Credit Facility, the Credit Facilities. The Credit Facilities and the Commercial Paper program provide alternative sources of liquidity as our cash needs vary from time to time. Borrowing capacity under these sources may be increased as discussed further below.

Our balance of cash and cash equivalents increased $922.3 million during 2017 to $1.5 billion as of December 31, 2017 as further discussed in “Cash Flows” below.

On December 31, 2017, we had an aggregate available borrowing capacity of approximately $6.2 billion under the Credit Facilities, net of outstanding borrowings of $322.6 million, amounts outstanding under the Commercial Paper program of $978.5 million and letters of credit of $20.9 million. For the year ended December 31, 2017, the maximum aggregate outstanding balance under the Credit Facilities was $960.9 million and the weighted average outstanding balance was $455.5 million. The weighted average interest rate was 1.31% for the year ended December 31, 2017.

Simon has historically had access to public equity markets and the Operating Partnership has historically had access to private and public long-term and short-term unsecured debt markets and access to secured debt and private equity from institutional investors at the property level.

Our business model and Simon’s status as a REIT require us to regularly access the debt markets to raise funds for acquisition, development and redevelopment activity, and to refinance maturing debt. Simon may also, from time to time, access the equity capital markets to accomplish our business objectives. We believe we have sufficient cash on hand and availability under the Credit Facilities and the Commercial Paper program to address our debt maturities and capital needs through 2018.

Cash Flows

Our net cash flow from operating activities and distributions of capital from unconsolidated entities totaled $4.0 billion during 2017. In addition, we had net proceeds from our debt financing and repayment activities, including the $128.6 million debt extinguishment charge, of $1.1 billion in 2017. These activities are further discussed below under “Financing and Debt.” During 2017, we also:

	·		funded the acquisition of our interest in an international retail property, funded the acquisition of an additional interest in an existing international property, and funded the acquisition of additional interests in the real estate

assets and/or rights to terminate leases related to twelve Sears stores located at our malls, the aggregate cash portion of which was $264.5 million,

	·		paid stockholder dividends and unitholder distributions totaling approximately $2.6 billion and preferred unit distributions totaling $5.3 million,

	·		funded consolidated capital expenditures of $732.1 million (including development and other costs of $60.6 million, redevelopment and expansion costs of $473.4 million, and tenant costs and other operational capital expenditures of $198.1 million),

	·		funded investments in unconsolidated entities of $157.2 million,

	·		funded the repurchase of our common stock of $407.0 million, and

	·		received proceeds on the sale of marketable securities of $56.3 million.

In general, we anticipate that cash generated from operations will be sufficient to meet operating expenses, monthly debt service, recurring capital expenditures, and dividends to stockholders and/or distributions to partners necessary to maintain Simon’s REIT qualification on a long‑term basis. In addition, we expect to be able to generate or obtain capital for nonrecurring capital expenditures, such as acquisitions, major building redevelopments and expansions, as well as for scheduled principal maturities on outstanding indebtedness, from:

	·		excess cash generated from operating performance and working capital reserves,

	·		borrowings on the Credit Facilities and Commercial Paper program,

	·		additional secured or unsecured debt financing, or

	·		additional equity raised in the public or private markets.

We expect to generate positive cash flow from operations in 2018, and we consider these projected cash flows in our sources and uses of cash. These cash flows are principally derived from rents paid by our tenants. A significant deterioration in projected cash flows from operations could cause us to increase our reliance on available funds from the Credit Facilities and Commercial Paper program, curtail planned capital expenditures, or seek other additional sources of financing as discussed above.

Financing and Debt

Unsecured Debt

At December 31, 2017, our unsecured debt consisted of $16.5 billion of senior unsecured notes of the Operating Partnership, $322.6 million outstanding under the Operating Partnership’s Supplemental Facility, and $978.5 million outstanding under the Operating Partnership’s Commercial Paper program. The December 31, 2017 balance on the Supplemental Facility included $197.6 million (U.S. dollar equivalent) of Yen-denominated borrowings. Foreign currency denominated borrowings under the Supplemental Facility are designated as net investment hedges of a portion of our international investments.

