1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
REGISTRATION NO. 333-11491
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SIMON DEBARTOLO GROUP, L.P.
SIMON PROPERTY GROUP, L.P.
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1755769
DELAWARE 35-1903854
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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NATIONAL CITY CENTER
115 WEST WASHINGTON STREET
SUITE 15 EAST
INDIANAPOLIS, IN 46204
(317) 636-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICE)
DAVID SIMON
CHIEF EXECUTIVE OFFICER
SIMON DEBARTOLO GROUP, INC.
NATIONAL CITY CENTER
115 WEST WASHINGTON STREET
SUITE 15 EAST
INDIANAPOLIS, IN 46204
(317) 636-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
EDWIN S. MAYNARD, ESQ. JAMES M. ASHER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON ROBERT E. KING, JR., ESQ.
1285 AVENUE OF THE AMERICAS ROGERS & WELLS
NEW YORK, NEW YORK 10019-6064 200 PARK AVENUE
(212) 373-3000 NEW YORK, NEW YORK 10166
(212) 878-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time or at one time after the effective date of the Registration
Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement relates to securities which may be offered from
time to time by Simon DeBartolo Group, L.P. (the "Operating Partnership"), as
guaranteed by Simon Property Group, L.P. ("SPG, LP"). This Registration
Statement contains a form of Base Prospectus which will be used in connection
with an offering of securities by the Operating Partnership, as guaranteed by
SPG, LP. The specific terms of the securities and of the guarantee thereto to be
offered will be set forth in a Prospectus Supplement relating to such
securities. Pages S-1 through SF-10 herein set forth a Preliminary Prospectus
Supplement, which is not a part of the Base Prospectus, relating to the proposed
offering by the Operating Partnership of certain notes of the Operating
Partnership, as guaranteed by SPG, LP.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER , 1996) [LOGO]
SIMON DEBARTOLO GROUP, L.P.
$ ,000,000 % REDEEMABLE NOTES DUE , 200
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The % Redeemable Notes due , 200 (the "Notes") offered hereby
(the "Offering") are being issued by Simon DeBartolo Group, L.P., a Delaware
limited partnership (the "Operating Partnership"), in an aggregate principal
amount of $ million. The Notes will mature on , 200 . The Notes
are redeemable at any time at the option of the Operating Partnership, in whole
or in part, at a redemption price equal to the sum of (i) the principal amount
of the Notes being redeemed plus accrued interest to the redemption date and
(ii) the Make-Whole Amount (as defined in "Description of the Notes -- Optional
Redemption"), if any. Interest on the Notes is payable semi-annually in arrears
on each May and November , commencing on May , 1997. The Notes are
unsecured obligations of the Operating Partnership and will rank pari passu with
each other and all unsecured unsubordinated indebtedness of the Operating
Partnership. Simon Property Group, L.P., a Delaware limited partnership and a
subsidiary partnership of the Operating Partnership, will guarantee (the
"Guarantee") the due and punctual payment of the principal of, premium, if any,
interest on, and any other amounts payable with respect to, the Notes, when and
as the same shall become due and payable, whether at a maturity date, on
redemption, by declaration of acceleration or otherwise. On September 30, 1996,
the Operating Partnership had combined unsecured unsubordinated indebtedness
aggregating approximately $323 million. See "Description of the Notes."
The Notes constitute a separate series of debt securities which will be
represented by a single fully-registered global note in book-entry form, without
coupons (the "Global Note"), registered in the name of the nominee of The
Depository Trust Company ("DTC"). Beneficial interests in the Global Note will
be shown on, and transfers thereof will be effected only through, records
maintained by DTC (with respect to beneficial interests of participants) or by
participants or persons that hold interests through participants (with respect
to beneficial interests of beneficial owners). Owners of beneficial interests in
the Global Note will be entitled to physical delivery of Notes in definitive
form equal in principal amount to their respective beneficial interest only
under the limited circumstances described under "Description of the
Notes -- Book Entry System." Settlement for the Notes will be made in
immediately available funds. The Notes will trade in DTC's Same-Day Funds
Settlement System until maturity or until the Notes are issued in definitive
form, and secondary market trading activity in the Notes will therefore settle
in immediately available funds. All payments of principal and interest in
respect of the Notes will be made by the Operating Partnership in immediately
available funds. See "Description of the Notes -- Same Day Settlement and
Payment." The Operating Partnership does not intend to apply for listing of the
Notes on a national securities exchange.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO THE
PRICE TO UNDERWRITING OPERATING
PUBLIC(1) DISCOUNT(2) PARTNERSHIP(3)
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Per Note............................ % % %
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Total(3)............................ $ $ $
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(1) Plus accrued interest, if any, from , 1996.
(2) The Operating Partnership has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See Underwriting.
(3) Before deducting expenses payable by the Operating Partnership estimated at
$ .
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The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Notes will be made in New York,
New York on or about November , 1996.
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MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
UBS SECURITIES
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The date of this Prospectus Supplement is November , 1996.
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Map depicting the Simon DeBartolo Group's Regional Mall and Community Center
Portfolios.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT LEVELS
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUPPLEMENT SUMMARY
The following Summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated herein and
therein by reference. Unless indicated otherwise, the information contained in
this Prospectus Supplement is presented as of September 30, 1996. All references
to the "Operating Partnership" or the "Company" (as defined below) in this
Prospectus Supplement and the accompanying Prospectus include the Operating
Partnership or the Company, as the case may be, those entities owned or
controlled by it (including, in the case of the Operating Partnership, SPG, LP,
as defined below) and its predecessors, unless the context indicates otherwise.
Except as otherwise noted, statistical property information contained in this
Prospectus Supplement and in the accompanying Prospectus is based upon the
business and properties of the Operating Partnership on a combined basis,
adjusted to give effect to the Merger (as defined below) as though it had
occurred prior to the date or period of time to which such information relates.
THE OPERATING PARTNERSHIP
Simon DeBartolo Group, L.P. (the "Operating Partnership") is a subsidiary
partnership of Simon DeBartolo Group, Inc. (the "Company"). The Company is a
self-administered and self-managed real estate investment trust ("REIT"). Simon
Property Group, L.P. ("SPG, LP") is a subsidiary partnership of the Operating
Partnership and is also a subsidiary partnership of the Company. The Operating
Partnership is engaged primarily in the ownership, development, management,
leasing, acquisition and expansion of income producing properties, primarily
regional malls and community shopping centers. On August 9, 1996, the Company
acquired the national shopping center business of DeBartolo Realty Corporation
("DRC"), The Edward J. DeBartolo Corporation ("EJDC") and their affiliates as
the result of the merger of DRC with a subsidiary of the Company. As a result of
such merger and related transactions thereto (the "Merger"), the management
resources of the merged entities were combined to create one of the most
experienced management teams in the shopping center business. Management
believes that as a result of the Merger, the Portfolio Properties (as defined
below), as measured in gross leasable area ("GLA"), are the largest and most
geographically diverse portfolio of any publicly traded REIT in North America.
Management also believes that the Company is one of the largest, as measured by
market capitalization, of any publicly traded real estate company in North
America. Management further believes that the Operating Partnership's
relationships with tenants, access to capital markets and opportunities for
economies of scale and operating efficiencies will be enhanced as a result of
the Operating Partnership's substantially increased portfolio size and market
capitalization. In conjunction with the Merger, DRC was renamed SD Property
Group, Inc. (the "Managing General Partner") and is the managing general partner
of the Operating Partnership. The Company is a general partner of the Operating
Partnership and sole general partner of SPG, LP (the Company and the Managing
General Partner are sometimes referred to collectively as the "General
Partners"). See "The Merger" in the accompanying Prospectus. As of November 14,
1996, 61.5% of the equity interest in the Operating Partnership was owned by the
Company and 38.5% was owned by certain limited partners of the Operating
Partnership, including the Simons (as defined below), certain members of the
DeBartolo family, including certain affiliates and trusts and estates
established for their benefit (collectively, the "DeBartolos"), and other
limited partners.
In addition, SPG, LP holds substantially all of the economic interest in
M.S. Management Associates, Inc. (the "SPG Management Company"). Melvin Simon,
Herbert Simon, David Simon and certain of their affiliates, including certain
other Simon family members and estates, trusts and other entities established
for their benefit (collectively, the "Simons") or their affiliates hold the
voting stock of the SPG Management Company. SPG Management Company manages
certain regional malls and community shopping centers not wholly owned by the
Operating Partnership and certain other properties and also engages in certain
property development activities. The Operating Partnership holds substantially
all of the economic interest in, and the SPG Management Company holds
substantially all of the voting stock of, DeBartolo Properties Management, Inc.
(the "DRC Management Company"), which provides architectural, design,
construction and other
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services to substantially all of the Portfolio Properties (as defined below)
owned by the Operating Partnership, as well as certain other regional malls and
community shopping centers owned by third parties.
The Operating Partnership owns or holds interests in a diversified
portfolio of 183 income producing properties (the "Portfolio Properties"),
including 112 super-regional and regional malls, 65 community shopping centers,
two specialty retail centers and four mixed-use properties located in 33 states.
The Portfolio Properties contain an aggregate of approximately 111 million
square feet of GLA, of which more than 65 million square feet is GLA owned by
the Operating Partnership ("Owned GLA"). More than 3,600 different retailers
occupy approximately 12,000 stores in the Portfolio Properties. Total estimated
retail sales at the Portfolio Properties approached $16 billion in fiscal year
1995. In addition, the Operating Partnership has interests in seven properties
under construction in the United States aggregating approximately six million
square feet of GLA, and owns land held for future development. The Operating
Partnership, together with the SPG Management Company and its affiliated
management companies, manage over 127 million square feet of GLA of retail and
mixed-use properties.
SUMMARY OF PORTFOLIO PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
The following table summarizes on a combined basis, as of September 30,
1996, certain information with respect to the Portfolio Properties, in total and
by type of shopping center and retailer:
TOTAL OWNED % OF % OF OWNED
GLA GLA (SQ. OWNED GLA WHICH IS
TYPE OF PROPERTY(1) (SQ. FT.) FT.) GLA(2) LEASED(3)
----------------------------------- ----------- ----------- ----- ------------
Regional Malls(4)
Mall Store......................... 32,706,974 32,688,552 49.8 84.2
Freestanding....................... 1,450,241 621,059 0.9 89.6
------------ ----------- ----- ----
Subtotal................. 34,157,215 33,309,611 50.7 84.3
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Anchor............................. 59,947,841 20,026,836 30.5 97.1
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Total.................... 94,105,056 53,336,447 81.2 89.1
Community Shopping Centers
Mall Store......................... 3,823,877 3,742,787 5.7 88.6
Freestanding....................... 803,717 308,078 0.4 98.6
Anchor............................. 10,444,738 6,351,819 9.7 93.8
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Total.................... 15,072,332 10,402,684 15.8 92.1
Office Portion of Mixed-Use
Properties....................... 1,946,896 1,946,896 3.0 94.3
------------ ----------- ----- ----
Total.................... 111,124,284 65,686,027 100.0 89.7
============ =========== ===== ====
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(1) Here and elsewhere in this Prospectus Supplement, all GLA, Owned GLA, and
base rent is reported for each Portfolio Property, even if the Operating
Partnership has less than a 100% ownership interest in the Portfolio
Property.
(2) Indicates the percentage of total Owned GLA represented by each category of
space.
(3) Includes, here and elsewhere in this Prospectus Supplement, space for which
a lease has been executed, whether or not the space was then occupied. The
table under "Additional Information" in this Prospectus Supplement indicates
vacant anchor space as of September 30, 1996.
(4) Includes two specialty retail centers and retail space at four mixed-use
properties.
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THE OFFERING
All capitalized terms used herein and not defined herein have meanings
provided in "Description of the Notes." For a more complete description of the
terms of the Notes specified in the following summary, see "Description of the
Notes."
Securities Offered......... $ ,000,000 aggregate principal amount of
% Redeemable Notes due , 200 (the
"Notes").
Maturity................... The Notes will mature on , 200 .
Interest Payment Dates..... Interest on the Notes is payable semi-annually on
each May and November , commencing May ,
1997, and at maturity.
Ranking.................... The Notes will rank pari passu with each other and
with all other unsecured and unsubordinated
indebtedness of the Operating Partnership except
that the Notes will be effectively subordinated to
(i) the prior claims of each secured mortgage
lender to any specific Portfolio Property which
secures such lender's mortgage and (ii) any claims
of creditors of entities wholly or partly owned,
directly or indirectly, by the Operating
Partnership. As of September 30, 1996, total
consolidated mortgage indebtedness on the Portfolio
Properties aggregated approximately $3,232 million
(approximately $3,048.8 million on a pro forma
basis giving effect to the Offering (as defined
herein) and the Preferred Offering (as defined
herein)). See "Capitalization."
Guarantee.................. SPG, LP will guarantee the due and punctual payment
of the principal of, premium, if any, interest on,
and any other amounts payable with respect to, the
Notes, when and as the same shall become due and
payable, whether at a maturity date, on redemption,
by declaration of acceleration or otherwise.
Use of Proceeds............ The net proceeds to the Operating Partnership from
the Offering (approximately $198 million) will be
used to repay outstanding mortgage indebtedness of
approximately $117.6 million and to reduce the
amount outstanding under the Operating
Partnership's Credit Facility (as defined herein)
by approximately $80.4 million.
Limitations on Incurrence
of Debt.................. The Notes contain various covenants, including the
following:
(1) The Operating Partnership will not incur any
Debt if, after giving effect thereto, the
aggregate principal amount of all outstanding
Debt is greater than 60% of the sum of (i) the
Operating Partnership's Adjusted Total Assets
as of the end of the most recent fiscal quarter
and (ii) any increase in Adjusted Total Assets
from the end of such quarter, including any pro
forma increase resulting from the application
of proceeds of such additional Debt.
(2) The Operating Partnership will not incur any
Secured Debt if, after giving effect thereto,
the aggregate principal amount of all
outstanding Secured Debt is greater than 55% of
the sum of (i) the Operating Partnership's
Adjusted Total Assets as of the end of the
fiscal quarter prior to the incurrence of such
additional Secured Debt and (ii) any increase
in Adjusted Total Assets from the end of such
quarter, including any pro forma increase
resulting from the application of proceeds of
such additional Secured Debt.
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(3) The Operating Partnership will not incur any
Debt if the ratio of EBITDA After Minority
Interest to Interest Expense for the four
consecutive fiscal quarters most recently ended
prior to the incurrence of such Debt, on a pro
forma basis, is less than 1.75 to 1.
(4) The Operating Partnership is required to
maintain Unencumbered Assets of not less than
150% of the aggregate outstanding principal
amount of Unsecured Debt.
For definitions of the capitalized terms used in
the foregoing covenants, see "Descriptions of the
Notes -- Certain Covenants."
Optional Redemption........ The Notes are redeemable at any time at the option
of the Operating Partnership, in whole or in part,
at a redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed plus
accrued interest to the redemption date and (ii)
the Make-Whole Amount, if any. See "Description of
the Notes -- Optional Redemption."
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THE OPERATING PARTNERSHIP
The Operating Partnership is engaged primarily in the ownership,
development, management, leasing, acquisition and expansion of income producing
properties, primarily regional malls and community shopping centers. On August
9, 1996, the Company acquired the national shopping center business of DRC, EJDC
and their affiliates as the result of the Merger, combining the management
resources of the merged entities to create one of the most experienced
management teams in the shopping center business. Management believes that as a
result of the Merger, the Portfolio Properties, as measured in GLA, are the
largest and most geographically diverse portfolio of any publicly traded REIT in
North America. Management also believes that the Company is one of the largest,
as measured by market capitalization, of any publicly traded real estate company
in North America. Management further believes that the Operating Partnership's
relationships with tenants, access to capital markets and opportunities for
economies of scale and operating efficiencies will be enhanced as a result of
the Operating Partnership's substantially increased portfolio size and the
Company's increased market capitalization. In conjunction with the Merger, DRC
was renamed SD Property Group, Inc. and is the managing general partner of the
Operating Partnership. The Company is a general partner of the Operating
Partnership and sole general partner of SPG, LP. As of November 14, 1996, 61.5%
of the equity interest in the Operating Partnership was owned by the Company and
38.5% was owned by certain limited partners of the Operating Partnership,
including the Simons, the DeBartolos and other limited partners. As part of the
Merger, the Company, as general partner of SPG, LP, and the limited partners of
SPG, LP acquired a majority of the partnership interests in the Operating
Partnership, and in exchange the Operating Partnership acquired a 49.5% limited
partnership interest in, and an additional 49.5% interest in the profits of,
SPG, LP. Following certain redemptions of the Company's interest in SPG, LP
completed since the Merger, the Company owns a 40.8% partnership interest in the
capital of SPG, LP and the Operating Partnership owns a 58.2% special limited
partnership in, and an additional 40.8% interest in the profits of, SPG, LP.
In addition, SPG, LP holds substantially all of the economic interest in,
and the Simons or their affiliates hold the voting stock of, the SPG Management
Company, which manages certain regional malls and community shopping centers not
wholly owned by the Operating Partnership and certain other properties and also
engages in certain property development activities. The Operating Partnership
holds substantially all of the economic interest in, and the SPG Management
Company holds substantially all of the voting stock of, the DRC Management
Company, which provides architectural, design, construction and other services
to substantially all of the Portfolio Properties owned by the Operating
Partnership, as well as certain other regional malls and community shopping
centers owned by third parties. See also "The Operating Partnership" in the
accompanying Prospectus.
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The following chart depicts the organizational and ownership structure of
the Operating Partnership and certain affiliates:
[ORGANIZATION CHART]
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(1) The Simons own less than 1% of the outstanding shares of common stock of the
Company and all of the Class B common stock of the Company.
(2) The DeBartolos own less than 1% of the outstanding common stock of the
Company and all of the Class C common stock of the Company.
(3) The Company owns over 99.9% of the common stock of SD Property Group, Inc.
and, both directly and indirectly through its ownership of the SD Property
Group, Inc., owns at November 14, 1996 a 61.5% interest in the Operating
Partnership and, as general partner, owns 1% of the partnership units in
SPG, LP and a 40.8% interest in the capital of SPG, LP.
(4) The former limited partners of the Operating Partnership and SPG, LP as a
group (including the Simons and the DeBartolos) own a 38.5% beneficial
interest in the Operating Partnership, of which the Simons own 21.7% and the
DeBartolos own 14.2%.
(5) The Operating Partnership owns at November 14, 1996 a 58.2% special limited
partnership interest in, and an additional 40.8% interest in the profits of,
SPG, LP. See "The Operating Partnership" in the accompanying Prospectus.