On December 31, 2017, we had an aggregate available borrowing capacity of $6.2 billion under the Credit Facilities. The maximum aggregate outstanding balance under the Credit Facilities during the year ended December 31, 2017 was $960.9 million and the weighted average outstanding balance was $455.5 million. Letters of credit of $20.9 million were outstanding under the Credit Facilities as of December 31, 2017.

On March 17, 2017, the Operating Partnership amended and extended the Credit Facility. The initial borrowing capacity of $4.0 billion may be increased to $5.0 billion during its term and provides for borrowings denominated in U.S. dollars, Euro, Yen, Sterling, Canadian dollars and Australian dollars. Borrowings in currencies other than the U.S. dollar are limited to 95% of the maximum revolving credit amount, as defined. The initial maturity date of the Credit Facility was extended to June 30, 2021 and can be extended for an additional year to June 30, 2022 at our sole option, subject to our continued compliance with the terms thereof. The base interest rate on the Credit Facility was reduced to LIBOR plus 77.5 basis points from LIBOR plus 80 basis points, with a facility fee of 10 basis points.

The Supplemental Facility’s borrowing capacity of $3.5 billion may be increased to $4.25 billion during its term. The initial maturity date of the Supplemental Facility is June 30, 2019, which 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 the

Supplemental Facility is LIBOR plus 80 basis points, with an additional facility fee of 10 basis points. The Supplemental Facility provides for borrowings denominated in U.S. dollars, Euro, Yen, Sterling, Canadian dollars and Australian dollars.

On February 15, 2018, the Operating Partnership amended and extended the Supplemental Facility. The Supplemental Facility’s initial borrowing capacity of $3.5 billion may be increased to $4.5 billion during its term. The initial maturity date of the Supplemental Facility was extended to June 30, 2022 and can be extended for an additional year to June 30, 2023 at our sole option, subject to our continued compliance with the terms thereof. The base interest rate on the Supplemental Facility was reduced to LIBOR plus 77.5 basis points from LIBOR plus 80 basis points, with a facility fee of 10 basis points.

The Operating Partnership also has available a Commercial Paper program of $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, Euro 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. Notes will be 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 of the Credit Facilities to pay amounts outstanding from time to time on the Commercial Paper program. On December 31, 2017, we had $978.5 million outstanding under the Commercial Paper program, fully comprised of U.S. dollar denominated notes with a weighted average interest rate of 1.40%. These borrowings mature on various dates through March 15, 2018 and reduce amounts otherwise available under the Credit Facilities.

On June 1, 2017, the Operating Partnership completed the issuance of $600.0 million of senior unsecured notes at a fixed interest rate of 2.63% with a maturity date of June 15, 2022 and $750.0 million of senior unsecured notes at a fixed interest rate of 3.38% with a maturity date of June 15, 2027. Proceeds from the unsecured notes offering were used to fund the early redemption of senior unsecured notes in June 2017 as discussed below, and to pay down the Credit Facility.

On December 11, 2017, the Operating Partnership completed the issuance of $600.0 million of senior unsecured notes at a fixed interest rate of 2.75% with a maturity date of June 1, 2023 and $750.0 million of senior unsecured notes at a fixed interest rate of 3.38% with a maturity date of December 1, 2027. Proceeds from the unsecured notes offering were used to redeem at par $750 million of senior unsecured notes with a fixed interest rate of 1.50% on January 3, 2018 and for general business purposes.

During 2017, the Operating Partnership redeemed at par $600.0 million of senior unsecured notes with a fixed interest rate of 2.15% and completed the early redemption of a series of senior unsecured notes comprising $1.25 billion with a fixed interest rate of 5.65%. The Operating Partnership recorded a $128.6 million loss on extinguishment of debt in the second quarter of 2017 as a result of the early redemption.

Mortgage Debt

Total mortgage indebtedness was $6.9 billion and $6.5 billion at December 31, 2017 and 2016, respectively.

On April 21, 2017, as discussed in Note 7, through our European investee, we acquired Rosada Designer Outlet in Roosendaal, Netherlands, subject to an existing EURIBOR-based variable rate mortgage loan of $40.1 million (U.S. dollar equivalent).

Covenants

Our unsecured debt agreements contain financial covenants and other non‑financial covenants. If we were to fail to comply with these covenants, after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by the lender, including adjustments to the applicable interest rate. As of December 31, 2017, we were in compliance with all covenants of our unsecured debt.

At December 31, 2017, we or our subsidiaries were the borrowers under 47 non‑recourse mortgage notes secured by mortgages on 50 properties, including two separate pools of cross‑defaulted and cross‑collateralized mortgages encumbering a total of five properties. Under these cross‑default provisions, a default under any mortgage included in the cross‑defaulted pool may constitute a default under all mortgages within that pool and may lead to acceleration of the indebtedness due on each property within the pool. Certain of our secured debt instruments contain financial and other non‑financial covenants which are specific to the properties that serve as collateral for that debt. If the applicable borrower under these non-recourse mortgage notes were to fail to comply with these covenants, the lender could accelerate the debt and enforce its rights against their collateral. At December 31, 2017, the applicable borrowers under these non‑recourse

mortgage notes were in compliance with all covenants where non‑compliance could individually or in the aggregate, giving effect to applicable cross‑default provisions, have a material adverse effect on our financial condition, liquidity or results of operations.

Summary of Financing

Our consolidated debt, adjusted to reflect outstanding derivative instruments, and the effective weighted average interest rates as of December 31, 2017 and 2016, consisted of the following (dollars in thousands):

					Effective					Effective
		Adjusted Balance			Weighted		Adjusted			Weighted
		as of			Average		Balance as of			Average
Debt Subject to		December 31, 2017			Interest Rate(1)		December 31, 2016			Interest Rate(1)
Fixed Rate		$	23,374,732		3.30%		$	22,083,330		3.46%
Variable Rate			1,189,311		2.19%			893,774		1.74%
		$	24,564,043		3.25%		$	22,977,104		3.39%

	(1)		Effective weighted average interest rate excludes the impact of net discounts, debt issuance costs and other debt obligations of $68.2 million.

Contractual Obligations and Off-balance Sheet Arrangements

In regards to long‑term debt arrangements, the following table summarizes the material aspects of these future obligations on our consolidated indebtedness as of December 31, 2017, and subsequent years thereafter (dollars in thousands) assuming the obligations remain outstanding through initial maturities, including applicable exercise of available extension options:

		2018			2019 - 2020			2021 - 2022			After 2022			Total
Long Term Debt (1) (5)		$	2,060,959		$	3,207,081		$	6,679,635		$	12,761,890		$	24,709,565
Interest Payments (2)			837,976			1,603,005			1,200,005			3,191,334			6,832,320
Consolidated Capital Expenditure Commitments (3)			228,057			—			—			—			228,057
Lease Commitments (4)			26,401			50,765			47,947			655,309			780,422

	(1)		Excludes the impact of net discounts and debt issuance costs.

	(2)		Variable rate interest payments are estimated based on the LIBOR or other applicable rate at December 31, 2017.

	(3)		Represents contractual commitments for capital projects and services at December 31, 2017. Our share of estimated 2017 development, redevelopment and expansion activity is further discussed below under “Development Activity”.

	(4)		Represents only the minimum non‑cancellable lease period, excluding applicable lease extension and renewal options.

	(5)		The amount due in 2018 includes $978.5 million in Global Commercial Paper – USD and $750.0 million of senior unsecured notes redeemed at par on January 3, 2018.