(6) Properties owned by SPG, LP will be held as they were held in the pre-merger
structure. Later acquired properties will be held by, and future operations
will be conducted through, the Operating Partnership. It is currently
expected that subsequent to the first anniversary of the date of the Merger,
reorganizational transactions will be effected so that the Operating
Partnership will directly own all of the assets and partnership interests
now owned by SPG, LP. However, there can be no assurance that such
reorganizational transactions will be so effected. See "The Operating
Partnership" in the accompanying Prospectus.
(7) SPG, LP will guarantee the due and punctual payment of the principal of,
premium, if any, interest on, and any other amounts payable with respect to,
the Notes, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise.
See "Description of the Notes -- The Guarantee."
S-8
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DIVERSIFIED PORTFOLIO
Management believes that the Portfolio Properties are the largest, as
measured in GLA, of any publicly traded REIT, with more regional malls than any
other publicly traded REIT. Management also believes that the geographic
diversification of the Portfolio Properties should mitigate the effects of
regional economic conditions and local factors, and that the diversified types
of properties should reduce the impact of economic factors that may affect the
retailers in any particular type of property. In addition, management further
believes that the large size of the portfolio should mitigate the effects of any
other factors that may affect a limited group of shopping centers.
The Operating Partnership owns or holds interests in a diversified
portfolio of 183 income producing Portfolio Properties, including 112
super-regional and regional malls, 65 community shopping centers, two specialty
retail centers and owns four mixed-use properties located in 33 states. The
Portfolio Properties contain an aggregate of more than 111 million square feet
of GLA, of which approximately 65 million square feet is GLA owned by the
Operating Partnership. In addition, the Operating Partnership has interests in
seven properties under construction in the United States, and owns land held for
future development. The Operating Partnership, together with the SPG Management
Company and its affiliated management companies, manage over 127 million square
feet of GLA of retail and mixed-use properties. As of September 30, 1996, no
single Portfolio Property accounted for more than 1.4% of GLA or 3.0% of the
Operating Partnership's pro forma gross revenues for the nine months ended
September 30, 1996.
The diversity of property type and market also provides the Operating
Partnership with a broad spectrum of tenant relationships, ranging from in-line
specialty shops to full service department stores; and from value retailers to
high-end fashion merchants. More than 3,600 retailers occupy approximately
12,000 stores in the Portfolio Properties. Total estimated retail sales at the
Portfolio Properties approached $16 billion in fiscal year 1995. Furthermore, no
single retailer leases more than 10.9% of the Owned GLA in the income-producing
properties or represents more than 7.9% of the annualized base rent from these
properties.
The Portfolio Properties include properties owned 100% by the Operating
Partnership (the "Wholly-Owned Properties"), and properties held as joint
ventures (the "Joint Venture Properties"). Of the 183 Portfolio Properties, 139
are Wholly-Owned Properties, and 44 are Joint Venture Properties. The Operating
Partnership manages the Wholly-Owned Properties and its affiliate, the SPG
Management Company, manages all but two of the Joint Venture Properties.
COMPETITIVE POSITION
The Operating Partnership believes that it has a competitive advantage in
the retail real estate business as a result of (i) its use of innovative
retailing concepts, (ii) the strength of its management and operational
expertise, (iii) its extensive experience and relationship with retailers and
lenders and (iv) the size and diversity of its portfolio of properties.
The Operating Partnership has employed many creative retailing concepts in
the Portfolio Properties, such as the power center, which transformed the
community shopping center through its high concentration of anchor stores; the
specialty retail center, with many unique merchandising and entertainment
attractions located in a distinctive marketplace or location; the selective
addition to regional malls of value-oriented tenants; and the combination of
traditional retail stores with entertainment and restaurant facilities.
The senior executives of the General Partners have been recognized leaders
in the shopping center industry over the past three decades. The predecessors to
the Operating Partnership were among the first owners of shopping centers to
integrate the full spectrum of services needed to manage, develop and acquire
shopping centers, including leasing, development, management, marketing,
research, budgeting, accounting, real estate tax management, collection,
technical, architectural, construction, engineering, tenant coordination, legal
and financial services. The depth and tenure of the management of the General
Partners has enabled it to develop a results-driven team that is encouraged to
adopt innovative strategies and solutions to the operation of the Operating
Partnership's business.
S-9
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Management believes its experience and relationships with retailers of
almost every type make the Operating Partnership one of the few shopping center
companies that, on a national scale, can develop, acquire, lease and manage
virtually every kind of shopping center in both urban and suburban locations,
from the community center to the super-regional mall, and from the high-fashion
center to the value-oriented center. Management also believes that such a wide
spectrum of retail formats provides the Operating Partnership with a competitive
advantage which enables it to respond quickly and effectively to the changing
requirements of the market.
Management further believes that the size and diversity of its portfolio
and operations enable the Operating Partnership to realize significant economies
of scale, provide operating and leasing leverage, and enable the Operating
Partnership to stay at the forefront of emerging retail trends.
OPERATING STRATEGY
The Operating Partnership's primary business objectives are to increase
cash generated from operations and the value of the Operating Partnership's
properties and operations. The Operating Partnership plans to achieve these
objectives through a variety of methods discussed below, although no assurance
can be made that such objectives will be achieved.
Leasing. The Operating Partnership pursues an active leasing strategy,
which includes aggressively marketing available space; increasing occupancy;
renewing leases at higher base rents per square foot; retenanting space occupied
by underperforming tenants; and continuing to sign leases that provide for
percentage rents and/or regular or periodic fixed contractual increases in base
rents. Management believes that the Operating Partnership's extensive
relationship with national retail tenants provides an advantage in leasing space
at the Portfolio Properties.
Management. Drawing upon the expertise gained through management of over
127 million square feet of retail and mixed-use properties, the Operating
Partnership seeks to maximize cash flow through a combination of an active
merchandising program to maintain its shopping centers as inviting shopping
destinations, continuation of its successful efforts to minimize overhead and
operating costs, coordinated marketing and promotional activities and systematic
planning and monitoring of results.
Expansion and Renovation. The Operating Partnership has a number of
expansion or renovation projects under construction or in the final stages of
pre-construction development, including several existing Portfolio Properties
which have significant expansion opportunities. The contemplated expansions
would typically involve the addition of one or more anchor stores and/or
additional mall store space. At each site where additional anchor space is
contemplated, one or more retailers have expressed interest in occupying an
anchor store in the expansion space. The Operating Partnership's current and
recently completed expansion and renovation projects are described under "Recent
Developments."
Development. The Operating Partnership believes there will continue to be
opportunities to develop regional malls and power centers in selected growing
metropolitan markets. The Operating Partnership intends to undertake such
development on a selected basis, and believes that it will have a competitive
advantage in doing so as a result of its extensive development expertise, the
breadth and depth of its relationships with retailers and its access to capital.
Since the 1960's, the Operating Partnership or its predecessor has been among
the most active developers, managers and redevelopers of shopping centers in the
U.S. The Operating Partnership's current development activities are described
under "Recent Developments."
Acquisitions. The Operating Partnership intends selectively to acquire
individual properties and portfolios of properties that meet its investment
criteria as opportunities arise. Management believes that consolidation is
occurring within the shopping center industry, creating opportunities for the
Operating Partnership to acquire selected individual properties and portfolios
of shopping centers. Management also believes that its extensive experience in
the shopping center business, access to capital markets, familiarity with real
estate markets and advanced management systems will allow it to evaluate,
execute and integrate acquisitions competitively. Furthermore, management
believes that the Operating Partnership will be able to manage and operate
acquired properties on a cost effective basis as a result of (i) the scope of
the Operating
S-10
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Partnership's existing portfolio and (ii) the economies of scale of the regional
mall business. Additionally, the Operating Partnership may be able to acquire
properties on a tax-advantaged basis for the transferors through the issuance of
its units of limited partnership ("OP Units"). The Operating Partnership may
also be able to acquire properties through public or private debt financings or
through equity financings of the Company. The consent of the lenders under
certain of the Operating Partnership's long term debt agreements may be required
in connection with substantial property acquisitions. See "Recent Developments."
FINANCING STRATEGY
Management seeks to maintain a well-balanced, conservative and flexible
capital structure by: (i) targeting a ratio of debt to total market
capitalization of approximately 50% or lower; (ii) managing and sequencing the
maturity dates of the Operating Partnership's debt; (iii) borrowing primarily at
fixed rates, and hedging floating rate indebtedness where appropriate; (iv)
decreasing the proportion of borrowings done on a secured basis and increasing
the amount of unencumbered cash flow and properties; (v) maintaining
conservative debt service and fixed charge coverage ratios; (vi) pursuing
liquidity and financial flexibility by maintaining cash reserves and substantial
availability under the Operating Partnership's Credit Facility (as defined
below); and (vii) as the Operating Partnership's Funds From Operations ("FFO")
grows, gradually reducing the payout ratio and retaining more FFO for capital
needs. Management believes that these strategies have enabled and should
continue to enable the Operating Partnership to access the debt and equity
capital markets for their long-term requirements such as debt refinancings and
financing for development and acquisitions of additional properties and
portfolios of properties. It is the Company's policy that Simon DeBartolo Group,
Inc. shall not incur indebtedness other than short-term trade, employee
compensation, distributions payable or similar indebtedness that will be paid in
the ordinary course of business, and that indebtedness shall instead be incurred
by the Operating Partnership to the extent necessary to fund the business
activities conducted by the Operating Partnership, its subsidiaries and
affiliates.
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RECENT DEVELOPMENTS
THE MERGER
On August 9, 1996, pursuant to an Agreement and Plan of Merger, dated as of
March 26, 1996, as amended, among the Company, Day Acquisition Corp., an Ohio
corporation and a subsidiary of the Company ("Sub"), and DRC, Sub was merged
with and into DRC. Such merger and related transactions thereto (the "Merger")
were approved by stockholders of the Company and shareholders of DRC at their
special meetings held on August 7, 1996 and August 6, 1996, respectively.
In connection with the Merger, outstanding shares of common stock of DRC,
par value $.01 per share, were converted into the right to receive 0.68 shares
of common stock of the Company, plus cash in lieu of any fractional shares. As a
result, shareholders of DRC received approximately 37.9 million shares of common
stock of the Company. In addition, all of the limited partners of SPG, LP and
the Company, as general partner of SPG, LP, contributed an aggregate 49.5%
interest of the outstanding partnership units of SPG, LP and an additional 49.5%
interest in the profits of SPG, LP to the Operating Partnership, in exchange for
a majority of the partnership interests in the Operating Partnership.
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition, directly or indirectly, of 100% of the net assets of
DeBartolo Realty Partnership, L.P. ("DRP, LP"). See "Accounting Treatment of the
Merger", and "The Merger" in the accompanying Prospectus.
ACQUISITIONS, DEVELOPMENTS AND EXPANSIONS
Since December 1994, the Operating Partnership has continued to acquire,
develop, expand and renovate its portfolio. Such projects have historically
been, and the Operating Partnership expects that in the future they will
continue to be, financed principally with existing credit facilities, equity
financings by the Company and cash flow from operations.
S-12
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Completed Acquisitions
The Operating Partnership selectively acquires individual properties and
portfolios of properties that meet its investment criteria as opportunities
arise. Since December 1994 the Operating Partnership and its predecessors have
completed 15 acquisitions resulting in an addition of approximately 4.5 million
square feet of GLA to the Portfolio Properties from such acquisitions in
properties in which they had no previous ownership interest. The table below
gives certain information regarding recently completed acquisitions.
OPERATING PERCENT
PARTNERSHIP'S LEASED(1)
% INTEREST AS AS OF
DATE OF % INTEREST OF SEPTEMBER 30, TOTAL GLA SEPTEMBER 30,
NAME LOCATION COMPLETION ACQUIRED 1996 (SQ. FT.) 1996
- ------------------- ------------------- ------------------- ---------- ---------------- ---------- -------------
Independence Center Independence, MO December, 1994 100% 100% 1,032,023 77.2%
Orange Park Mall Jacksonville, FL December, 1994 100% 100% 847,791 88.8%
University Mall Pensacola, FL December, 1994 100% 100% 712,010 79.8%
Broadway Square Tyler, TX December, 1994 100% 100% 570,646 94.8%
White Oaks Mall Springfield, IL February, 1995 50% 77% 903,582 92.0%
Miami International Miami, FL July, 1995, 23% 60% 972,281 95.4%
Mall March, 1996
University Center South Bend, IN July, 1995 10% 60% 150,533 97.8%
University Park South Bend, IN July, 1995 10% 60% 908,729 94.4%
Mall
Crossroads Mall Omaha, NE August, 1995 50% 100% 872,859 92.2%
East Towne Mall Knoxville, TN September, 1995 50% 100% 977,227 81.4%
Smith Haven Mall Lake Grove, NY December, 1995 25% 25% 1,376,218 85.5%
Biltmore Square Asheville, NC January, 1996 33% 67% 495,419 77.0%
Chesapeake Square Chesapeake, VA January, 1996 25% 75% 704,711 78.2%
Ross Park Mall Pittsburgh, PA April, 1996 39% 89%(2) 1,273,479 92.5%
North East Mall Hurst, TX October, 1996 50% 50%(3) 1,141,585 88.0%
- ---------------
(1) Represents the percentage of Owned GLA leased.
(2) The Operating Partnership receives 100% of the economic ownership interest
in the property and has exercised its option to acquire the remaining 11% of
the ownership effective January 1997.
(3) In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996, for cash, an additional
20% limited partnership interest in North East Mall, the joint venture
partnership which owns North East Mall. At the same time, the Operating
Partnership exercised its option to acquire the remaining 30% limited
partnership interest in North East Mall owned by the Simons in exchange for
472,410 units in the Operating Partnership ("OP Units"), as well as the
Simons' 50% general partnership interest which the Operating Partnership
acquired for nominal consideration. The Simons had previously contributed to
the Operating Partnership, in exchange for OP Units, the right to receive
distributions relating to its 50% general partnership interest. Therefore
the Operating Partnership as a result of these transactions owns 100% of
North East Mall.
S-13
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Completed Developments and New Developments under Construction
The Operating Partnership continues to develop regional malls, power
centers and specialty centers in selected growing metropolitan markets. The
Operating Partnership undertakes such development on a selected basis and
believes that it has a competitive advantage in doing so as a result of its
development expertise, the breadth and depth of its relationships with retailers
and its access to capital. The table below gives certain information regarding
recently completed developments and new developments under construction.
PERCENT
ACTUAL OR LEASED(1)
EXPECTED OPERATING AS OF
DATE OF PARTNERSHIP'S TOTAL GLA SEPTEMBER 30,
COMPLETION NAME LOCATION % INTEREST (SQ. FT.) 1996
- ----------------- ---------------------- ---------------- ------------- --------- -------------
Completed Developments:
September,
1995........... Circle Centre Indianapolis, IN 15% 797,022 91.5%
September,
1995........... Seminole Towne Center Sanford, FL 45% 1,139,071 83.4%
October, 1995.... Lakeline Mall North Austin, TX 50% 1,102,905 90.0%
July, 1996....... Cottonwood Mall Albuquerque, NM 100% 1,026,948 89.6%
November, 1996... Ontario Mills(2) Ontario, CA 25% 1,400,000 90.0%(3)
November, 1996... Indian River Mall(2) Vero Beach, FL 50% 754,000 84.0%(3)
---------
Total 6,219,946
=========
New Developments Under Construction:
4th Qtr. 1996.... Tower Shops Las Vegas, NV 50% 60,000 N/A
1st Qtr. 1997.... Indian River Commons Vero Beach, FL 50% 265,000 N/A
3rd Qtr. 1997.... The Source Long Island, NY 50% 730,000 N/A
4th Qtr. 1997.... Arizona Mills Tempe, AZ 25% 1,225,000 N/A
4th Qtr. 1997.... Grapevine Mills Grapevine, TX 38% 1,450,000 N/A
---------
Total 3,730,000
=========
- ---------------
(1) Represents the percentage of Owned GLA leased.
(2) These properties were under construction as of September 30, 1996, but have
since been completed.
(3) Represents space leased and committed as of November 14, 1996.
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Expansions and Renovations
The Operating Partnership has recently completed several expansions or
renovations of Portfolio Properties and has a number of projects under
construction or in the final stages of pre-construction development, including
several existing Portfolio Properties which have significant expansion
opportunities. Such projects typically involve the addition of one of more
anchor stores and/or additional mall space. The table below gives certain
information regarding recently completed expansions or renovations and expansion
or renovation projects currently under construction.
ACTUAL OR EXPECTED PERCENT LEASED(1)
DATE OF COMPLETION NAME LOCATION AS OF SEPTEMBER 30, 1996
- ------------------------------ ----------------------- ------------------ ------------------------
Completed Expansions and/or Renovations:
August, 1995.................. Biltmore Square Asheville, NC 77.0%
November, 1995................ Tippecanoe Mall Lafayette, IN 78.5%
November, 1995................ Ingram Park Mall San Antonio, TX 89.7%
November, 1995................ Barton Creek Square Austin, TX 90.9%
November, 1995................ Cheltenham Square Philadelphia, PA 94.9%
November, 1995................ Bay Park Square Green Bay, WI 89.5%
November, 1995................ Coral Square Coral Springs, FL 86.1%
November, 1995................ Lima Mall Lima, OH 92.7%
November, 1995................ Glen Burnie Mall Glen Burnie, MD 91.8%
October, 1996................. University Park Mall South Bend, IN 94.4%
November, 1996(2)............. Summit Mall Akron, OH 84.8%
November, 1996(2)............. Greenwood Plus Greenwood, IN 100.0%
Expansions and/or Renovations Currently Under Construction:
November, 1996................ College Mall Bloomington, IN 84.8%
April, 1997................... Lafayette Square Indianapolis, IN 81.6%
May, 1997..................... Century III Mall Pittsburgh, PA 87.9%
May, 1997..................... Chautauqua Mall Lakewood, NY 64.7%
May, 1997..................... Tippecanoe Plaza Lafayette, IN 100.0%
September, 1997............... Muncie Mall Muncie, IN 85.6%
September, 1997............... Forum Shops at Caesars Las Vegas, NV 95.9%
September, 1997............... Aventura Mall Miami, FL 94.4%
September, 1997............... Southern Park Mall Youngstown, OK 91.7%
3rd Quarter, 1998............. Florida Mall Orlando, FL 95.6%
- ---------------
(1) Represents the percentage of Owned GLA leased.
(2) These properties were under expansion and/or renovation as of September 30,
1996, but have since been completed.
Pre-construction development continues on a number of project expansions,
renovations and anchor additions at over 50 properties, including significant
activity at properties such as Irving Mall in Irving, Texas; La Plaza in
McAllen, Texas; North East Mall in Hurst, Texas; Prien Lake Mall in Lake
Charles, Louisiana; Southern Park Mall in Youngstown, Ohio; University Mall in
Pensacola, Florida; Mission Viejo Mall in Mission Viejo, California; and
Northgate Mall in Seattle, Washington. The Operating Partnership expects to
commence construction on many of these projects in the next 12 to 24 months.