Our off‑balance sheet arrangements consist primarily of our investments in joint ventures which are common in the real estate industry and are described in Note 7 of the notes to the consolidated financial statements. Our joint ventures typically fund their cash needs through secured debt financings obtained by and in the name of the joint venture entity. The joint venture debt is secured by a first mortgage, is without recourse to the joint venture partners, and does not represent a liability of the partners, except to the extent the partners or their affiliates expressly guarantee the joint venture debt. As of December 31, 2017, the Operating Partnership guaranteed joint venture related mortgage indebtedness of $211.6 million (of which we have a right of recovery from our venture partners of $10.8 million). Mortgages guaranteed by the Operating Partnership are secured by the property of the joint venture which could be sold in order to satisfy the outstanding obligation and which has an estimated fair value in excess of the guaranteed amount. 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 required contractually or otherwise.

Hurricane Impacts

As discussed further in Note 11 of the notes to the consolidated financial statements, during the third quarter of 2017, certain of our properties experienced property damage and business interruption due to hurricane-related impacts in Texas, Florida and Puerto Rico.

Acquisitions and Dispositions

Buy‑sell, marketing rights, and other exit mechanisms are common in real estate partnership agreements. Most of our partners are institutional investors who have a history of direct investment in retail real estate. We and our partners in our joint venture properties may initiate these provisions (subject to any applicable lock up or similar restrictions). If we determine it is in our stockholders’ best interests for us to purchase the joint venture interest and we believe we have adequate liquidity to execute the purchase without hindering our cash flows, then we may initiate these provisions or elect to buy our partner’s interest. If we decide to sell any of our joint venture interests, we expect to use the net proceeds to reduce outstanding indebtedness or to reinvest in development, redevelopment, or expansion opportunities.

Acquisitions. In February 2016, we and our partner, through our European investee, acquired a noncontrolling 75% ownership interest in an outlet center in Ochtrup, Germany for cash consideration of approximately $38.3 million. On July 25, 2016, this European investee also acquired the remaining 33% interest in two Italian outlet centers in Naples and Venice as well as the remaining interests in related expansion projects and working capital for cash consideration of approximately $159.7 million. This resulted in the consolidation of these two properties on the acquisition date, requiring a remeasurement of our previously held equity interest to fair value and the recognition of a non-cash gain of $29.3 million in earnings during the third quarter of 2016.

On April 21, 2017, this European investee acquired a 100% interest in an outlet center in Roosendaal, Netherlands for cash consideration of $69.8 million and the assumption of existing mortgage debt of $40.1 million. In May 2017, the assumed loan was refinanced with a $69.0 million mortgage due in 2024, after available extension options, with an interest rate of EURIBOR plus 1.85%.

On April 14, 2016, we and our joint venture partner completed the acquisition of The Shops at Crystals, a 262,000 square foot luxury shopping center on the Las Vegas Strip, for $1.1 billion. The transaction was funded with a combination of cash on hand, cash from our partner, and a $550.0 million 3.74% fixed-rate mortgage financing that will mature on July 1, 2026. We have a 50% noncontrolling interest in this joint venture and manage the day-to-day operations.

Dispositions. We may continue to pursue the disposition of properties that no longer meet our strategic criteria or that are not a primary retail venue within their trade area.

During 2017, we disposed of our interests in one unconsolidated retail property. The loss recognized on this transaction was approximately $1.3 million. As discussed in Note 7 of the notes to the consolidated financial statements, Klépierre disposed of its interests in certain shopping centers, resulting in a gain of which our share was $5.0 million.

During 2016, we disposed of our interests in two unconsolidated multi-family residential investments, three consolidated retail properties, and four unconsolidated retail properties. Our share of the gross proceeds from these transactions was $81.8 million. The gain on the consolidated retail properties was $12.4 million. The gain on the unconsolidated retail properties was $22.6 million. The aggregate gain of $36.2 million from the sale of the two unconsolidated multi-family residential investments is included in other income and resulted in an additional $7.2 million in taxes included in income and other taxes. As discussed in Note 7 of the notes to the consolidated financial statements, Klépierre disposed of its interest in certain Scandinavian properties during the fourth quarter, resulting in a gain of which our share was $8.1 million.

Joint Venture Formation Activity

On September 15, 2016, we and our partners, through two separate joint ventures, acquired certain assets and liabilities of Aéropostale, a retailer of apparel and accessories, out of bankruptcy. Our noncontrolling interest in the retail operations venture and in the licensing venture is 49.05% and 28.45%, respectively. Our aggregate investment in these ventures was $33.1 million, which includes our share of working capital funded into the retail business.

On July 22, 2015, we closed on our joint venture with HBC, to which HBC contributed 42 properties in the U.S. and we committed to contribute $100.0 million for improvements to the properties contributed by HBC in exchange for a noncontrolling equity interest in HBS. As of December 31, 2017, we have funded $68.3 million of this commitment. On

September 30, 2015, HBC announced it had closed on the acquisition of Galeria Holding, the parent company of Germany’s leading department store, Kaufhof. In conjunction with the closing, HBS acquired 41 Kaufhof properties in Germany from HBC. All of these properties have been leased to affiliates of HBC. We contributed an additional $178.5 million to HBS upon closing of the Galeria Holding transaction. Our noncontrolling equity interest in HBS is approximately 11.7% at December 31, 2017.

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. Sears or its affiliates leased back each of the 10 properties from the joint venture. Seritage Growth Properties, or Seritage, a public REIT formed by Sears, now holds Sears’ original 50% noncontrolling interest in the joint venture. We contributed $114.0 million in cash in exchange for a 50% noncontrolling interest in the joint venture. The joint venture has the right to recapture not less than 50% of the space leased to Sears to be used for purposes of redeveloping and releasing the recaptured space.

On November 3, 2017, we acquired additional interests in the real estate assets and/or rights to terminate leases related to twelve Sears stores located at our malls (including five stores previously held in our joint venture with Seritage), in order to redevelop these properties. The total cost of this transaction was $184.6 million which is reflected as investment property. Four of the Sears stores are at properties held in unconsolidated joint ventures, and should our partners participate in the transaction and related redevelopment, the cost of the transaction to us will be reduced by their proportionate share. Our joint venture with Seritage now covers the former Sears properties located at five of our malls.

Development Activity

We routinely incur costs related to construction for significant redevelopment and expansion projects at our properties. Redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants are underway at 25 properties in the United States and Canada.

Our share of the costs of all new development, redevelopment and expansion projects currently under construction is approximately $0.7 billion. We expect to fund these capital projects with cash flows from operations. Our estimated stabilized return on invested capital typically ranges between 7-10% for all our new development, redevelopment and expansion projects.

Summary of Capital Expenditures. The following table summarizes total capital expenditures on consolidated properties on a cash basis (in millions):

		2017			2016			2015
New Developments		$	61		$	103		$	139
Redevelopments and Expansions			474			487			699
Tenant Allowances			127			110			91
Operational Capital Expenditures			70			98			92
Total		$	732		$	798		$	1,021

New Domestic Developments, Redevelopments and Expansions.

During 2017, the following properties opened:

	·		On September 14, 2017, we and our partner opened The Shops at Clearfork, a 500,000 square foot open-air luxury shopping, dining, entertainment and mixed-use property (including office) destination in Fort Worth, Texas. We own a 45% noncontrolling interest in this project. Our share of the cost of this project is $114.7 million.

	·		On June 29, 2017, we and our partner opened Norfolk Premium Outlets, a 332,000 square foot center in Norfolk, Virginia. We own a 65% noncontrolling interest in this project. Our share of the cost of this project is $70.9 million.

During the second quarter of 2017, construction began on Denver Premium Outlets, a 328,000 square foot project in Thornton (Denver), Colorado, projected to open in September 2018. We own a 100% interest in this project. The estimated cost of this project is $120.6 million.

International Development Activity.

We typically reinvest net cash flow from our international joint ventures to fund future international development activity. We believe this strategy mitigates some of the risk of our initial investment and our exposure to changes in foreign currencies. We have also funded most of our foreign investments with local currency‑denominated borrowings that act as a natural hedge against fluctuations in exchange rates. Our consolidated net income exposure to changes in the volatility of the Euro, Yen, Won, and other foreign currencies is not material. We expect our share of international development costs for 2018 will be approximately $251 million, primarily funded through reinvested joint venture cash flow and construction loans.