S-15
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FINANCINGS AND INDEBTEDNESS
On April 19, 1995, the Company completed an offering of 6,000,000 shares of
common stock, and on May 10, 1995 the underwriters exercised a portion of the
over-allotment option granted them in connection with that offering aggregating
241,845 shares generating net proceeds of $142 million. These proceeds were
contributed to SPG, LP in exchange for partnership units and subsequently used
to repay a term loan and pay down amounts outstanding on an unsecured revolving
credit facility.
On October 27, 1995, the Company completed a $100 million private equity
placement of 4,000,000 shares of Series A convertible preferred stock (the
"Series A Preferred Shares") with Algemeen Burgerlijk Pensioenfonds ("ABP"). The
holder of the Series A Preferred Shares votes with the holders of the Company's
common stock on all matters. The Company contributed the proceeds of this
private equity placement to SPG, LP, in exchange for preferred units in SPG, LP
which are entitled to preferential distributions equal to the dividends paid on
the Series A Preferred Shares held by ABP.
On September 10, 1996, the Operating Partnership retired the DRC secured
line of credit, which bore interest at LIBOR plus 175 basis points, with
proceeds from SPG, LP's two unsecured credit facilities, which bore interest at
LIBOR plus 132.5 basis points.
On September 20, 1996, the Securities and Exchange Commission declared
effective a shelf registration statement filed by the Company to provide for the
offering, from time to time, of up to $750 million aggregate public offering
price of common stock, preferred stock, depositary shares and/or warrants of the
Company. On September 27, 1996, pursuant to such shelf registration statement,
the Company completed a $200 million public offering (the "Preferred Offering")
of 8,000,000 shares of 8 3/4% Series B Cumulative Redeemable Preferred Stock
(the "Series B Preferred Shares"), generating net proceeds of approximately $193
million. The Company contributed the proceeds of such offering to the Operating
Partnership in exchange for preferred units in the Operating Partnership, the
terms of which are substantially identical to those applicable to the Series B
Preferred Shares. The Operating Partnership ultimately used the net proceeds to
repay $142.8 million of outstanding mortgage indebtedness, $34.4 million under
SPG, LP's two unsecured credit facilities, $12.5 million to acquire additional
partnership interests in North East Mall, Hurst, Texas and the remainder for
working capital.
On September 27, 1996, the Operating Partnership obtained a $750 million,
unsecured, three-year credit facility (the "Credit Facility"), which initially
bears interest at LIBOR plus 90 basis points, and retired the outstanding
borrowing of SPG, LP in the aggregate principal amount of $323 million under
SPG, LP's two unsecured credit facilities, which bore interest at LIBOR plus
132.5 basis points. The Credit Facility increases the Operating Partnership's
available capital by $150 million.
Both the Operating Partnership and the Company anticipate in the future
issuing additional debt or equity securities on a public or private basis. The
Operating Partnership is currently contemplating an issuance of unsecured debt
in the near future in an amount currently expected not to exceed $100 million.
On November 5, 1996, the Company entered into a forward treasury lock
agreement (the "Agreement") with J.P. Morgan Securities Inc. (the
"Counterparty"). Pursuant to the Agreement, the Company and the Counterparty
have agreed to exchange payments with respect to a notional principal amount of
$100 million based on how a specified interest rate on U.S. Treasuries will have
varied from a base rate of 6.307% (which rate includes an embedded premium of
approximately 0.013% to reflect the term of the Agreement) on November 22, 1996.
The Company will either receive or make a payment, depending on whether such
specified interest rate is above or below 6.307%. On average, a movement of
0.01% above 6.307% would require the Counterparty to make a payment of
approximately $73,000 to the Company, and a movement of 0.01% below 6.307% would
require the Company to make a payment of approximately $73,000 to the
Counterparty. On November 20, 1996, such specified interest rate was 6.13%,
which, if it were to be the specified interest rate on November 22, 1996, would
require the Company to make a payment of approximately $1,312,500 to the
Counterparty.
Neither the Company nor the Operating Partnership has previously entered
into an agreement such as the Agreement in connection with a contemplated debt
offering for the purpose of hedging against interest rate
S-16
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exposure in connection with a prospective offering, although the Operating
Partnership has entered into other types of interest rate protection agreements
for the purpose of hedging against interest rate exposure under existing
indebtedness. Neither the Company nor the Operating Partnership currently
contemplates entering into another agreement similar to that of the Agreement.
After the registration statement of which this Prospectus forms a part has
become effective, in connection with future offerings under this registration
statement, the Operating Partnership may enter into interest rate protection
agreements which hedge the interest rate exposure associated with any such
future debt offerings.
As of September 30, 1996, the Operating Partnership had consolidated debt
on a pro forma basis giving effect to the Offering (as defined below) and the
Preferred Offering of $3,557.1 million (including $97.0 million applicable to
minority interests) and the Operating Partnership's allocable share of
unconsolidated debt of the Joint Venture Properties on a pro forma basis as of
September 30, 1996 giving effect to the Offering and the Preferred Offering was
$431.2 million. Scheduled maturities of this debt for periods reflected are as
follows:
ALLOCABLE SHARE
OF
JOINT VENTURE
CONSOLIDATED DEBT
YEAR OF MATURITY DEBT(1) --------------- TOTAL DEBT
------------------------------------------------- ------------ (IN THOUSANDS) ----------
1996 (10/1 to 12/31)............................. $ 63,079(2) $ 1,153 $ 64,232
1997............................................. 30,000 3,498 33,498
1998............................................. 288,379 70,833 359,212
1999............................................. 537,935(3) 68,929 606,864
2000............................................. 334,176 62,552 396,728
2001............................................. 651,589 24,206 675,795
2002............................................. 461,865 26,187 488,052
2003............................................. 348,288 74,452 422,740
2004............................................. 187,848 0 187,848
2005............................................. 40,312 61,636 101,948
2006............................................. 254,745 37,735 292,480
2007............................................. 220,769 0 220,769
Thereafter....................................... 126,290 0 126,290
---------- -------- ----------
Subtotal................................ 3,545,275 431,181 3,976,456
Other(4)......................................... 11,848 -- 11,848
---------- -------- ----------
Total................................... $3,557,123 $ 431,181 $3,988,304
========== ======== ==========
- ---------------
(1) This table reflects the net proceeds of the Offering which are expected to
retire $62,000 maturing in 1997 and $136,000 maturing in 1999. See "Use of
Proceeds."
(2) The Operating Partnership has received a commitment to extend the maturity
of this indebtedness for up to three years.
(3) Includes $308,600 outstanding on the Credit Facility on a pro forma basis.
See "Capitalization."
(4) Amount reflects the adjustment of DRC's indebtedness to fair market value.
OTHER RECENT DEVELOPMENTS
On October 16, 1996, a complaint was filed in the Court of Common Pleas of
Mahoning County, Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty
Corp. et al. The named defendants are the Managing General Partner and DeBartolo
Properties Management, Inc., and the plaintiffs are 24 former employees of the
defendants. In the complaint, plaintiffs allege that they were recipients of
deferred stock grants under the DRC 1994 Stock Incentive Plan (the "Plan") and
that these grants immediately vested under the Plan's "change in control"
provision as a result of the Merger. Plaintiffs assert that the defendants'
refusal to issue them approximately 579,000 shares of DRC common stock, which is
equivalent to approximately 394,000 shares of common stock of the Company
computed at the .68 exchange ratio used in the Merger, constitutes a
S-17
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breach of contract and a breach of the implied covenant of good faith and fair
dealing under Ohio law. Plaintiffs seek damages equal to such number of shares
of DRC common stock, or cash in lieu thereof, equal to all deferred stock ever
granted to them under the Plan, dividends on such stock from the time of the
grants, compensatory damages for breach of the implied covenant of good faith
and fair dealing, and punitive damages.
The complaint was served on the defendants on October 28, 1996, and
pre-trial proceedings have not yet commenced. The Company is of the opinion that
it has meritorious defenses and accordingly intends to defend this action
vigorously. While it is difficult to predict the outcome of this litigation at
this stage, based on the information known to the Company to date, the Company
does not expect this action will have a material adverse effect on the Company.
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USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Notes
offered hereby (the "Offering"), after deducting total expenses estimated to be
approximately $2 million, are estimated to be approximately $198 million. The
Operating Partnership intends to use substantially all of the proceeds of the
Offering to repay existing mortgage indebtedness of approximately $117.6
million, and to reduce the amount outstanding under the Credit Facility by
approximately $80.4 million. Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan Securities Inc. and Union Bank of Switzerland, New York
Branch, an affiliate of UBS Securities LLC are lead agents under the Credit
Facility, and as such are receiving a portion of the net proceeds of the
Offering in connection with amounts being repaid with respect thereto. Pending
such use, the net proceeds may be invested in short-term income producing
investments such as commercial paper, government securities or money market
funds that invest in government securities. On November 14, 1996, the weighted
average interest rate on the interim indebtedness expected to be repaid with the
aggregate net proceeds of the Offering and the weighted average maturity of such
indebtedness, were 7.36% and 1.48 years, respectively.
ACCOUNTING TREATMENT OF THE MERGER
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DeBartolo Realty
Partnership, L.P. ("DRP, LP"). Although the Company was the accounting acquirer,
DRP, LP (which is now known as Simon DeBartolo Group, L.P. ("SDG, LP")) became
the primary operating partnership through which the future business of the
Company will be conducted. As a result of the Merger, the Company's initial
operating partnership, SPG, LP, became a subsidiary of SDG, LP. However, because
the Company was the accounting acquirer and, upon completion of the Merger,
acquired majority control of DRP, LP, SPG, LP is the predecessor to SDG, LP for
financial reporting purposes. Accordingly, the financial statements and ratios
disclosed by SDG, LP for post-merger periods will reflect the reverse
acquisition of DRP, LP by the Company using the purchase method of accounting
and for all pre-merger comparative periods, the financial statements and ratios
disclosed by SDG, LP will reflect the financial statements and ratios of SPG, LP
as the predecessor to SDG, LP for financial reporting purposes. See "The Merger"
in the accompanying Prospectus.
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CAPITALIZATION
The following table sets forth the historical capitalization of SDG, LP as
of September 30, 1996, and the pro forma capitalization of SDG, LP as of
September 30, 1996, as adjusted to give effect to the Offering, the Preferred
Offering and the reclassification of limited partners' equity interest in SDG,
LP:
AS OF SEPTEMBER 30, 1996
-------------------------
HISTORICAL PRO FORMA
----------- ---------
(IN MILLIONS)
Debt
Mortgage Debt...................................................... $ 3,232 $ 3,049(1)
Credit Facility.................................................... 323 308(1)
The Notes.......................................................... -- 200
------ ------
Total Debt................................................. 3,555 3,557
------ ------
Limited Partners' equity interest at redemption value(2)............. 1,543 --
------ ------
Partners' Equity
Series A Preferred Units, 4,000,000 units authorized, issued and
outstanding(3).................................................. 100 100
Series B Preferred Units, 9,200,000 units authorized, 8,000,000
units issued and outstanding(3)................................. 193 193
General Partners(4)................................................ 1,030 1,030
Limited Partners(4)................................................ -- 646
Adjustment to exclude Limited Partners' equity interest at
redemption value................................................ (897) --
Unamortized Restricted Stock Award................................. (6) (6)
------ ------
Total Partners' Equity..................................... 420 1,963
------ ------
Total Capitalization....................................... $ 5,518 $ 5,520
====== ======
- ---------------
(1) A portion of the proceeds ($65.6) from the Preferred Offering were used on
an interim basis in September 1996 to reduce amounts outstanding under the
Credit Facility. In October 1996 this amount was borrowed under the Credit
Facility to repay mortgage indebtedness.
(2) On November 13, 1996, an agreement was reached between the Company and the
Operating Partnership which restricts the Company's ability to cause the
Operating Partnership to redeem for cash the limited partners' units without
contributing cash to the Operating Partnership as partners' equity
sufficient to effect the redemption. If sufficient cash is not contributed,
the Company will be deemed to have elected to acquire the limited partners'
units for shares of the Company's common stock. Accordingly, prospectively
the limited partners' interest in SDG, LP will be reflected in the
consolidated balance sheet of SDG, LP as partners' equity at historical
carrying value. The impact of the arrangement has been reflected as a pro
forma adjustment. See "Pro Forma Combined Condensed Financial Information."
(3) The Company is entitled to preferred distributions from SPG, LP and the
Operating Partnership equal to the dividends paid by the Company on the
Series A Preferred Shares and the Series B Preferred Shares, respectively.
(4) Units issued and outstanding of SDG, LP at September 30, 1996 were as
follows:
ACTUAL AT
SEPTEMBER
30, 1996
------------
General Partners......................................................... 96,507,387
Limited Partners......................................................... 60,501,640
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SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth certain selected financial and operating
data on a historical basis for SDG, LP and for SPG, LP, the Predecessor of SDG,
LP for financial reporting purposes, and pro forma historical financial data of
SDG, LP for the respective periods presented. The financial statements of SDG,
LP for the post-merger periods will reflect the reverse acquisition of DRP, LP
by the Company using the purchase method of accounting and for all pre-merger
comparative periods the financial statements disclosed by SDG, LP will reflect
the financial statements of its Predecessor for financial reporting purposes,
SPG, LP. See "Accounting Treatment of the Merger", and "The Merger" in the
accompanying Prospectus. The historical financial information should be read in
conjunction with the financial statements and notes thereto of SDG, LP, SPG, LP
and DRP, LP, respectively, included in the accompanying Prospectus. The pro
forma combined balance sheet data as of September 30, 1996 is presented as if
the Offering, the Preferred Offering and the reclassification of limited
partners' equity interest in SDG, LP had occurred on September 30, 1996. The
unaudited pro forma combined operating data for the nine month period ended
September 30, 1996 and the year ended December 31, 1995 are presented as if the
Offering, the Preferred Offering and the Merger had occurred as of January 1,
1995 and were carried forward through September 30, 1996. The pro forma
financial information does not purport to represent what the actual financial
position or results of operation would have been as of the period or for the
periods indicated, nor does it purport to represent any future financial
position or results of operations for any future period. The pro forma financial
information should be read in conjunction with the financial statements and
notes thereto of SDG, LP, SPG, LP and DRP, LP, respectively, included in the
accompanying Prospectus.
SIMON DEBARTOLO
GROUP, L.P. (SDG, LP)
--------------------------------------------
PRO FORMA
PRO FORMA FOR THE FOR THE
FOR THE NINE YEAR NINE MONTHS
MONTHS ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1996
-------------- ------------ -------------
(IN THOUSANDS EXCEPT PER UNIT DATA,
PORTFOLIO PROPERTY DATA AND RATIOS)
OPERATING DATA(1):
Total Revenue........................................................ $ 694,343 $889,714 $ 485,640
Expenses:
Operating Expenses.................................................. 256,671 308,280 189,888
Depreciation and Amortization....................................... 134,442 162,560 88,913
Interest Expense(2)................................................. 196,714 243,559 135,346
Income (Loss) before Extraordinary Items............................ 119,556 191,262 76,639
Net Income (Loss)................................................... $ 119,556 $191,262 $ 73,844
Preferred Unit Distributions......................................... 19,219 18,990 6,286
Net Income (Loss) available to unit holders.......................... 100,337 172,272 67,558
Net Income per unit before extraordinary items...................... $ 0.64 $ 1.12 $ 0.65
Net Income per unit(3).............................................. $ 0.64 $ 1.12 $ 0.63
Distributions per unit.............................................. $ 1.14 $ 1.97 $ 1.14
Weighted average units outstanding................................... 156,926 153,809 107,607
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net...................................... $4,989,949 N/A $ 4,989,949
Cash and cash equivalents........................................... 92,575 N/A 92,575
Total Assets........................................................ 5,800,196 N/A 5,798,176
Total Debt.......................................................... 3,557,123(4) N/A 3,555,123
Limited Partners' Equity Interest................................... -- N/A 1,542,792
Owner's Equity (Deficit)............................................ $1,962,765 N/A $ 419,973
OTHER DATA(1):
Cash flow provided by (used in):
Operating activities.............................................. $ 245,189 $303,236 $ 140,736
Investing activities.............................................. (91,090) (306,421) (57,971)
Financing activities.............................................. (93,409) (88,481) 52,911
Restated Funds from Operations (FFO) (5)............................ $ 248,541 $346,971 $ 173,481
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE DEFICIT(6)............ 1.61x 1.82 1.50x
SIMON PROPERTY GROUP, L.P.
(SPG, LP, THE PREDECESSOR OF SDG, LP)
-------------------------------------------------------
FOR THE
FOR THE PERIOD FROM
NINE MONTHS FOR THE FOR THE DECEMBER 20
ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1994 1993
------------- ----------- ------------ -------------
(IN THOUSANDS EXCEPT PER UNIT DATA,
PORTFOLIO PROPERTY DATA AND RATIOS)
OPERATING DATA(1):
Total Revenue........................................................ $ 398,297 $ 553,657 $ 473,676 $ 18,424
Expenses:
Operating Expenses.................................................. 151,914 209,782 183,433 4,095
Depreciation and Amortization....................................... 65,212 92,739 75,945 2,051
Interest Expense(2)................................................. 112,125 150,224 150,164 3,548
Income (Loss) before Extraordinary Items............................ 72,681 101,505 60,308 8,707
Net Income (Loss)................................................... $ 69,797 $ 98,220 $ 42,328 $ (21,774)
Preferred Unit Distributions......................................... -- 1,490 -- --
Net Income (Loss) available to unit holders.......................... 69,797 96,730 42,328 (21,774)
Net Income per unit before extraordinary items..................... $ 0.79 1.08 $ 0.71 $ 0.11
Net Income per unit(3)............................................. $ 0.76 1.04 $ 0.50 $ (0.28
Distributions per unit............................................. $ 1.48 1.97 $ 1.90 --
Weighted average units outstanding.................................. 91,663 92,666 84,510 78,447
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net..................................... $ 1,985,841 2,009,344 $1,829,111 $1,350,360
Cash and cash equivalents.......................................... 72,983 62,721 105,139 110,625
Total Assets....................................................... 2,407,499 2,556,436 2,316,860 1,793,654
Total Debt......................................................... 1,986,072 1,980,759 1,938,091 1,455,884
Limited Partners' Interest......................................... 949,126 908,764 909,306 848,373
Owner's Equity (Deficit)........................................... $ (709,583) (589,126) $ (807,613) $ (791,820)
OTHER DATA(1):
Cash flow provided by (used in):
Operating activities............................................. $ 129,544 194,336 $ 128,023 N/A
Investing activities............................................. (101,191) (222,679) (266,772) N/A
Financing activities............................................. (60,509) (14,075) 133,263 N/A
Restated Funds from Operations (FFO) (5)........................... $ 137,287 197,909 $ 167,761 N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE DEFICIT(6)........... 1.64x 1.67x 1.43x 3.36x
SIMON PROPERTY GROUP
(THE PREDECESSOR OF SPG, LP)
-----------------------------------------
FOR THE FOR THE FOR THE
PERIOD FROM YEAR YEAR
JANUARY 1 TO ENDED ENDED
DECEMBER 19, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------ ------------ -------------
(IN THOUSANDS EXCEPT PER UNIT DATA,
PORTFOLIO PROPERTY DATA AND RATIOS)
OPERATING DATA(1):
Total Revenue........................................................ $ 405,869 $ 400,852 $ 378,029
Expenses:
Operating Expenses.................................................. 175,801 176,682 173,923
Depreciation and Amortization....................................... 60,243 58,104 56,033
Interest Expense(2)................................................. 156,909 178,075 159,798
Income (Loss) before Extraordinary Items............................ 6,912 (11,692) (15,865)
Net Income (Loss)................................................... $ 33,101 $ (11,692) $ (15,865)
Preferred Unit Distributions......................................... -- -- --
Net Income (Loss) available to unit holders.......................... (11,692) (15,865)
Net Income per unit before extraordinary items...................... 33,101 N/A N/A
Net Income per unit(3).............................................. N/A N/A N/A
Distributions per unit.............................................. N/A N/A N/A
Weighted average units outstanding................................... N/A N/A N/A
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net...................................... N/A $1,156,009 $1,143,050
Cash and cash equivalents........................................... N/A 42,682 31,840
Total Assets........................................................ N/A 1,494,289 1,432,028
Total Debt.......................................................... N/A 1,711,778 1,548,292
Limited Partners' Interest.......................................... N/A N/A N/A
Owner's Equity (Deficit)............................................ N/A $ (565,566) $ (418,697)
OTHER DATA(1):
Cash flow provided by (used in):
Operating activities.............................................. N/A N/A N/A
Investing activities.............................................. N/A N/A N/A
Financing activities.............................................. N/A N/A N/A
Restated Funds from Operations (FFO) (5)............................ N/A N/A N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE DEFICIT(6)............ 1.11x $ (12,821) $ (18,719)
S-21
24
SIMON DEBARTOLO
GROUP, L.P. (SDG, LP)
---------------------------------------------
PRO FORMA
PRO FORMA FOR THE FOR THE
FOR THE NINE YEAR NINE MONTHS
MONTHS ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1996
-------------- ------------ -------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO
PROPERTY DATA AND RATIOS)
OTHER RATIOS(1):
Ratio of EBITDA After Minority Interest to Fixed Charges and
Preferred Unit Distributions(7)(8).................................. 1.98x 2.13x 2.10x
Ratio of Debt to Adjusted Total Assets(9)........................... 48.53% 46.06% 48.52%
Ratio of Secured Debt to Adjusted Total Assets(10).................. 43.01% 41.63% 44.49%
Ratio of Unencumbered Assets to Unsecured Debt(11).................. 3.99x 4.94x 5.80x
Ratio of EBITDA After Minority Interest to Interest Expense
(7)(12)............................................................. 2.31x 2.46x 2.37x
PORTFOLIO DATA:
Total EBITDA(7)..................................................... $576,850 $760,880 $ 390,156
EBITDA After Minority Interest(7)................................... 464,239 650,307 313,201
Number of Portfolio Properties...................................... 183 183 183
Total GLA
(thousands of square feet)........................................ 111,124 109,791 111,124
-------- -------- ----------
SIMON PROPERTY GROUP, L.P.
(SPG, LP, THE PREDECESSOR OF SDG, LP)
----------------------------------------------------------
FOR THE FOR THE
NINE PERIOD FROM
MONTHS FOR THE FOR THE DECEMBER 20
ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER DECEMBER 31, DECEMBER 31, DECEMBER 31,
30, 1995 1995 1994 1993
------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO
PROPERTY DATA AND RATIOS)
OTHER RATIOS(1):
Ratio of EBITDA After Minority Interest to Fixed Charges and
Preferred Unit Distributions(7)(8).................................. 2.14X 2.18X 2.18X N/A
Ratio of Debt to Adjusted Total Assets(9)........................... 47.63% 46.51% 50.64% N/A
Ratio of Secured Debt to Adjusted Total Assets(10).................. 42.84% 42.18% 45.74% N/A
Ratio of Unencumbered Assets to Unsecured Debt(11).................. 5.49X 5.49x 3.84x N/A
Ratio of EBITDA After Minority Interest to Interest Expense
(7)(12)............................................................. 2.34X 2.39X 2.36X N/A
PORTFOLIO DATA:
Total EBITDA(7)..................................................... $315,276 $437,548 $386,835 $346,679(13)
EBITDA After Minority Interest(7)................................... 257,123 357,158 307,372 256,169(13)
Number of Portfolio Properties...................................... 120 122 119 114
Total GLA
(thousands of square feet)........................................ 59,644 62,232 58,200 54,042
-------- --------- --------- ---------
SIMON PROPERTY GROUP
(THE PREDECESSOR OF SPG, LP)
--------------------------------------------
FOR THE
PERIOD
FROM FOR THE FOR THE
JANUARY 1 YEAR YEAR
TO ENDED ENDED
DECEMBER DECEMBER 31, DECEMBER 31,
19,1993 1992 1991
------------- ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO
PROPERTY DATA AND RATIOS)
OTHER RATIOS(1):
Ratio of EBITDA After Minority Interest to Fixed Charges and
Preferred Unit Distributions(7)(8).................................. N/A N/A N/A
Ratio of Debt to Adjusted Total Assets(9)........................... N/A N/A N/A
Ratio of Secured Debt to Adjusted Total Assets(10).................. N/A N/A N/A
Ratio of Unencumbered Assets to Unsecured Debt(11).................. N/A N/A N/A
Ratio of EBITDA After Minority Interest to Interest Expense
(7)(12)............................................................. N/A N/A N/A
PORTFOLIO DATA:
Total EBITDA(7)..................................................... N/A $ 316,535 $ 282,326
EBITDA After Minority Interest(7)................................... N/A 227,931 210,634
Number of Portfolio Properties...................................... N/A 110 108
Total GLA
(thousands of square feet)........................................ N/A 52,404 51,375
-------- -------- ---------
- ---------------
(1) The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail
sales are typically at their highest levels. In addition, shopping malls
achieve most of their temporary tenant rents during the holiday season. As
a result, earnings are generally highest in the fourth quarter of each
year.
(2) Interest expense for the year ended December 31, 1994 includes $27.2
million of additional non-recurring contingent interest paid in connection
with the refinancing of a Portfolio Property. The property lender was
entitled to participate in the appreciated market value of the Portfolio
Property upon refinancing. Management does not presently expect to enter
into financing arrangements with similar participation features in the
future. Accordingly, management considers the payment made to the lender
unusual in nature. As explained in footnote (5) below, unusual or
extraordinary items are excluded for purposes of computing FFO.
Accordingly, this item has been excluded from FFO in this table and
elsewhere in this Prospectus Supplement.
(3) Per unit data are reflected only for the periods from December 20, 1993
through September 30, 1996. Per unit data are not relevant for the
historical combined financial statements of Simon Property Group, the
Predecessor to SPG, LP, since such financial statements are a combined
presentation of partnerships and corporations.
(4) Pro forma debt of the Operating Partnership as of September 30, 1996
includes $3,049 million, $308 million and $200 million of mortgage
indebtedness outstanding indebtedness under the Credit Facility and Notes
outstanding, respectively. See "Capitalization."
(5) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means combined net income of the
Operating Partnership without giving effect to depreciation and
amortization, gains or losses from extraordinary items, gains or losses on
sales of real estate, gains or losses on investments in marketable
securities and any provision/benefit for income taxes for such period, plus
the allocable portion, based on the Operating Partnership's ownership
interest, of FFO of unconsolidated joint ventures, all determined on a
consistent basis in accordance with generally accepted accounting
principles. Management believes that FFO is an important and widely used
measure of the operating performance of REITs which provides a relevant
basis for comparison among REITs. FFO is presented to assist investors in
analyzing the performance of the Operating Partnership. The Operating
Partnership's method of calculating FFO may be different from the methods
used by other REITs. FFO (i) does not represent cash flows from operations
as defined by generally accepted accounting principles, (ii) should not be
considered as an alternative to net income as a measure of operating
performance or to cash flows from operating, investing and financing
activities and (iii) is not an alternative to cash flows as a measure of
liquidity. In March 1995, NAREIT modified its definition of FFO. The
modified definition provides that amortization of deferred financing costs
and depreciation of nonrental real estate assets are no longer to be added
back to net income in arriving at FFO. The modified definition was adopted
by the Operating Partnership beginning in 1996. Additionally the FFO for
prior periods have been restated to reflect the new definition in order to
make the amounts comparative.
S-22
25
The following table reconciles pro forma combined net income of the
Operating Partnership to pro forma FFO for the nine months ended September
30, 1996 and for the year ended December 31, 1995:
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------
(IN THOUSANDS)
Pro forma combined net income of the Operating Partnership....................... $119,556 $ 191,262
Plus:
Depreciation and amortization less minority interests for consolidated
properties plus the Operating Partnership's share from unconsolidated joint
ventures.................................................................... 148,204 176,445
Less:
Operating Partnership's share of gains on sales of assets.................... (88) (1,746)
Preferred Unit Distributions................................................. (19,218) (18,990)
-------- --------
Pro forma FFO of the Operating Partnership....................................... $248,541 $ 346,971
======== ========
Pro forma FFO allocable to the General Partners.................................. $152,604 $ 210,264
======== ========
Pro forma FFO allocable to the Limited Partners.................................. $ 95,937 $ 136,707
======== ========
(6) For purposes of computing the Ratio of Earnings to Fixed Charges, earnings
have been calculated by adding Fixed Charges, excluding capitalized
interest, to income (loss) from continuing operations including income from
minority interests which have fixed charges, and including distributed
operating income from unconsolidated joint ventures instead of income from
unconsolidated joint ventures. Fixed Charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
(7) Total EBITDA represents earnings before interest, taxes, depreciation and
amortization for all properties. EBITDA After Minority Interest represents
earnings before interest, taxes, depreciation and amortization for all
properties after distribution to the third-party joint venture partners.
EBITDA (i) does not represent cash flow from operations as defined by
generally accepted accounting principles, (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measurement for assessing the operating performance
of an equity REIT because, together with net income and cash flows, EBITDA
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as revenues and operating expenses, should be considered.
The Operating Partnership's method of calculating EBITDA may be different
from the methods used by other REITs. The Company's weighted average
ownership interest in the operating results for the nine months ended
September 30, 1996 and 1995 was 61.2% and 60.8%, respectively, and was
60.3%, 55.2% and 52.2% in 1995, 1994 and 1993, respectively. The Company's
ownership interest in the Operating Partnership was 61.5% and 60.9% at
September 30, 1996 and 1995, respectively, and was 61.0% and 56.4% at
December 31, 1995 and 1994, respectively.
(8) For purposes of computing the ratio of EBITDA After Minority Interest to
Fixed Charges and Preferred Unit Distributions, Fixed Charges and Preferred
Unit Distributions consist of interest costs, whether expensed or
capitalized and including the Operating Partnership's pro rata share of
joint venture interest expense, the interest component of rental expense
and amortization of debt issuance costs, plus any distributions on
outstanding preferred units.
(9) As specified in the Indenture, Debt consists of indebtedness of the
Operating Partnership and its consolidated subsidiaries, less any portion
attributable to minority interests, plus the Operating Partnership's
allocable portion of indebtedness of unconsolidated joint ventures from
borrowed money, secured indebtedness, reimbursement obligations in
connection with letters of credit and capitalized leases. "Adjusted Total
Assets" as of any date means the sum of (i) the amount determined by
multiplying the sum of the shares of common stock of the Company issued in
the initial public offering of the Company ("IPO") and the units of the
Operating Partnership not held by the Company outstanding on the date of
the IPO, by $22.25 (the "IPO Price"), (ii) the principal amount of the
outstanding consolidated debt of the Company on the date of the IPO, less
any portion applicable to minority interests, (iii) the Operating
Partnership's allocable portion, based on its ownership interest, of
outstanding indebtedness of unconsolidated joint ventures on the date of
the IPO, (iv) the purchase price or cost of any real estate assets acquired
(including the value, at the time of such acquisition, of any units of the
Operating Partnership or shares of common stock of the Company issued in
connection therewith) or developed after the IPO by the Operating
Partnership or any Subsidiary, less any portion attributable to minority
interests, plus the Operating Partnership's allocable portion, based on its
ownership interest, of the purchase price or cost of any real estate assets
acquired or developed after the IPO by any unconsolidated joint venture,
(v) the value of the Merger compiled as the sum of (a) the purchase price
including all related closing costs and (b) the value of all outstanding
indebtedness less any portion attributable to minority interests, including
the Operating Partnership's allocable share, based on its ownership
interest, of outstanding indebtedness of unconsolidated joint ventures at
the Merger date, and (vi) working capital of the Operating Partnership;
subject, however, to reduction by the amount of the proceeds of any real
estate assets disposed of after the IPO by the Operating Partnership or any
Subsidiary, less any portion applicable to minority interests, and by the
Operating Partnership's allocable portion, based on its ownership interest,
of the proceeds of any real estate assets disposed of after the IPO by
unconsolidated joint ventures. On a pro forma basis as of September 30,
1996, the Operating Partnership's Adjusted Total Assets were $8.02 billion.
See "Description of the Notes -- Certain Covenants."
(10) As specified in the Indenture, Secured Debt consists of Debt secured by a
mortgage or other encumbrance on any property of the Operating Partnership
or any Subsidiary. See "Description of the Notes -- Certain Covenants."
(11) As specified in the Indenture, Unencumbered Assets is equal to Adjusted
Total Assets multiplied by a fraction, the numerator of which is
Unencumbered Annualized EBITDA After Minority Interest and the denominator
of which is Annualized EBITDA After Minority Interest. Unencumbered
Annualized EBITDA means Annualized EBITDA less any portion attributable to
assets serving as collateral for Secured Debt. As specified in the
Indenture, Annualized EBITDA means earnings before interest, taxes,
depreciation and amortization for all Portfolio Properties with other
adjustments as are necessary to exclude the effect of items classified as
extraordinary items in accordance with generally accepted accounting
principles, adjusted to reflect the assumption that (i) any income earned
as a result of any assets having been placed in service since the end of
such period had been earned on an annualized basis, during such period, and
(ii) in the case of an acquisition or disposition by the Operating
Partnership, any Subsidiary or any unconsolidated joint venture in which
the Operating Partnership or any Subsidiary owns an interest, of any assets
since the first day of such period, such acquisition or disposition and any
related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition. Annualized EBITDA After Minority Interest means Annualized
EBITDA after distributions to third party joint venture partners. Unsecured
Debt means Debt not secured by a mortgage or other encumbrance on any
property of the Operating Partnership or any subsidiary. See "Description
of the Notes -- Certain Covenants."
(12) For purposes of computing the ratio of EBITDA After Minority Interest to
Interest Expense, Interest Expense includes the Operating Partnership's pro
rata share, based on ownership interest, of joint venture interest expense
and is reduced by amortization of debt issuance costs.
(13) Represents the combined EBITDA and EBITDA After Minority Interest of the
properties for the full year ended December 31, 1993.
S-23
26
BUSINESS AND PROPERTIES
THE PORTFOLIO PROPERTIES
Management believes that the Portfolio Properties comprise the largest
(measured by GLA) and most geographically diverse portfolio of any publicly
traded REIT and that the Company has interests in more regional malls than any
other publicly traded REIT. Management also expects that geographic
diversification should mitigate the effects of regional economic conditions and
local factors, and that diversified types of Portfolio Properties will reduce
the impact of economic factors that may affect the retailers in any particular
type of Portfolio Property. In addition, management believes that the large size
of the portfolio should mitigate the effects of any other factors that may
affect a limited group of shopping centers.
No single income-producing Portfolio Property accounted for more than 1.4%
of GLA as of September 30, 1996 or for more than 3.0% of the Operating
Partnership's pro forma gross revenues for the nine months ended September 30,
1996. No single retailer leased more than 10.9% of Owned GLA in the Portfolio
Properties or represented more than 7.9% of the annualized base rent from these
properties.
The following table summarizes on a combined basis, as of September 30,
1996, certain information with respect to the Portfolio Properties, in total and
by type of shopping center and retailer:
TOTAL
OWNED % OF OWNED
GLA GLA % OF OWNED GLA WHICH IS
TYPE OF PROPERTY(1) (SQ. FT.) (SQ. FT.) GLA(2) LEASED(3)
------------------------------- ----------- ---------- ---------- ------------
Regional Malls(4)
Mall Store................... 32,706,974 32,688,552 49.8 84.2
Freestanding................. 1,450,241 621,059 0.9 89.6
----------- ---------- ----- -----
Subtotal............. 34,157,215 33,309,611 50.7 84.3
----------- ---------- ----- -----
Anchor....................... 59,947,841 20,026,836 30.5 97.1
----------- ---------- ----- -----
Total................ 94,105,056 53,336,447 81.2 89.1
Community Shopping Centers
Mall Store................... 3,823,877 3,742,787 5.7 88.6
Freestanding................. 803,717 308,078 0.4 98.6
Anchor....................... 10,444,738 6,351,819 9.7 93.8
----------- ---------- ----- -----
Total................ 15,072,332 10,402,684 15.8 92.1
Office Portion of Mixed-Use
Properties................... 1,946,896 1,946,896 3.0 94.3
----------- ---------- ----- -----
Total................ 111,124,284 65,686,027 100.0 89.7
=========== ========== ===== =====
- ---------------
(1) Here and elsewhere in this Prospectus Supplement, all of the GLA, Owned GLA,
and base rent is reported for each Portfolio Property, even if the Operating
Partnership has less than a 100% ownership interest in the Portfolio
Property.
(2) Indicates the percentage of total Owned GLA represented by each category of
space.
(3) Includes, here and elsewhere in this Prospectus Supplement, space for which
a lease has been executed, whether or not the space was then occupied. The
table under "Additional Information" in this Prospectus Supplement indicates
vacant anchor space as of September 30, 1996.
(4) Includes two specialty retail centers and retail space at four mixed-use
properties.