The following table describes these recently completed, new development and expansion projects as well as our share of the estimated total cost as of December 31, 2017 (in millions):

							Gross		Our		Our Share of		Our Share of			Projected
							Leasable		Ownership		Projected Net Cost		Projected Net Cost			Opening
Property					Location		Area (sqft)		Percentage		(in Local Currency)		(in USD)			Date
New Development Projects:
Genting Highlands Premium Outlets					Kuala Lumpur, Malaysia		278,000		50%		MYR 120.7		$	29.7		Opened Jun. - 2017
Siheung Premium Outlets					Siheung, Korea		444,400		50%		KRW 123,695		$	115.9		Opened Apr. - 2017
Provence Designer Outlet					Miramas, France		269,000		90%		EUR 106.8		$	128.0		Opened Apr. - 2017
Premium Outlet Collection - Edmonton International Airport					Edmonton (Alberta), Canada		428,000		50%		CAD 108.2		$	86.2		May. - 2018
Querétaro Premium Outlets					Querétaro, Mexico		294,000		50%		MXN 441.7		$	22.4		Oct. - 2018
Málaga Designer Outlet					Málaga, Spain		191,000		46%		EUR 41.4		$	49.6		Nov. - 2018
Expansions:
Roermond Designer Outlet Phase 4					Roermond, Netherlands		125,000		46%		EUR 29.0		$	34.7		Opened Apr. - 2017
Shisui Premium Outlets Phase 3					Shisui (Chiba), Japan		68,000		40%		JPY 1,541		$	13.7		Oct. - 2018
Toronto Premium Outlets Phase 2					Toronto (Ontario), Canada		145,000		50%		CAD 58.0		$	46.2		Nov. - 2018

Dividends, Distributions and Stock Repurchase Program

Simon paid a common stock dividend of $1.85 per share in the fourth quarter of 2017 and $7.15 per share for the year ended December 31, 2017. The Operating Partnership paid distributions per unit for the same amounts. In 2016, Simon paid dividends of $1.65 and $6.50 per share for the three and twelve month periods ended December 31, 2016, respectively. The Operating Partnership paid distributions per unit for the same amounts. Simon’s Board of Directors declared a quarterly cash dividend for the first quarter of 2018 of $1.95 per share of common stock payable on February 28, 2018 to stockholders of record on February 14, 2018. The distribution rate on units is equal to the dividend rate on common stock. In order to maintain its status as a REIT, Simon must pay a minimum amount of dividends. Simon’s future dividends and the Operating Partnership’s future distributions will be determined by Simon’s 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 Simon’s status as a REIT.

On April 2, 2015, Simon’s Board of Directors authorized Simon to repurchase up to $2.0 billion of common stock over a twenty-four month period as market conditions warrant, and on February 13, 2017, Simon’s Board of Directors authorized a two-year extension of the program through March 31, 2019. Simon may repurchase the shares in the open market or in privately negotiated transactions as market conditions warrant. During the year ended December 31, 2017, Simon repurchased 2,468,630 shares at an average price of $164.87 per share of its common stock as part of this program.

During the year ended December 31, 2016, Simon repurchased 1,409,197 shares at an average price of $181.14 per share as part of this program. At December 31, 2017, we had remaining authority to repurchase approximately $1.0 billion of common stock. As Simon repurchases shares under this program, the Operating Partnership repurchases an equal number of units from Simon.

Forward‑Looking Statements

Certain statements made in this section or elsewhere in this Annual Report on Form 10-K may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Such factors include, but are not limited to: changes in economic and market conditions that adversely affect the general retail environment; the potential loss of anchor stores or major tenants; the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise; decreases in market rental rates; the intensely competitive market environment in the retail industry; the inability to lease newly developed properties and renew leases and relet space at existing properties on favorable terms; risks related to international activities, including, without limitation, the impact of Brexit; changes to applicable laws or regulations or the interpretation thereof; risks associated with the acquisition, development, redevelopment, expansion, leasing and management of properties; general risks related to real estate investments, including the illiquidity of real estate investments; the impact of our substantial indebtedness on our future operations; any disruption in the financial markets that adversely affects our ability to access capital for growth and satisfy our ongoing debt service requirements; any change in our credit rating; changes in market rates of interest and foreign exchange rates for foreign currencies; changes in the value of our investments in foreign entities; our ability to hedge interest rate and currency risk; our continued ability to maintain our status as a REIT; changes in tax laws or regulations that result in adverse tax consequences; risks relating to our joint venture properties; environmental liabilities; changes in insurance costs, the availability of comprehensive insurance coverage; security breaches that could compromise our information technology or infrastructure; natural disasters; the potential for terrorist activities; and the loss of key management personnel. We discussed these and other risks and uncertainties under the heading "Risk Factors" in Part I, Item1A of this Annual Report on Form 10-K. We may update that discussion in subsequent other periodic reports, but, except as required by law, we undertake no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

Non‑GAAP Financial Measures

Industry practice is to evaluate real estate properties in part based on performance measures such as FFO, diluted FFO per share, NOI, portfolio NOI and comparable property NOI. We believe that these non‑GAAP measures are helpful to investors because they are widely recognized measures of the performance of REITs and provide a relevant basis for comparison among REITs. We also use these measures internally to measure the operating performance of our portfolio.

We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts, or NAREIT, as consolidated net income computed in accordance with GAAP:

	·		excluding real estate related depreciation and amortization,

	·		excluding gains and losses from extraordinary items and cumulative effects of accounting changes,

	·		excluding gains and losses from the sales or disposals of previously depreciated retail operating properties,

	·		excluding impairment charges of depreciable real estate,

	·		plus the allocable portion of FFO of unconsolidated entities accounted for under the equity method of accounting based upon economic ownership interest, and

	·		all determined on a consistent basis in accordance with GAAP.

We have adopted NAREIT’s clarification of the definition of FFO that requires us to include the effects of nonrecurring items not classified as extraordinary, cumulative effect of accounting changes, or a gain or loss resulting from the sale of, or any impairment charges related to, previously depreciated retail operating properties.

We include in FFO gains and losses realized from the sale of land, outlot buildings, marketable and non‑marketable securities, and investment holdings of non‑retail real estate. We also include in FFO the impact of foreign currency exchange gains and losses, legal expenses, transaction expenses and other items required by GAAP.

You should understand that our computations of these non‑GAAP measures might not be comparable to similar measures reported by other REITs and that these non‑GAAP measures:

	·		do not represent cash flow from operations as defined by GAAP,

	·		should not be considered as alternatives to consolidated net income determined in accordance with GAAP as a measure of operating performance, and

	·		are not alternatives to cash flows as a measure of liquidity.

The following schedule reconciles total FFO to consolidated net income and, for Simon, diluted net income per share to diluted FFO per share.

		2017			2016			2015
		(in thousands)
Funds from Operations (A) (B)		$	4,020,505		$	3,792,951		$	3,571,237
Change in FFO from prior period			6.0	%		6.2	%		10.4	%
Consolidated Net Income		$	2,244,903		$	2,134,706		$	2,139,375
Adjustments to Arrive at FFO:
Depreciation and amortization from consolidated properties			1,260,865			1,236,476			1,160,916
Our share of depreciation and amortization from unconsolidated entities, including Klépierre and HBS			540,718			527,976			533,330
Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net (C)			(3,647)			(80,154)			(250,516)
Net income attributable to noncontrolling interest holders in properties			(13)			(7,218)			(2,984)
Noncontrolling interests portion of depreciation and amortization			(17,069)			(13,583)			(3,632)
Preferred distributions and dividends			(5,252)			(5,252)			(5,252)
FFO of the Operating Partnership (A) (B)		$	4,020,505		$	3,792,951		$	3,571,237
FFO allocable to limited partners			529,595			512,361			514,044
Dilutive FFO allocable to common stockholders (A) (B)		$	3,490,910		$	3,280,590		$	3,057,193
Diluted net income per share to diluted FFO per share reconciliation:
Diluted net income per share		$	6.24		$	5.87		$	5.88
Depreciation and amortization from consolidated properties and our share of depreciation and amortization from unconsolidated entities, including Klépierre and HBS, net of noncontrolling interests portion of depreciation and amortization			4.98			4.84			4.67
Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net (C)			(0.01)			(0.22)			(0.69)
Diluted FFO per share (A) (B)		$	11.21		$	10.49		$	9.86
Basic and Diluted weighted average shares outstanding			311,517			312,691			310,103
Weighted average limited partnership units outstanding			47,260			48,836			52,141
Basic and Diluted weighted average shares and units outstanding			358,777			361,527			362,244