Regional Malls
Regional malls, specialty retail centers and the retail space at the
mixed-use properties represented 85% of the Portfolio Properties' GLA, 81% of
total Owned GLA and 86% of their total annualized base rent as of September 30,
1996. They range in size from 210,667 to 1.5 million square feet of GLA, with
113 having more
S-24
27
than 400,000 square feet. Overall, the malls contain over 10,600 occupied
stores, including approximately 450 anchors. As of September 30, 1996, 84.3% of
the total mall and freestanding stores Owned GLA at the regional malls was
leased, at an average annualized base rent of $20.18 per square foot. (Data for
specialty retail centers and the retail space at mixed-use properties are also
included, without further reference, in all data in this section concerning
regional malls. This additional retail space represents approximately 2% of the
GLA in the regional malls.)
The following table sets forth selected data for the mall and freestanding
stores at regional malls:
TOTAL MALL PERCENT
AND OF AVERAGE BASE RENT
NUMBER OF FREESTANDING OWNED GLA PER LEASED
DATE PROPERTIES OWNED GLA(1) LEASED(2) SQUARE FOOT(3)
---------------------------- --------- ------------ --------- -----------------
September 30, 1996.......... 118... 33,310 84.3% $ 20.18
September 30, 1995.......... 116... 32,498 84.3 19.08
December 31, 1995........... 118... 33,208 85.5 19.18
December 31, 1994........... 115... 31,570 85.6 18.37
December 31, 1993........... 110... 29,905 85.9 17.70
December 31, 1992........... 109... 29,642 85.9 16.85
- ---------------
(1) In thousands of square feet.
(2) Occupancies for regional malls are generally lower in the initial part of
the calendar year and higher in the latter part of the calendar year.
(3) Base rent does not include the effects of percentage rent or common area
maintenance charges reimbursed by the tenants, nor does it consider the
costs required to obtain new tenants.
Lease Expirations
The following table sets forth scheduled expirations during the given
periods set forth below of leases for mall stores and freestanding stores at the
Operating Partnership's regional malls, assuming that none of the tenants
exercises available renewal options:
APPROX. LEASED AVG. BASE RENT % OF TOTAL LEASED
NO. OF LEASES AREA IN SQ. PER SQ. FT. UNDER GLA REPRESENTED BY
YEAR ENDING DECEMBER 31, EXPIRING FT. EXPIRING LEASES(1) EXPIRING LEASES(2)
------------------------ ------------- -------------- ------------------ ------------------
1996 (10/1-12/31)....... 138 231,099 $22.33 0.8%
1997.................... 1,098 2,368,721 19.56 8.6
1998.................... 1,126 2,053,785 22.54 7.4
1999.................... 1,019 2,264,340 21.55 8.2
2000.................... 1,015 2,313,576 22.26 8.4
2001.................... 947 2,379,757 20.46 8.6
2002.................... 657 2,053,229 19.74 7.4
2003.................... 697 1,966,026 22.26 7.1
2004.................... 670 2,149,484 21.55 7.8
2005.................... 638 2,265,477 20.00 8.2
2006.................... 769 2,379,927 22.76 8.6
----- ---------- ------ ----
Total.............. 8,774 22,425,421 $21.28 81.0
===== ========== ====== ====
- ---------------
(1) Represents the average base rent in effect on September 30, 1996 for those
leases expiring for tenants paying base rent.
(2) Percentage of total leased Owned GLA of mall and freestanding stores in the
regional malls as of September 30, 1996.
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28
Sales
The following table sets forth the total retail sales (in millions) at
regional malls, during the given year or period for those malls and freestanding
tenants who are required to report sales:
ANNUAL
TOTAL TENANT PERCENTAGE
YEAR SALES INCREASE
----------------------------------------------------------- ------------ ----------
1/1/96 to 9/30/96.......................................... $4,313 7.7%
1/1/95 to 9/30/95.......................................... 4,005 N/A
1995....................................................... 6,098 0.7
1994....................................................... 6,053 3.9
1993....................................................... 5,827 N/A
Anchors
As of September 30, 1996, almost all of the approximately 450 anchors in
the Operating Partnership's regional malls are department stores and most are
national retailers. Anchors space represents 64% of the GLA in the Operating
Partnership's regional malls, and a majority own their stores, either in fee or
subject to ground leases with the Operating Partnership. All but eight anchor
stores in the regional malls were occupied as of September 30, 1996.
The following table sets forth, as of September 30, 1996, certain
information with respect to the anchors whose stores in the aggregate occupied
in excess of 600,000 square feet of GLA in the regional malls:
ANCHOR-OWNED TOTAL OWNED GLA
NUMBER OF ANCHOR-LEASED OR LAND- OCCUPIED BY
ANCHOR STORES GLA LEASED GLA ANCHOR
-------------------------------- --------- ------------- ------------ ---------------
JC Penney Co., Inc. ............ 88 7,185,385 5,375,396 12,560,781
Sears, Roebuck & Co. ........... 80 2,531,747 9,178,545 11,710,292
Dillard Department Stores, 58
Inc........................... 545,124 7,655,602 8,200,726
Federated Department Stores, 40
Inc........................... 2,657,585 4,072,995 6,730,880
The May Department Stores 34
Co. .......................... 1,045,065 3,966,919 5,011,984
Montgomery Ward & Co., Inc. .... 34 1,131,838 3,528,951 4,660,789
Dayton Hudson Corp. ............ 18 360,226 1,395,155 1,755,381
Nordstrom Inc. ................. 4 206,000 473,235 679,235
Mall Stores and Freestanding Stores
There are nearly 10,600 mall and freestanding stores in the regional malls.
Substantially all of these stores lease space from the Operating Partnership.
Mall and freestanding stores represent approximately 33.3 million of the almost
53.3 million square feet of total Owned GLA of these properties, with no single
mall or freestanding store or chain occupying more than 4.9% of the total Owned
GLA in all Portfolio Properties or accounting for more than 7.9% of the total
annualized base rent from the Portfolio Properties.
S-26
29
The following table sets forth, as of September 30, 1996, certain
information with respect to the mall and freestanding store tenants occupying in
excess of 400,000 square feet of Owned GLA in the regional malls:
% OF
TOTAL
OWNED GLA
NUMBER OF TOTAL GLA LEASED BY
TENANT STORES LEASED (SQUARE FEET) TENANT
----------------------------------------------- ------------- ------------- ---------
The Limited, Inc............................... 491 3,300,169 5.0%
F.W. Woolworth Co.............................. 427 1,423,390 2.2
Melville Corp.................................. 229 806,777 1.2
United States Shoe Corp........................ 154 574,143 0.9
The Gap, Inc................................... 75 441,918 0.7
Edison Brothers Stores, Inc.(1)................ 191 403,895 0.6
United Artists Theatre Circuit, Inc............ 18 479,588 0.7
------------- ---------- --- ---------
Total................................ 1,585 7,429,880 11.3%
============= ============= =========
- ---------------
(1) Tenant is currently operating under protection of Chapter 11 of the
Bankruptcy Code.
Community Shopping Centers
The Operating Partnership has interests in 65 income-producing community
shopping centers, with an aggregate of over 15 million square feet of GLA.
Community shopping centers represented 14% of the Portfolio Properties' GLA, 16%
of the total Owned GLA and 10% of the total annualized base rent as of September
30, 1996. With the exception of four centers, the community shopping centers
range in size from 88,000 to 651,000 square feet of GLA. Overall, they contain
over 1,100 tenants, including over 190 anchors. As of September 30, 1996, 92.1%
of the total Owned GLA in community shopping centers was leased at an average
annualized base rent of $7.49 per square foot.
The following table sets forth selected data for the community shopping
centers:
TOTAL OWNED PERCENT
GLA(1) OF AVERAGE BASE
NUMBER OF (SQUARE OWNED GLA RENT PER LEASED
DATE PROPERTIES FEET) LEASED SQUARE FOOT(2)
---------------------------------- --------- ----------- --------- ---------------
September 30, 1996................ 65 10,403 92.1% $7.49
September 30, 1995................ 66 10,529 94.0 7.26
December 31, 1995................. 66 10,525 93.6 7.29
December 31, 1994................. 66 10,530 93.9 7.12
- ---------------
(1) In thousands of square feet.
(2) Base rent does not include the effects of percentage rent or common area
maintenance charges reimbursed by tenants, nor does it consider the costs
required to obtain new tenants.
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30
Lease Expirations
The following table sets forth scheduled expirations during the given
periods set forth below of leases for all types of tenants at the Operating
Partnership's community shopping centers, assuming that none of the tenants
exercises available renewal options:
APPROX. LEASED AVG. BASE RENT % OF TOTAL LEASED
YEAR ENDING DECEMBER NO. OF LEASES AREA IN SQ. PER SQ. FT. UNDER GLA REPRESENTED BY
31, EXPIRING FT. EXPIRING LEASES(1) EXPIRING LEASES(2)
---------------------- ------------- -------------- ------------------ ------------------
1996 (10/1-12/31)..... 15 101,073 $ 6.79 1.0%
1997.................. 163 766,761 8.31 7.9
1998.................. 166 557,281 9.75 5.8
1999.................. 157 842,570 8.00 8.7
2000.................. 140 790,426 7.99 8.2
2001.................. 107 794,727 6.51 8.2
2002.................. 40 378,710 7.84 3.9
2003.................. 34 443,138 7.85 4.6
2004.................. 29 300,671 8.20 3.1
2005.................. 39 819,662 6.51 8.5
2006.................. 24 702,294 6.37 7.3
--- --------- ----- ----
Total....... 914 6,497,313 $7.61 67.4%
=== ========= ===== ====
- ---------------
(1) Represents the average base rent in effect on September 30, 1996 for those
leases expiring for the tenants paying base rent.
(2) Percentage of total leased Owned GLA at community shopping centers as of
September 30, 1996.
Sales
The following table sets forth the total retail sales (in millions) at
community shopping centers during the given year or period for those tenants who
are required to report such sales:
ANNUAL
PERCENTAGE
TOTAL PROPERTY INCREASE
YEAR SALES (DECREASE)
------------------------------------------ -------------------- -----------------
1/1/96 to 9/30/96......................... $1,018 (7.5%)
1/1/95 to 9/30/95......................... 1,100 N/A
1995...................................... 1,551 (0.4)
1994...................................... 1,558 8.1
1993...................................... 1,441 N/A
Tenants
There are over 190 anchors in the community shopping centers, most of which
occupy at least 15,000 square feet of space. Anchor space represents over 69% of
the GLA in these properties, and unlike in regional malls, most anchors lease
their space from the Operating Partnership. All but nine of the anchor spaces in
the community shopping centers are occupied as of September 30, 1996. No single
anchor leases stores that in the aggregate constitute more than 12.5% of the
total Owned GLA in the community shopping center portfolio and no anchor
accounts for more than 8.3% of the total annualized base rent from these
properties.
There are nearly 1,100 mall and freestanding tenants in the community
shopping centers. Substantially all of these stores lease space from the
Operating Partnership. Mall and freestanding store space represents
approximately 4.1 million of the 10.4 million square feet of Owned GLA of these
properties. No single mall and freestanding store or chain occupies more than
0.17% of the total Owned GLA of all Portfolio Properties or accounts for more
than 1.2% of the total annualized base rent from the community shopping centers.
S-28
31
The following table sets forth, as of September 30, 1996, certain
information relating to the tenants whose stores in the aggregate occupy in
excess of 250,000 square feet of GLA in the community shopping centers:
TENANT TOTAL GLA
NUMBER OF LEASED OCCUPIED
TENANT STORES GLA BY TENANT
------------------------------------------------- --------- ---------- ---------
Kmart Corporation................................ 21 1,038,043 1,343,464
Wal-Mart Stores, Inc............................. 12 82,398 1,280,837
Service Merchandise Company...................... 21 194,785 1,065,828
Dayton Hudson Corp. (Target)..................... 5 88,028 483,758
TJX Companies.................................... 9 398,393 373,692
Dominick's Finer Foods, Inc...................... 5 180,820 443,909
Montgomery Ward & Co., Inc....................... 7 363,131 379,646
Kohl's Department Stores, Inc.................... 5 378,747 378,747
Burlington Coat Factory Warehouse, Inc........... 5 235,317 273,516
Tru Properties, Inc.............................. 8 21,500 285,702
Specialty Retail Centers and Mixed-Use Properties
The income-producing Portfolio Properties include two specialty retail
centers and four mixed-use properties. The two specialty retail centers, The
Forum Shops at Caesars in Las Vegas, Nevada and Trolley Square in Salt Lake
City, Utah, contain an aggregate of approximately 500,000 square feet of GLA. As
of September 30, 1996, The Forum Shops' average base rent per leased square foot
of mall store GLA was over $60, while the rate at Trolley Square was over $17
per leased square foot. Mall store sales per square foot for the 12 months ended
September 30, 1996 at The Forum Shops were $1,210, and at Trolley Square were
$274. As of September 30, 1996, 95.9% of Owned GLA at The Forum Shops and 79.0%
of the retail space Owned GLA at Trolley Square was leased or committed for
lease.
The mixed-use properties consist of Fashion Center at Pentagon City in
Arlington, Virginia, at which the Operating Partnership has an interest only in
the retail and office portions of the complex; New Orleans Centre and CNG Tower
in New Orleans, Louisiana; and two properties with almost exclusively office
space, O'Hare International Center and Riverway in Rosemont, Illinois. These
four properties contain an aggregate of more than 1.9 million square feet of
office space and approximately 1.4 million square feet of retail space. The mall
store space at Fashion Center was 98.5% leased as of September 30, 1996, and
mall store sales were $634 per leased square foot. The average base rent per
leased square foot at Fashion Center was $42.31 at September 30, 1996. The
office space at the mixed-use properties, including Riverway and O'Hare
International Center, was 94.3% leased as of September 30, 1996 and had an
average rent of $10.18 per leased square foot.
S-29
32
ADDITIONAL INFORMATION
The following table sets forth certain information, as of September 30,
1996, regarding the Portfolio Properties:
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- --------- ---------------------
REGIONAL MALLS
1. Alton Square, Alton, Fee 100.0% Acquired 545,656 62.3% Famous Barr, JC Penney
IL 1993
2. Amigoland Mall, Fee 100.0 Built 1974 560,297 73.5 Dillard's, JC Penney,
Brownsville, TX Montgomery Ward
3. Anderson Mall, Fee 100.0 Built 1972 636,551 81.4 Gallant Belk, JC Penney,
Anderson, SC
4. Aventura Mall(4), Fee 33.3 Built 1983 976,574 94.4 Sears, Uptons
Miami, FL Lord & Taylor, Macy's, JC
5. Avenues, The, Fee 25.0 Built 1990 1,112,951 89.3 Penney, Sears
Jacksonville, FL Dillard's, Gayfers,
Sears, Parisian, JC
6. Barton Creek Square, Fee 100.0 Built 1981 1,380,291 90.9 Penney
Austin, TX Dillard's(5), Foley's, JC
Penney, Montgomery Ward,
7. Battlefield Mall, Fee and Ground 100.0 Built 1970 1,127,432 86.3 Sears
Springfield, MO Lease(2056) Dillard's, JC Penney,
Famous Barr, Sears,
8. Bay Park Square, Fee 100.0 Built 1980 644,465 89.5 Montgomery Ward
Green Bay, WI Kohl's, Montgomery Ward,
9. Bergen Mall, Fee and Ground 100.0 Acquired 1,024,686 78.8 Shopko, Elder-Beerman
Paramus, NJ Lease(6)(2061) 1987 Value City, Stern's
10. Biltmore Square, Fee 66.7(7) Built 1989 495,419 77.0
Asheville, NC Belk's, Dillard's,
11. Boynton Beach Mall, Fee 100.0 Built 1985 1,065,713 92.1 Profitt's, Goody's
Boynton Beach, FL Burdines, Macy's,
Mervyn's, JC Penney,
12. Broadway Square, Fee 100.0 Acquired 570,646 94.8 Sears
Tyler, TX 1994 Dillard's, JC Penney,
13. Brunswick Square, Fee 100.0 Built 1973 736,752 90.3 Sears
East Brunswick, NJ Macy's, JC Penney
14. Castleton Square, Fee 100.0 Built 1972 1,351,091 98.2
Indianapolis, IN LS Ayres, Kohl's,
Lazarus, Montgomery Ward,
15. Century III Mall, Fee 50.0 Built 1979 1,288,463 87.9 JC Penney, Sears
Pittsburgh, PA Lazarus, Kaufman's, JC
16. Century Consumer Fee 100.0 Acquired 410,431 51.3 Penney, Sears
Mall, Merrillville, 1982 Burlington Coat
IN Factory(5), Montgomery
17. Charles Towne Fee 100.0 Built 1976 463,303 39.9 Ward
Square, Charleston, Montgomery Ward, Service
SC Merchandise, (8)
18. Chautauqua Mall, Fee 100.0 Built 1971 425,644 64.7
Lakewood, NY Sears, (8)
19. Cheltenham Square, Fee 100.0 Built 1981 638,557 94.9
Philadelphia, PA Value City, Home Depot,
20. Chesapeake Square, Fee and Ground 75.0(7) Built 1989 704,711 78.2 (8)
Chesapeake, VA Lease(2062) Profitt's, Leggett, JC
Penney, Sears, Montgomery
21. Cielo Vista Mall, El Fee and Ground 100.0 Built 1974 1,194,468 91.9 Ward
Paso, TX Lease(9)(2027) Dillard's(5), JC Penney,
22. Circle Centre, Property Lease 14.7 Built 1995 797,022 91.5 Montgomery Ward, Sears
Indianapolis, IN (2097) Nordstrom, Parisian
S-30
33
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- --------- -------------------
23. College Mall, Fee and Ground 100.0 Built 1965 709,100 84.8 JC Penney, Lazarus, L.S.
Bloomington, IN Lease(10)(2048) Ayres, Sears, Target
24. Columbia Center, Fee 100.0 Acquired 717,205 91.6 The Bon Marche, Lamonts,
Kennewick, WA 1987 JC Penney, Sears
25. Coral Square, Coral Fee 50.0 Built 1984 941,294 86.1 Burdines(5), Mervyn's, JC
Springs, FL Penney, Sears
26. Cottonwood Mall, Fee 100.0 1996(27) 1,026,948 89.6 Dillard's, Foley's, JC
Albuquerque, NM Penney, Mervyn's,
Montgomery Ward
27. Crossroads Mall, Fee 100.0 Acquired 872,859 92.2 Dillard's, Sears,
Omaha, NE 1994 Younkers
28. Crystal River Mall, Fee 100.0 Built 1990 423,944 86.1 Belk Lindsey, Kmart, JC
Crystal River, FL Penney, Sears
29. Desoto Square, Fee 100.0 Built 1973 707,884 79.9 Burdines, JC Penney,
Bradenton, FL Sears, Dillard's
30. East Towne Mall, Fee 100.0 Built 1984 977,227 81.4 Dillard's, JC Penney,
Knoxville, TN Proffitt's, Sears,
Service Merchandise
31. Eastern Hills Mall, Fee 100.0 Built 1971 990,851 85.0 Sears, Bon Ton, JC
Buffalo, NY Penney, Kaufman's
32. Eastgate Consumer Fee 100.0 Acquired 462,968 83.1 Burlington Coat Factory,
Mall, Indianapolis, 1981 (8)
IN
33. Eastland Mall, Fee 100.0 Built 1986 703,904 84.0 Dillard's, JC Penney,
Tulsa, OK Mervyn's, Service
Merchandise
34. Florida Mall, The, Fee 50.0 Built 1986 1,120,293 95.6 Saks Fifth Avenue,
Orlando, FL Dillard's(5), Gayfers, JC
Penney, Sears
35. Forest Mall, Fond Du Fee 100.0 Built 1973 482,224 87.5 JC Penney, Kohl's,
Lac, WI Younkers, Prange Way
36. Forest Village Park Fee 100.0 Built 1980 417,206 81.6 JC Penney, Kmart
Mall, Forestville,
MD
37. Fremont Mall, Fee 100.0 Built 1966 210,667 93.4 1/2 Price Store, JC
Fremont, NE Penney
38. Glen Burnie Mall, Fee 100.0 Built 1963 455,618 91.8 Montgomery Ward
Glen Burnie, MD
39. Golden Ring Mall, Fee 100.0 Built 1974 717,940 89.7 Caldor, Montgomery Ward,
Baltimo re, MD The Hecht Company
40. Great Lakes Mall, Fee 100.0 Built 1961 1,295,143 95.4 Dillard's(5), Kaufman's,
Cleveland, OH JC Penney, Sears
41. Greenwood Park Mall, Fee 100.0 Acquired 1,274,300 93.0 JC Penney, Lazarus, L.S.
Greenwood, IN 1979 Ayres, Montgomery Ward,
Sears, Service
Merchandise
42. Gulf View Square, Fee 100.0 Built 1980 811,429 84.6 Burdines, Dillard's,
Port Richey, FL Montgomery Ward, JC
Penney, Sears
43. Heritage Park Mall, Fee 100.0 Built 1978 636,675 82.3 Dillard's, Montgomery
Midwest City, OK Ward, Sears
44. Hutchinson Mall, Fee 100.0 Built 1985 525,942 71.4 Dillard's, JC Penney,
Hutchinson, KS Sears, Service
Merchandise, Wal-Mart
45. Independence Center, Fee 100.0 Acquired 1,032,023 77.2 Dillard's, The Jones
Independence, MO 1994 Store Co., Sears, (8)
S-31
34
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- --------- -------------------------
46. Ingram Park Mall, Fee 100.0 Built 1979 1,134,424 89.7 Dillard's(5), Foley's, JC
San Antonio, TX Penney, Sears
47. Irving Mall, Irving, Fee 100.0 Built 1971 1,128,805 82.3 Dillard's, Foley's, JC
TX Penney, Mervyn's, Sears
48. Jefferson Valley Fee 100.0 Built 1983 589,600 94.2 Macy's, Sears, Service
Mall, Yorktown Merchandise
Heights, NY
49. La Plaza, McAllen, Fee and Ground 100.0 Built 1976 841,573 97.4 Dillard's, JC Penney,
TX Lease(6)(2040) Jones & Jones, Sears,
Service Merchandise
50. Lafayette Square, Fee 100.0 Built 1968 1,236,809 81.6 JC Penney, LS Ayres,
Indianapolis, IN Lazarus, Sears,
Montgomery Ward
51. Lakeland Square, Fee 49.9 Built 1988 901,818 86.0 Belk Lindsey, Burdines,
Lakeland, FL Dillard's, Mervyn's, JC
Penney, Sears
52. Lakeline Mall, N. Fee 50.0 Built 1995 1,102,905 90.0 Dillard's, Foley's, JC
Austin, TX Penney, Mervyn's, Sears
53. Lima Mall, Lima, OH Fee 100.0 Built 1965 752,339 92.7 Elder-Beerman, Lazarus,
JC Penney, Sears
54. Lincolnwood Town Fee 100.0 Built 1990 441,169 94.9 Carson Pirie Scott, JC
Center, Lincolnwood, Penney
IL
55. Longview Mall, Fee 100.0 Built 1978 617,002 84.1 Dillard's(5), JC Penney,
Longview, TX Sears, Wilson's
56. Machesney Park Mall, Fee 100.0 Built 1979 556,023 80.1 Kohl's, JC Penney,
Rockford, IL Younkers, (8)
57. Mall of the Fee 65.0(7) Built 1991 779,014 56.2 Dillard's, JC Penney,
Mainland, Galveston, Sears, Foley's
TX
58. Markland Mall, Ground Lease 100.0 Built 1968 391,231 86.7 Lazarus, Sears, Target
Kokomo, IN (2041)
59. McCain Mall, N. Ground Lease 100.0 Built 1973 776,410 94.9 Dillard's, JC Penney,
Little Rock, AR (11)(2032) M.M. Cohn, Sears
60. Melbourne Square, Fee 100.0 Built 1982 733,842 80.7 Belk Lindsey, Burdines,
Melbourne, FL Dillard's, Mervyn's, JC
Penney
61. Memorial Mall, Fee 100.0 Built 1969 416,273 89.7 JC Penney, Kohl's, Sears
Sheboygan, WI
62. Miami International Fee 60.0 Built 1982 972,281 95.4 Burdines(5), JC Penney,
Mall, Mervyn's, Sears
Miami, FL
63. Midland Park Mall, Fee 100.0 Built 1980 619,456 76.6 Dillard's(5), JC Penney,
Midland, TX Sears
64. Miller Hill Mall, Fee 100.0 Built 1973 802,135 91.3 Glass Block, JC Penney,
Duluth, MN Montgomery Ward, Sears
65. Mission Viejo Mall, Fee 100.0 Built 1979 810,259 70.5 Bullock's, Montgomery
Mission Viejo, CA Ward, Robinson-May(5)
66. Mounds Mall, Ground Lease (2033) 100.0 Built 1965 409,597 75.0 Elder-Beerman, JC Penney,
Anderson, IN Sears
67. Muncie Mall, Muncie, Fee 100.0 Built 1970 499,689 85.6 JC Penney, L. S. Ayres,
IN Sears
68. North East Mall, Fee 50.0(12) Built 1971 1,141,585 88.0 Dillard's(5), JC Penney,
Hurst, TX Montgomery Ward, Sears
69. North Towne Square, Fee 100.0 Built 1980 750,886 77.5 Elder-Beerman, Lion,
Toledo, OH Montgomery Ward
70. Northfield Square, Fee 31.6(7) Built 1990 533,162 71.5 Sears, Carson Pirie
Bradley, IL Scott, JC Penney, Venture
71. Northgate Mall, Fee 100.0 Acquired 1,070,256 89.7 The Bon Marche, Lamonts,
Seattle, WA 1987 Nordstrom, JC Penney
72. Northwoods Mall, Fee 100.0 Acquired 666,748 92.8 Famous Barr, JC Penney,
Peoria, IL 1983 Montgomery Ward
S-32
35
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- ------ - --------------------
73. Orange Park Mall, Fee 100.0 Acquired 847,791 88.8 Dillard's, Gayfer's, JC
Jacksonville, FL 1994 Penney, Sears
74. Paddock Mall, Ocala, Fee 100.0 Built 1980 568,082 89.7 Bell Lindsey, Burdines,
FL JC Penney, Sears
75. Palm Beach Mall, Fee 50.0 Built 1967 1,200,636 84.9 JC Penney, Lord & Taylor,
West Palm Beach, FL Mervyn's, Burdines, Sears
76. Port Charlotte Town Fee 80.0(7) Built 1989 720,988 71.8 Burdines, Dillard's,
Center, Port Char- Montgomery Ward, JC
lotte, NC Penney, Sears
77. Prien Lake Mall, Fee and Ground 100.0 Built 1972 467,520 94.1 JC Penney, Montgomery
Lake Charles, LA Lease(6)(2025) Ward, The White House
78. Raleigh Springs Fee and Ground 100.0 Built 1971 887,636 86.4 Dillard's, Goldsmith's,
Mall, Memphis, TN Lease(6)(2018) JC Penney, Sears
79. Randall Park Mall, Fee 100.0 Built 1976 1,531,484 66.7 Dillard's, Kaufman's, JC
Cleveland, OH Penney, Sears, Burlington
Coat Factory
80. Richardson Square, Fee 100.0 Built 1977 861,544 56.7 Dillard's(5), Sears,
Dallas, TX Montgomery Ward
81. Richmond Mall, Fee 100.0 Built 1966 873,227 69.7 JC Penney, Sears
Cleveland, OH
82. Richmond Square, Fee 100.0 Built 1966 310,975 56.7 JC Penney, Sears
Richmond, IN
83. Rolling Oaks Mall, Fee 49.9 Built 1988 757,774 67.6 Dillard's, Foley's, Sears
North San Antonio,
TX
84. Ross Park Mall, Fee 89.0(7) Built 1986 1,273,479 92.5 Lazarus, JC Penney,
Pittsburgh, PA Kaufmann's, Sears,
Service Merchandise
85. Seminole Towne Fee 45.0 Built 1995 1,139,071 83.4 Burdines, Dillard's, JC
Center, Sanford, FL Penney, Parisian, Sears
86. Smith Haven Mall, Fee 25.0 Acquired 1,376,218 85.5 Sterns, Macy's, Sears
Lake Grove, NY 1995
87. South Park Mall, Fee 100.0 Built 1975 856,686 78.4 Burlington Coat Factory,
Shreveport, LA Dillard's, JC Penney,
Montgomery Ward, Stage
88. Southern Park Mall, Fee 100.0 Built 1970 1,165,950 91.7 Dillard's, Kaufman's, JC
Youngstown, OH Penney, Sears
89. Southgate Mall, Fee 100.0 Acquired 321,177 78.0 Albertson's, Dillard's,
Yuma, AZ 1988 JC Penney, Sears
90. Southtown Mall, Ft. Fee 100.0 Built 1969 858,196 34.3 Kohl's, JC Penney, L.S.
Wayne, IN Ayres, Sears, Service
Merchandise
91. St. Charles Towne Fee 100.0 Built 1990 961,549 85.7 Hecht's, JC Penney,
Center, Waldorf, MD Montgomery Ward, Sears
92. Summit Mall, Akron, Fee 100.0 Built 1965 722,533 84.8 Kaufmann's, Dillard's,
OH (8)
93. Sunland Park Mall, Fee 100.0 Built 1988 921,357 78.7 Dillard's, JC Penney,
El Paso, TX Mervyn's, Montgomery
Ward, The Popular
94. Tacoma Mall, Tacoma, Fee 100.0 Acquired 1,285,721 83.3 The Bon Marche, Mervyn's,
WA 1987 Nordstrom, JC Penney,
Sears
95. Tippecanoe Mall, Fee 100.0 Built 1973 868,429 78.5 JC Penney, Kohl's, L.S.
Lafayette, IN Ayres, Lazarus, Sears
96. Towne East Square, Fee 100.0 Built 1975 1,150,875 74.1 Dillard's, JC Penney,
Wichita, KS Sears
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36
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- --------- ---------------------
97. Towne West Square, Fee 100.0 Built 1980 942,178 85.5 Dillard's, JC Penney,
Wichita, KS Montgomery Ward, Office
Depot, Sears, Service
Merchandise
98. Treasure Coast Fee 100.0 Built 1987 884,630 83.7 Burdines, Dillard's,
Square, Stuart, FL Mervyn's, JC Penney,
Sears
99. Tyrone Square, St. Fee 100.0 Built 1972 1,092,449 95.3 Burdines, Dillard's, JC
Petersburg, FL Penney, Sears
100. University Mall, Ground 100.0 Built 1967 565,876 85.0 JC Penney, Montgomery
Little Rock, AR Lease(13)(2026) Ward, M.M. Cohn
101. University Mall, Fee 100.0 Acquired 712,010 79.8 McRae's, JC Penney, Sears
Pensacola, 1994
102. University Park Fee 60.0 Built 1979 908,729 94.4 LS Ayres, Hudson's, JC
Mall, South Bend, IN Penney, Sears
103. Upper Valley Mall, Fee 100.0 Built 1971 751,216 87.8 Lazarus, JC Penney,
Springfield, OH Sears, Elder-Beerman
104. Valle Vista Mall, Fee 100.0 Built 1983 647,078 87.3 Dillard's, JC Penney,
Harlingen, TX Marshalls, Mervyn's,
Sears
105. Virginia Center Fee 70.0(7) Built 1991 784,981 78.1 Profitt's, Hoecht's,
Commons(4), Leggett, JC Penney, Sears
Richmond, VA
106. Washington Square, Fee 100.0 Built 1974 1,178,409 63.8 L.S. Ayres, Lazarus,
Indianapolis, IN Montgomery Ward, JC Pen-
ney, Sears
107. West Ridge Mall, Fee 100.0 Built 1988 1,041,611 76.0 Dillard's, JC Penney,
Topeka, KS(14) Jones, Montgomery Wards,
Sears
108. West Town Mall, Ground 2.0 Acquired 1,259,843 88.4 JC Penney, Sears,
Knoxville, TN Lease(6)(2042) 1991 Profitt's, Dillard's
Parisian
109. White Oaks Mall, Fee 77.0 Built 1977 903,582 92.0 Bergner's, Famous Barr,
Springfield, IL Montgomery Ward, Sears
110. Wichita Mall, Ground Lease (2022) 100.0 Built 1969 379,461 47.9 Office Max, Montgomery
Wichita, KS Ward
111. Windsor Park Mall, Fee 100.0 Built 1976 1,095,053 72.6 Dillard's(5), JC Penney,
San Antonio, TX Mervyn's, Montgomery Ward
112. Woodville Mall, Fee 100.0 Built 1969 795,027 59.2 Andersons, Elder-Beerman,
Toledo, OH Sears, (8)
SPECIALTY RETAIL CENTERS
1. The Forum Shops at Ground Lease (2067) 60.0 Built 1992 242,031 95.9 --
Caesars, Las Vegas,
NV
2. Trolley Square, Salt Fee and Ground 90.0 Acquired 225,813(16) 79.0 --
Lake City, UT Lease(15) 1986
MIXED-USE PROPERTIES
1. Fashion Centre at Fee 21.0 Built 1989 988,524(17) 98.5 8) Macy's, Nordstrom
Pentagon City, The,
Arlington, VA
2. New Orleans Fee and Ground 100.0 Built 1988 1,024,932(19) 85.7 8) Macy's, Lord & Taylor
Centre/CNG Tower, New Lease(2084)
Orleans, LA
3. O'Hare International Fee 100.0 Built 1988 504,521(20) 90.4 8) --
Center, Rosemont, IL
4. Riverway, Rosemont, Fee 100.0 Built 1988 820,204(2) 94.4 8) --
IL
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OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- ----- --- -------------------
COMMUNITY SHOPPING
CENTERS
1. Arvada Plaza, Arvada, Ground Lease(2058) 100.0 Built 1966 98,242 100.0 King Soopers
CO
2. Aurora Plaza, Aurora, Ground Lease(2058) 100.0 Built 1965 148,666 85.2 King Soopers, MacFrugel's
CO Bargains, Super Saver
Cinema
3. Bloomingdale Court, Fee 100.0 Built 1987 598,570 89.3 Builders Square, Cineplex
Bloomingdale, IL Odeon, Frank's Nursery,
Marshalls, Office Max,
Service Merchandise, T.J.