	(A)		Includes FFO of the Operating Partnership related to a gain on sale of marketable securities of $80.2 million, or $0.22 per diluted share/unit, for the year ended December 31, 2015. Includes Diluted FFO allocable to common stockholders of $68.6 million for the year ended December 31, 2015.

	(B)		Includes FFO of the Operating Partnership related to a loss on extinguishment of debt of $128.6 million, $136.8 million, and $121.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. Includes Diluted FFO per share/unit related to a loss on extinguishment of debt of $0.36, $0.38, and $0.33 for the years ended December 31, 2017, 2016, and 2015, respectively. Includes Diluted FFO allocable to common stockholders of $111.7 million, $118.3 million, and $103.6 million for the years ended December 31, 2017, 2016, and 2015, respectively.

	(C)		Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities for the year ended December 31, 2016 was $84.6 million. Noncontrolling interest portion of the gain was $4.4 million, or $0.01 per diluted share/unit, for the year ended December 31, 2016.

The following schedule reconciles consolidated net income to NOI and sets forth the computations of portfolio NOI and comparable property NOI.

		For the Year
		Ended December 31,
		2017			2016
		(in thousands)
Reconciliation of NOI of consolidated entities:
Consolidated Net Income		$	2,244,903		$	2,134,706
Income and other taxes			23,343			29,678
Interest expense			809,393			857,554
Income from unconsolidated entities			(400,270)			(353,334)
Loss on extinguishment of debt			128,618			136,777
Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net			(3,647)			(84,553)
Operating Income			2,802,340			2,720,828
Depreciation and amortization			1,275,452			1,252,673
NOI of consolidated entities		$	4,077,792		$	3,973,501
Reconciliation of NOI of unconsolidated entities:
Net Income		$	839,226		$	916,383
Interest expense			593,062			585,958
Loss (gain) on sale or disposal of assets and interests in unconsolidated entities			2,239			(101,051)
Operating Income			1,434,527			1,401,290
Depreciation and amortization			640,286			588,666
NOI of unconsolidated entities		$	2,074,813		$	1,989,956
Add: Our share of NOI from Klépierre, HBS, and other corporate investments			279,028			248,705
Total NOI		$	6,431,633		$	6,212,162
Less: Corporate and Other NOI Sources (1)			169,373			217,610
Portfolio NOI		$	6,262,260		$	5,994,552
Portfolio NOI Growth			4.5	%
Less: Our share of NOI from Klépierre and HBS			267,789			248,705
Less: International Properties (2)			450,454			398,734
Less: NOI from New Development, Redevelopment, Expansion and Acquisitions (3)			92,342			64,770
Comparable Property NOI (4)		$	5,451,675		$	5,282,343
Comparable Property NOI Growth			3.2	%

	(1)		Includes income components excluded from portfolio NOI and comparable property NOI (domestic lease termination income, interest income, land sale gains, straight line rent, above/below market lease amortization), gains on sale of marketable securities, Simon management company operations and other assets.

	(2)		Includes International Premium Outlets and International Designer Outlets.

	(3)		Includes total property NOI for properties undergoing redevelopment as well as incremental NOI for expansion properties not yet included in comparable properties.

	(4)		Includes Malls, Premium Outlets, The Mills and Lifestyle Centers opened and operating as comparable for the period.