Maxx, Wal-Mart, (8)
4. Boardman Plaza, Fee 100.0 Built 1951 651,257 89.8 Burlington Coat Factory,
Youngstown, OH Giant Eagle, Hills,
Reyers Outlet, T.J. Maxx,
(8)
5. Bridgeview Court, Fee 100.0 Built 1988 280,299 62.9 Omni, Venture
Bridgeview, IL
6. Brightwood Plaza, Fee 100.0 Built 1965 41,893 100.0 --
Indianapolis, IN
7. Bristol Plaza, Ground Lease(2029) 100.0 Built 1965 116,754 38.9 (8)
Bristol, VA
8. Buffalo Grove Towne Fee 92.5 Built 1988 134,131 76.2 Buffalo Grove Theatres
Center, Buffalo
Grove, IL
9. Celina Plaza, El Fee and Ground 100.0 Built 1978 32,622 100.0 --
Paso, TX Lease(22)(2027)
10. Chesapeake Center, Fee 100.0 Built 1989 305,904 97.7 Kmart, Phar Mor, Service
Chesapeake, VA Merchandise, Cinemark
Theatre
11. Cobblestone Court, Fee and Ground 35.0 Built 1993 261,201 97.3 Dick's Sporting Goods,
Victor, NY Lease(10)(2038) Kmart, Office Max (5)
12. Cohoes Commons, Fee and Ground 100.0 Built 1984 262,964 93.6 Bryant & Stratton
Rochester, NY Lease(6)(2032) Business Institute,
Lechmere's, Xerox
13. Countryside Plaza, Fee and Ground 100.0 Built 1977 435,543 81.6 Best Buy, Builders
Countryside, IL Lease(10)(2058) Square, Old Country
Buffet, Venture, (8)
14. Crystal Court, Fee 35.0 Built 1989 284,741 60.5 Cub, Service Merchandise,
Crystal Lake, IL Wal-Mart, (8)
15. East Towne Commons, Fee 100.0 Built 1987 180,355 100.0 Electric Avenue & More
Knoxville, TN
16. Eastland Plaza, Fee 100.0 Built 1986 190,261 75.6 Marshalls, Target, Toys
Tulsa, OK 'R' Us
17. Fairfax Court, Ground Lease(2052) 26.3 Built 1992 249,285 92.4 Circuit City, Superstore,
Fairfax, VA Montgomery Ward, Today's
Man
18. Forest Plaza, Fee 100.0 Built 1985 421,516 99.7 Builders Square, Kohl's,
Rockford, IL Marshalls, Michaels, Of-
fice Max, T.J. Maxx
19. Fox River Plaza, Fee 100.0 Built 1985 324,786 80.1 Builders Square,
Elgin, IL Michaels, Service
Merchandise, Venture, (8)
20. Gaitway Plaza, Ocala, Fee 23.3 Built 1989 289,909 98.0 Books-A-Million,
FL Montgomery Ward, Office
Depot, T.J. Maxx
21. Great Lakes Plaza, Fee 100.0 Built 1977 163,920 82.7 Handy Andy, Circuit City
Cleveland, OH
22. Great Northeast Fee 50.0 Acquired 298,242 97.3 Sears, Phar Mor
Plaza, Philadelphia, 1989
PA
23. Greenwood Plus, Fee 100.0 Built 1979 157,066 100.0 Best Buy, Kohl's
Greenwood, IN
24. Griffith Park Plaza, Ground Lease (2060) 100.0 Built 1979 274,230 99.2 General Cinema, Venture
Griffith, IN
25. Grove at Lakeland Fee 100.0 Built 1988 215,591 92.7 Cobb Theatres, Sports
Square, The, Authority, Wal-Mart
Lakeland, FL
26. Hammond Square, Sandy Space Lease(2011) 100.0 Built 1974 87,705 100.0 --
Springs, GA
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38
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- --------- ---------------------
27. Highland Lakes Fee 100.0 Built 1991 477,324 83.4 Goodings, Dress for Less,
Center, Orlando, FL Marshalls, Cinemark
Theaters, Office Max,
Service Merchandise,
Target, (8)
28. Ingram Plaza, San Fee 100.0 Built 1980 111,518 100.0 --
Antonio, TX
29. Lake Plaza, Waukegan, Fee 100.0 Built 1986 218,208 100.0 Builders Square, Venture
IL
30. Lake View Plaza, Fee 100.0 Built 1986 388,126 96.9 Best Buy(24), L. Fish
Orland Park, IL Furniture, Linens-N-
Things(24), Marshalls,
Michaels, Omni, Pet Care
Plus(24), Service
Merchandise, Ultra 3(24)
31. Lima Plaza, Lima, OH Fee 100.0 Built 1976 193,279 90.5 Hills, Service
Merchandise
32. Lincoln Crossing, Fee 100.0 Built 1990 161,337 80.5 PetsMart, Wal-Mart
O'Fallon, IL
33. Mainland Crossing, Fee 80.0(7) Built 1991 390,986 39.5 Sam's Club, Wal-Mart, (8)
Galveston, TX
34. Maplewood Square, Fee 100.0 Built 1970 130,780 96.3 Bag 'N Save
Omaha, NE
35. Markland Plaza, Fee 100.0 Built 1974 108,296 98.1 Service Merchandise
Kokomo, IN
36. Martinsville Plaza, Space Lease(2036) 100.0 Built 1967 102,162 97.1 Rose's
Martinsville, VA
37. Marwood Plaza, Fee 100.0 Built 1962 105,066 100.0 Kroger
Indianapolis, IN
38. Matteson Plaza, Fee 100.0 Built 1988 275,455 84.7 Dominick's, Kmart,
Matteson, IL Michael's, Service
Merchandise
39. Memorial Plaza, Fee 100.0 Built 1966 129,202 24.0 Marcus Theatre, (8)
Sheboygan, WI
40. Mounds Mall Cinema, Fee 100.0 Built 1974 7,500 100.0 Cinema I & II
Anderson, IN
41. New Castle Plaza, New Fee 100.0 Built 1966 91,648 100.0 Goody's
Castle, IN
42. North Ridge Plaza, Fee 100.0 Built 1985 323,672 100.0 Builders Square, Office
Joliet, IL Max, Service Merchandise
43. North Riverside Park Fee 100.0 Built 1977 119,608 95.5 --
Plaza, North River-
side, IL
44. Northland Plaza, Fee and Ground 100.0 Built 1988 205,688 92.1 Marshalls, Phar-Mor,
Columbus, OH Lease(6)(2085) Service Merchandise
45. Northwood Plaza, Fort Fee 100.0 Built 1974 211,840 100.0 Regal Cinema, Target
Wayne, IN
46. Park Plaza, Fee and Ground 100.0 Built 1968 114,042 100.0 Wal-Mart
Hopkinsville, KY Lease(6)(2039)
47. Plaza at Buckland Fee 26.3 Built 1993 336,534 94.9 Toys 'R' Us, Kids 'R' Us,
Hills, The, East Service Merchandise,
Hartford, CT Lechmere,
Linens-N-Things, Filene's
Basement, Comp USA
48. Regency Plaza, St. Fee 100.0 Built 1988 277,521 96.3 Sam's Wholesale, Wal-Mart
Charles, MO
49. Ridgewood Court, Fee 35.0 Built 1993 240,843 99.3 Campo Electronics, Home
Jackson, MS Quarters, Service Mer-
chandise, T.J. Maxx
50. Royal Eagle Plaza, Fee 35.0 Built 1989 203,140 97.1 Kmart, Luxury Linens
Coral Springs, FL
51. St. Charles Towne Fee 100.0 Built 1987 435,162 95.9 Ames, Hechinger, Jo Ann
Plaza, Waldorf, MD Fabrics, People's, Ser-
vice Merchandise,
Shoppers Food Warehouse,
T.J. Maxx
52. Teal Plaza, Fee and Ground 100.0 Built 1962 110,751 100.0 Kmart
Lafayette, IN Lease(2007)(6)
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39
OWNERSHIP
INTEREST PERCENT
EXPIRATION PARTNERSHIPS' OF
IF GROUND PERCENTAGE YEAR BUILT TOTAL GLA
NAME/LOCATION LEASE)(1) INTEREST(2) OR ACQUIRED GLA LEASED(3) ANCHORS
- ------------------------- -------------------- ------------- ----------- ---------- ----- --- -------------------
53. Terrace at The Fee 100.0 Built 1989 332,980 96.7 Target, J. Byrons,
Florida Mall, Orlando, FL Waccamaw, Service
Merchandise, Marshalls
54. Tippecanoe Plaza, Fee 100.0 Built 1974 94,125 100.0 Barnes & Noble
Lafayette, IN Bookseller, Service
Merchandise
55. University Center, Fee 60.0 Built 1980 150,533 97.8 Best Buy, Michaels,
South Bend, IN Service Merchandise
56. Village Park Plaza, Fee 35.0 Built 1990 503,002 97.5 Frank's Nursery, Galyans,
Westfield, IN Jo-Ann Fabrics, Kohl's
Marsh, Regal Cinemas,
Wal-Mart
57. Wabash Village, West Ground Lease(2063) 100.0 Built 1970 124,748 96.2 Kmart
Lafayette, IN
58. Washington Plaza, Fee 85.0 (7) Built 1978 50,302 91.2 Kids 'R' Us
Indianapolis, IN
59. West Ridge Plaza, Fee 100.0 Built 1988 237,650 100.0 Magic Forest, Target, TJ
Topeka, KS Maxx, Toys 'R' Us
60. West Town Corners, Fee 23.3 Built 1989 384,812 99.0 PetsMart, Service
Altamonte Springs, FL Merchandise, Sports
Authority, Wal-Mart, Xtra
61. Westland Park Plaza, Fee 23.3 Built 1989 163,154 96.6 Burlington Coat Factory,
Orange Park, FL PetsMart, Sports Author-
ity
62. White Oaks Plaza, Fee 100.0 Built 1986 389,063 98.9 Cub Foods, Kids 'R' Us,
Springfield, IL Kohl's, Office Max, T.J.
Maxx, Toys 'R' Us
63. Willow Knolls Court, Fee 35.0 Built 1990 364,735 93.5 Kohl's, Phar-Mor, Sam's
Peoria, IL Wholesale Club, Willow
Knolls Theaters 14
64. Wood Plaza, Fort Ground Lease(2045) 100.0 Built 1968 88,595 98.9 Country General
Dodge, IA
65. Yards Plaza, The, Fee 35.0 Built 1990 273,292 95.2 Burlington Coat Factory,
Chicago, IL Omni Superstore, Mont-
gomery Ward
PROPERTIES UNDER
CONSTRUCTION
1. Arizona Mills, Tempe, (25) 25.0 (26) 1,225,000 N/A Burlington Coat Factory,
AZ Ross Dress for Less,
Oshman's Supersport, Off
5th-Saks Fifth Avenue
Outlet
2. Grapevine Mills, Fee 37.5 (28) 1,450,000 N/A Books-A-Million,
Dallas/Ft. Worth, TX Burlington Coat Factory,
Group USA, Off 5th-Saks
Fifth Avenue Outlet,
Rainforest Cafe
3. Indian River Commons, Fee 50.0 (26) 265,000 N/A HomePlace, Lowe's, Office
Vero Beach, FL Max, Service Merchandise
4. Indian River Mall, Fee 50.0 (28) 754,000 N/A AMC Theatres, Burdines,
Vero Beach, FL(29) Dillard's, JC Penney,
Sears
5. Ontario Mills, Fee 25.0 (28) 1,400,000 N/A AMC Theatres, American
Ontario, CA(29) Wilderness Experience,
Bed, Bath & Beyond,
Bernini -- Off Rodeo,
Burlington Coat Factory,
Dave & Busters, Group
USA, IWERKS, JC Penney,
Marshall's, Mikasa, Off
5th-Saks Fifth Avenue,
Outlet, Sports Authority,
TJ Maxx, Totally for
Kids, Virgin Records
6. The Source, Long Fee 50.0 (26) 730,000 N/A Fortunoff, Nordstrom
Island, NY Rack, Off 5th-Saks Fifth
Avenue Outlet, Cheesecake
Factory, Rainforest Cafe,
Just For Feet,
Bertolini's
7. Tower Shops, Las Space Lease(2051) 50.0 (28) 60,000 N/A Rainforest Cafe
Vegas, NV
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40
- ---------------
(1) The date listed is the expiration date of the last renewal option available
to the Operating Partnership under the ground lease. In a majority of the
ground leases, the lessee has either a right of first refusal or the right
to purchase the lessor's interest. Unless otherwise indicated, each ground
lease listed in this column covers at least 50% of its respective property.
(2) The Operating Partnership's interests in some Joint Venture Properties are
subject to preferences on distributions in favor of other partners.
(3) Represents the percentage of Owned GLA leased by tenants.
(4) This property is managed by a third party.
(5) This retailer operates two stores at this property.
(6) Indicates ground lease covers less than 15% of the acreage of this
property.
(7) The Operating Partnership receives substantially all of the economic
benefit of these properties.
(8) Includes an anchor space currently vacant.
(9) Indicates two ground leases which taken together, cover less than 50% of
the acreage of the property.
(10) Indicates ground lease covers less than 50% of the acreage of the property.
(11) Indicates ground lease covers all of the property except for parcels owned
in fee by anchors.
(12) In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996 for cash an additional
20% limited partnership interest in North East Mall, the joint venture
partnership which owns North East Mall. At the same time, the Operating
Partnership exercised its option to acquire the remaining 30% limited
partnership interest in North East Mall owned by the Simons in exchange for
472,410 OP Units, as well as the Simons' 50% general partnership interest
which the Operating Partnership acquired for nominal consideration. The
Simons had previously contributed to the Operating Partnership, in exchange
for OP Units, the right to receive distributions relating to its 50%
general partnership interest. Therefore the Operating Partnership as a
result of these transactions owns 100% of North East Mall.
(13) Indicates one ground lease covers substantially all of the property and a
second ground lease covers the remainder.
(14) Includes outlets in which the Operating Partnership has an 85% interest and
which represents less than 3% of the GLA and total annualized base rent for
the property.
(15) Indicates a ground lease covers a pedestrian walkway and steps at this
property. The Operating Partnership, as ground lessee, has the right to
successive five-year renewal options, except if the lessor, a public
agency, determines that public right-of-way needs necessitate the
locality's use of the ground lease property.
(16) Primarily retail space with approximately 1,500 square feet of office
space.
(17) Primarily retail space with approximately 167,000 square feet of office
space.
(18) Indicates combined occupancy of office and retail space.
(19) Primarily retail space with approximately 488,058 square feet of office
space.
(20) Primarily office space with approximately 12,800 square feet of retail
space.
(21) Primarily office space with approximately 24,300 square feet of retail
space.
(22) Indicates ground lease covers outparcel.
(23) This property was sold on August 1, 1996.
(24) Subleased from TJX Companies.
(25) The joint venture purchased this property on October 29, 1996.
(26) Scheduled to open during 1997.
(27) This property opened on July 31, 1996.
(28) Scheduled to open during November of 1996.
(29) Property under construction as of September 30, 1996, but was opened in
November 1996.
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41
DESCRIPTION OF THE NOTES
GENERAL
The following description of the specific terms of the Notes supplements
the description of the general terms and provisions of Debt Securities set forth
in the accompanying Prospectus under the caption "Description of Debt
Securities."
The Notes constitute a separate series of debt securities (which are more
fully described in the accompanying Prospectus) to be issued pursuant to an
indenture dated as of November , 1996, among the Operating Partnership, SPG,
LP, as guarantor, and The Chase Manhattan Bank, as trustee (the "Trustee"), as
supplemented by a First Supplemental Indenture, dated November , 1996 between
the Operating Partnership and the Trustee (together, the "Indenture"). The terms
of the Notes include those provisions contained in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. SPG, LP will guarantee the due and punctual payment of
the principal of, premium, if any, interest on, and any other amounts payable
with respect to, the Notes, when and as the same shall become due and payable,
whether at a maturity date, on redemption, by declaration of acceleration or
otherwise. See "-- The Guarantee." The following summary of certain provisions
of the Indenture does not purport to be complete and is subject to and qualified
in its entirety by reference to the Indenture, including the definitions therein
of certain terms used below.
The Notes will be direct, unsecured obligations of the Operating
Partnership and will rank pari passu with each other and with all other
unsecured and unsubordinated indebtedness of the Operating Partnership from time
to time outstanding. The Notes will be effectively subordinated to (i) the prior
claims of each secured mortgage lender to any specific Portfolio Property which
secures such lender's mortgage and (ii) any claims of creditors of entities
wholly or partly owned, directly or indirectly, by the Operating Partnership.
Subject to certain limitations set forth in the Indenture, and as described
under "-- Certain Covenants -- Limitations on Incurrence of Debt" below, the
Indenture will permit the Operating Partnership to incur additional secured and
unsecured indebtedness. At September 30, 1996, the Operating Partnership had
combined unsecured unsubordinated indebtedness aggregating approximately $323
million.
The Notes will mature on , 200 (the "Maturity Date"). The Notes
are not subject to any sinking fund provisions. The Notes will be issued only in
fully registered, book-entry form without coupons, in denominations of $1,000
and integral multiples, thereof, except under the limited circumstances
described below under "Book-Entry System."
Except as described under "-- Certain Covenants -- Limitations on
Incurrence of Debt" below and under "Description of Debt Securities -- Merger,
Consolidation or Sale" in the accompanying Prospectus, the Indenture does not
contain any provisions that would limit the ability of the Operating Partnership
to incur indebtedness or that would afford holders of the Notes protection in
the event of (i) a highly leveraged or similar transaction involving the
Operating Partnership, the Company or the General Partners of the Operating
Partnership, or any affiliate of any such party, (ii) a change of control, or
(iii) a reorganization, restructuring, merger or similar transaction involving
the Operating Partnership that may adversely affect the holders of the Notes. In
addition, subject to the limitations set forth under "Description of Debt
Securities -- Merger, Consolidation or Sale" in the accompanying Prospectus, the
Operating Partnership may, in the future, enter into certain transactions such
as the sale of all or substantially all of its assets or the merger or
consolidation of the Operating Partnership that would increase the amount of the
Operating Partnership's indebtedness or substantially reduce or eliminate the
Operating Partnership's assets, which may have an adverse effect on the
Operating Partnership's ability to service its indebtedness, including the
Notes. It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that the
Operating Partnership will directly own all of the assets and partnership
interests now owned by SPG, LP. However, there can be no assurance that such
reorganizational transactions will be so effected. See "The Operating
Partnership" in the accompanying Prospectus.
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42
PRINCIPAL AND INTEREST
The Notes will bear interest at % per annum, payable semi-annually in
arrears on each May and November , commencing May , 1997 (each, an
"Interest Payment Date"), and on the Maturity Date, to the persons (the
"Holders") in whose names the applicable Notes are registered in the security
register applicable to the Notes at the close of business 15 calendar days prior
to such payment date regardless of whether such day is a Business Day, as
defined below (each, a "Regular Record Date"). Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The principal of each Note payable on the Maturity Date will be paid
against presentation and surrender of such Note at the corporate trust office of
the Trustee, located initially at 450 West 33rd Street, 15th Floor, New York,
New York 10001, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
If any Interest Payment Date or the Maturity Date falls on a day that is
not a Business Day, the required payment shall be made on the next Business Day
as if it were made on the date such payment was due and no interest shall accrue
on the amount so payable for the period from and after such Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a day on
which banking institutions in the City of New York are authorized or required by
law, regulation or executive order to close.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit any Subsidiary (as defined below) to, incur any Debt (as defined
below), other than intercompany debt (representing Debt to which the only
parties are the Company, the Operating Partnership and any of their Subsidiaries
(but only so long as such Debt is held solely by any of the Company, the
Operating Partnership and any Subsidiary) that is subordinate in right of
payment to the Notes), if, immediately after giving effect to the incurrence of
such additional Debt, the aggregate principal amount of all outstanding Debt
would be greater than 60% of the sum of (i) the Operating Partnership's Adjusted
Total Assets (as defined below) as of the end of the fiscal quarter prior to the
incurrence of such additional Debt and (ii) any increase in Adjusted Total
Assets from the end of such quarter including, without limitation, any pro forma
increase from the application of the proceeds of such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, pledge, encumbrance or security interest of
any kind upon any of the property of the Operating Partnership or any Subsidiary
("Secured Debt"), whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such
additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt is greater than 55% of the sum of (i) the Operating Partnership's
Adjusted Total Assets as of the end of the fiscal quarter prior to the
incurrence of such additional Secured Debt and (ii) any increase in Adjusted
Total Assets from the end of such quarter including, without limitation, any pro
forma increase from the application of the proceeds of such additional Secured
Debt.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Annualized EBITDA After Minority Interest to Interest
Expense (in each case as defined below) for the period consisting of the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Debt is to be incurred shall have been less than 1.75 to 1 on a pro
forma basis after giving effect to the incurrence of such Debt and to the
application of the proceeds therefrom, and calculated on the assumption that (i)
such Debt and any other Debt incurred since the first day of such four-quarter
period had been incurred, and the proceeds therefrom had been applied (to
whatever purposes such proceeds had been applied as of the date of calculation
of such ratio), at the beginning of such period, (ii) any other Debt that has
been repaid or retired since the first day of such four-quarter period had been
repaid or retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period),
(iii) any income earned as a result of any assets having been
S-40
43
placed in service since the end of such four-quarter period had been earned, on
an annualized basis, during such period, and (iv) in the case of any acquisition
or disposition by the Operating Partnership, any Subsidiary or any
unconsolidated joint venture in which the Operating Partnership or any
Subsidiary owns an interest, of any assets since the first day of such
four-quarter period, including, without limitation, by merger, stock purchase or
sale, or asset purchase or sale, such acquisition or disposition and any related
repayment of Debt had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such pro forma calculation.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership, its Subsidiaries and by any unconsolidated joint venture, whenever
the Operating Partnership, any Subsidiary, or any unconsolidated joint venture,
as the case may be, shall create, assume, guarantee or otherwise become liable
in respect thereof.
Maintenance of Unencumbered Assets. The Operating Partnership is required
to maintain Unencumbered Assets (as defined below) of not less than 150% of the
aggregate outstanding principal amount of the Unsecured Debt (as defined below)
of the Operating Partnership.
As used herein:
"Adjusted Total Assets" as of any date means the sum of (i) the amount
determined by multiplying the sum of the shares of common stock of the Company
issued in the initial public offering of the Company ("IPO") and the units of
the Operating Partnership not held by the Company outstanding on the date of the
IPO, by $22.25 (the "IPO Price"), (ii) the principal amount of the outstanding
consolidated debt of the Company on the date of the IPO, less any portion
applicable to minority interests, (iii) the Operating Partnership's allocable
portion, based on its ownership interest, of outstanding indebtedness of
unconsolidated joint ventures on the date of the IPO, (iv) the purchase price or
cost of any real estate assets acquired (including the value, at the time of
such acquisition, of any units of the Operating Partnership or shares of common
stock of the Company issued in connection therewith) or developed after the IPO
by the Operating Partnership or any Subsidiary, less any portion attributable to
minority interests, plus the Operating Partnership's allocable portion, based on
its ownership interest, of the purchase price or cost of any real estate assets
acquired or developed after the IPO by any unconsolidated joint venture, (v) the
value of the Merger compiled as the sum of (a) the purchase price including all
related closing costs and (b) the value of all outstanding indebtedness less any
portion attributable to minority interests, including the Operating
Partnership's allocable share, based on its ownership interest, of outstanding
indebtedness of unconsolidated joint ventures at the Merger date, and (vi)
working capital of the Operating Partnership; subject, however, to reduction by
the amount of the proceeds of any real estate assets disposed of after the IPO
by the Operating Partnership or any Subsidiary, less any portion applicable to
minority interests, and by the Operating Partnership's allocable portion, based
on its ownership interest, of the proceeds of any real estate assets disposed of
after the IPO by unconsolidated joint ventures. On a pro forma basis as of
September 30, 1996, the Operating Partnership's Adjusted Total Assets were $8.02
billion.
"Annualized EBITDA" means earnings before interest, taxes, depreciation and
amortization for all properties with other adjustments as are necessary to
exclude the effect of items classified as extraordinary items in accordance with
generally accepted accounting principles, adjusted to reflect the assumption
that (i) any income earned as a result of any assets having been placed in
service since the end of such period had been earned, on an annualized basis,
during such period, and (ii) in the case of any acquisition or disposition by
the Operating Partnership, any Subsidiary or any unconsolidated joint venture in
which the Operating Partnership or any Subsidiary owns an interest, of any
assets since the first day of such period, such acquisition or disposition and
any related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition.
"Annualized EBITDA After Minority Interest" means Annualized EBITDA after
distributions to third party joint venture partners.
"Debt" means any indebtedness of the Operating Partnership and its
Subsidiaries on a consolidated basis, less any portion attributable to minority
interests, plus the Operating Partnership's allocable portion, based on
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its ownership interest, of indebtedness of unconsolidated joint ventures, in
respect of (i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, as determined in accordance with generally accepted accounting
principles, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Operating
Partnership or any Subsidiary directly, or indirectly through unconsolidated
joint ventures, as determined in accordance with generally accepted accounting
principles, (iii) reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property, except
any such balance that constitutes an accrued expense or trade payable, and (iv)
any lease of property by the Operating Partnership or any Subsidiary as lessee
which is reflected in the Operating Partnership's consolidated balance sheet as
a capitalized lease or any lease of property by an unconsolidated joint venture
as lessee which is reflected in such joint venture's balance sheet as a
capitalized lease, in each case, in accordance with generally accepted
accounting principles; provided, that Debt also includes, to the extent not
otherwise included, any obligation by the Operating Partnership or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise,
items of indebtedness of another person (other than the Operating Partnership or
any Subsidiary) described in clauses (i) through (iv) above (or, in the case of
any such obligation made jointly with another person, the Operating
Partnership's or Subsidiary's allocable portion of such obligation based on its
ownership interest in the related real estate assets).
"Fixed Charges and Preferred Unit Distributions" consist of interest costs,
whether expensed or capitalized, the interest component of rental expense and
amortization of debt issuance costs, including the Operating Partnership's pro
rata share based on its ownership interest of joint venture interest costs,
whether expensed or capitalized and the interest component of rental expense and
amortization of debt issuance costs, plus any distributions on outstanding
preferred units.
"Interest Expense" includes the Operating Partnership's pro rata share of
joint venture interest expense and is reduced by amortization of debt issuance
costs.
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other entity, a majority of the outstanding voting stock,
partnership interests or membership interests, as the case may be, of which is
owned or controlled, directly or indirectly, by the Operating Partnership or by
one or more other Subsidiaries of the Operating Partnership and, for purposes of
this definition, shall include SPG, LP. For the purposes of this definition,
"voting stock" means stock having voting power for the election of directors, or
trustees, as the case may be, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.
"Unencumbered Annualized EBITDA After Minority Interest" means EBITDA after
minority interest less any portion thereof attributable to assets serving as
collateral for Secured Debt.
"Unencumbered Assets" as of any date shall be equal to Adjusted Total
Assets as of such date multiplied by a fraction, the numerator of which is
Unencumbered Annualized EBITDA After Minority Interest and the denominator of
which is Annualized EBITDA After Minority Interest. On a pro forma basis as of
September 30, 1996, the Operating Partnership's Unencumbered Assets were $1.76
billion.
"Unsecured Debt" means Debt which is not secured by any mortgage, lien,
pledge, encumbrance or security interest of any kind.
Reference is made to the section entitled "Description of Debt
Securities -- Certain Covenants" in the accompanying Prospectus for a
description of additional covenants applicable to the Notes. Compliance with the
covenants described herein and such additional covenants with respect to the
Notes generally may not be waived by the Board of Directors of the General
Partners, as general partners of the Operating Partnership, or by the Trustee
unless the Holders of at least a majority in principal amount of all outstanding
Notes consent to such waiver; provided, however, that the defeasance and
covenant defeasance provisions of the Indenture described under "Description of
Debt Securities -- Discharge" and " -- Defeasance and Covenant Defeasance" in
the accompanying Prospectus will apply to the Notes, including with respect to
the covenants described in this Prospectus Supplement.
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OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Operating
Partnership, in whole or from time to time in part, at a redemption price equal
to the sum of (i) the principal amount of the Notes being redeemed plus accrued
interest thereon to the redemption date and (ii) the Make-Whole Amount (as
defined below), if any, with respect to such Notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any Notes called for redemption shall have been made
available on the redemption date referred to in such notice, such Notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the Holders of the Notes from and after the
redemption date will be to receive payment of the Redemption Price upon
surrender of such Notes in accordance with such notice.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the security register for the Notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the
Operating Partnership, the Operating Partnership will notify the Trustee at
least 45 days prior to giving notice of redemption (or such shorter period as
may be satisfactory to the Trustee) of the aggregate principal amount of Notes
to be redeemed and their redemption date. The Trustee shall select, in such
manner as it shall deem fair and appropriate, Notes to be redeemed in whole or
in part.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date notice of such
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, to the date of redemption
or accelerated payment, over (ii) the aggregate principal amount of the Notes
being redeemed or accelerated.
"Reinvestment Rate" means the yield on treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to Stated Maturity of the principal being redeemed
(the "Treasury Yield"), plus .25%. For purposes hereof, the Treasury Yield shall
be equal to the arithmetic mean of the yields published in the Statistical
Release under the heading "Week Ending" for "U.S. Government
Securities -- Treasury Constant Maturities" with a maturity equal to such
remaining life; provided, that if no published maturity exactly corresponds to
such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the yields
for the next shortest and next longest published maturities, rounding each of
such relevant periods to the nearest month. For purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole amount shall be used. If the format or
content of the Statistical Release changes in a manner that precludes
determination of the Treasury Yield in the above manner, then the Treasury Yield
shall be determined in the manner that most closely approximates the above
manner, as reasonably determined by the Operating Partnership.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Operating
Partnership.
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THE GUARANTEE
SPG, LP will guarantee (the "Guarantee") the due and punctual payment of
principal of, premium, if any, interest on, and any other amounts payable with
respect to, the Notes, when and as the same shall become due and payable,
whether at a maturity date, on redemption, by declaration of acceleration, or
otherwise, in accordance with the terms of the Notes and the Indenture. Pursuant
to the Indenture, (i) the Trustee may exercise its rights thereunder on behalf
of the Holders and (ii) SPG, LP shall covenant that it shall take no action
which would cause the Operating Partnership to violate any covenant under the
Indenture agreement or any other condition. The Guarantee will terminate upon
the consummation of the reorganizational transactions pursuant to which the
Operating Partnership is expected to own directly all of the assets and
partnership interests then owned by SPG, LP. However, there can be no assurance
that such reorganizational transactions will be so effected. See "The Operating
Partnership" in the accompanying Prospectus. No partner (whether limited or
general) of SPG, LP will have any obligation for any obligations of SPG, LP
under the Guarantee.
In the absence of the Guarantee, Holders of the Notes will have no claims,
with respect to any payments in connection with the Notes, against the assets of
SPG, LP or the assets of any other Subsidiary of the Operating Partnership. Any
such claim that such Holders may make will have to be made indirectly through
the equity interest that the Operating Partnership has in SPG, LP (or other
Subsidiaries), and will thus be structurally subordinated to the claims of
creditors of SPG, LP (or other Subsidiaries). As a result of the Guarantee,
Holders of the Notes, upon exercising their rights with respect to the Guarantee
against SPG, LP, will be considered creditors of SPG, LP and their claims will
rank pari passu with those of unsecured and unsubordinated creditors of SPG, LP
and will not be structurally subordinated to such creditors.
BOOK-ENTRY SYSTEM
The following are summaries of certain rules and operating procedures of
DTC that affect the payment of principal and interest and transfers in the
Global Note. Upon issuance, the Notes will only be issued in the form of a
Global Note which will be deposited with, or on behalf of, DTC and registered in
the name of Cede & Co., as nominee of DTC. Unless and until it is exchanged in
whole or in part for Notes in definitive form under the limited circumstances
described below, a Global Note may not be transferred except as a whole (i) by
DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or another nominee of
DTC or (iii) by DTC or any such nominee to a successor of DTC or a nominee of
such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Notes represented by such Global Note beneficially owned by such participants.
Ownership of beneficial interests in such Global Notes will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of participants) and on the records
of participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may limit or impair the ability to own, transfer or pledge beneficial
interests in the Global Notes.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Notes represented by such Global Note for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of such Notes in certificated form and will not be considered the
registered owners or Holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of DTC and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. The Operating Partnership understands that
under existing industry practices, if the Operating Partnership requests any
action of Holders or if an owner of a beneficial interest in a Global Note
desires to
S-44
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give or take any action that a Holder is entitled to give or take under the
Indenture, DTC would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners holding
through them.
Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Operating Partnership, the Trustee or any agent
of the Operating Partnership or agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or payment
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Operating Partnership expects that DTC, upon receipt of any payment of
principal or interest in respect of a Global Note, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in such Global Note as shown on the records of
DTC. The Operating Partnership also expects that payments by participants to
owners of beneficial interests in the Global Notes held through such
participants will be governed by standing customer instructions and customary
practice, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility of
such participants.
If DTC is at any time unwilling or unable to continue as depository for the
Notes and the Operating Partnership fails to appoint a successor depository
registered as a clearing agency under the Securities Exchange Act of 1934, as
amended (the "Exchange Act), within 90 days, the Operating Partnership will
issue the Notes in definitive form in exchange for the Global Notes. Any Notes
issued in definitive form in exchange for the Global Notes will be registered in
such name or names, and will be issued in denominations of $1,000 and such
integral multiples thereof, as DTC shall instruct the Trustee. It is expected
that such instructions will be based upon directions received by DTC from
participants with respect to ownership of beneficial interests in the Global
Notes.
DTC has advised the Operating Partnership of the following information
regarding DTC. DTC is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. was created to hold securities of its participants and
to facilitate the clearance and settlement of transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of which (or their representatives) own DTC. Access to the
DTC book-entry system is also available to others, such as banks, brokers and
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
herein) in immediately available funds. All payments of principal and interest
in respect of the Notes will be made by the Operating Partnership in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
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MANAGEMENT
BOARD OF DIRECTORS OF THE GENERAL PARTNERS
The following table sets forth the composition of the Board of Directors of
the Managing General Partner, which is identical to that of the Company.
NAME AGE
---------------------------------------------------- ---
Melvin Simon........................................ 70
Herbert Simon....................................... 62
David Simon......................................... 35
Richard S. Sokolov.................................. 46
Edward J. DeBartolo, Jr. ........................... 50
M. Denise DeBartolo York............................ 45
Birch Bayh.......................................... 68
William T. Dillard, II.............................. 51
G. William Miller................................... 71
Frederick W. Petri.................................. 49
Terry S. Prindiville................................ 60
J. Albert Smith, Jr. ............................... 55
Philip J. Ward...................................... 48
Set forth below is a summary of the business experience of the directors of
the General Partners.
Melvin Simon is the Co-Chairman of the Board of Directors. In addition, he
is the Chairman of the Board of Directors of Melvin Simon & Associates, Inc.
("MSA, Inc."), a company he founded in 1960 with his brother, Herbert Simon.
Herbert Simon is the Co-Chairman of the Board of Directors. Mr. Simon
served as Chief Executive Officer from the Company's incorporation through
January 2, 1995, when he was appointed Co-Chairman of the Board. In addition,
Mr. Simon is the Chief Executive Officer and President of MSA, Inc., positions
he has held since its founding. Mr. Simon is also a director of Kohl's
Corporation, a specialty retailer.
David Simon is the Chief Executive Officer of the Company. Mr. Simon served
as President from the Company's incorporation until the Merger and was appointed
Chief Executive Officer on January 3, 1995. In addition, he has been Executive
Vice President, Chief Operating Officer and Chief Financial Officer of MSA, Inc.
since 1990. From 1988 to 1990, Mr. Simon was Vice President of Wasserstein
Perella & Company, a firm specializing in mergers and acquisitions. He is the
son of Melvin Simon, the nephew of Herbert Simon and a director of Healthcare
Compare Corp. Mr. Simon served as President from the Company's incorporation
until the Merger.
Richard S. Sokolov has been the President, Chief Operating Officer and a
director of the Company since the Merger. He was the President, Chief Executive
Officer and a director of the DRC from its incorporation until the Merger. Prior
to that he had served as Senior Vice President, Development of EJDC since 1986
and as Vice President and General Counsel since 1982. In addition, Mr. Sokolov
is a trustee and a member of the Executive Committee of the International
Council of Shopping Centers.
Edward J. DeBartolo, Jr. was the Chairman of the DRC Board of Directors
from its incorporation until the Merger. Mr. DeBartolo has been President and
Chief Executive Officer of EJDC since 1994 and a director of EJDC since 1973. He
previously served as President and Chief Administrative Officer of EJDC since
1979. He has been associated with EJDC in an executive capacity since 1973. Mr.
DeBartolo is Chairman of the San Francisco 49ers professional football team and
is also Chairman and Chief Executive Officer of DeBartolo Entertainment, Inc.
EJDC owns a majority of the interests in the San Francisco 49ers. Mr. DeBartolo,
Jr. is the son of the late Edward J. DeBartolo and the brother of M. Denise
DeBartolo York.
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M. Denise DeBartolo York was a director of DRC from February 1995 until the
Merger. She serves as Chairman of the Board of EJDC and DeBartolo, Inc. Ms. York
previously served EJDC as Executive Vice President of Personnel/Communications
and has been associated with EJDC in an executive capacity since 1975. She is
the daughter of the late Edward J. DeBartolo and the sister of Edward J.
DeBartolo, Jr.
Birch Bayh, a director of the Company since the Company's initial public
offering (the "IPO"), is the senior partner in the Washington, D.C. law firm of
Bayh, Connaughton & Malone, P.C. He served as a United States Senator from
Indiana from 1963 to 1981. Mr. Bayh also serves as a director of ICN
Pharmaceuticals and Acordia, Inc.
William T. Dillard, II, a director of the Company since the IPO, is
President and Chief Operating Officer of Dillard Department Stores Inc., a
retailing chain, a position he has held since 1977. Mr. Dillard also serves as a
director of Dillard Department Stores Inc., Frederick Atkins, Inc., Texas
Commerce Bancshares, Inc., Acxiom Corporation and Barnes & Noble, Inc.
G. William Miller was a director of DRC from DRC's initial public offering
(the "DRC IPO") until the Merger. He has been Chairman of the Board and Chief
Executive Officer of G. William Miller & Co. Inc., a merchant banking firm,
since 1983. He is a former Secretary of the U.S. Treasury and a former Chairman
of the Federal Reserve Board. From January 1990 until February 1992, he was
Chairman and Chief Executive Officer of Federated Stores, Inc., the parent
company of predecessors to Federated Department Stores, Inc. Mr. Miller is
Chairman of the Board and a director of Waccamaw Corporation. He is also a
director of GS Industries, Inc., Kleinwort Benson Australian Income Fund, Inc.
and Repligen Corporation.
Frederick W. Petri was a director of DRC from the DRC IPO until the Merger.
He is a partner of Petrone, Petri & Company, a real estate investment firm he
founded in 1993, and an officer of Housing Capital Company since its formation
in 1994. Prior thereto, he was an Executive Vice President of Wells Fargo Bank,
where for over 18 years he held various real estate positions. Mr. Petri is
currently a trustee of the Urban Land Institute and a director of Storage Trust
Realty. He previously was a member of the Board of Governors and a Vice
President of the National Association of Real Estate Investment Trusts and a
director of the National Association of Industrial and Office Park Development.
He is a director of the University of Wisconsin's Real Estate Center.
Terry S. Prindiville, a director of the Company since the IPO, served as
Executive Vice President and Director of Support Services of J.C. Penney
Company, Inc. a retailing chain from 1988 until 1995. He is also the Chairman of
the Board of Directors of JCP Realty, Inc., a wholly-owned subsidiary of J.C.
Penney Company, Inc.
J. Albert Smith, Jr., a director of the Company since the IPO, is the
President of Bank One, Indianapolis, NA, a commercial bank, a position he has
held since September 30, 1994. Prior to his current position, he was the
President of Bank One Mortgage Corporation, a mortgage banking firm, a position
he held since 1975.
Philip J. Ward was a director of DRC from the DRC IPO until the Merger. He
is Senior Managing Director, Head of Real Estate Investments, for CIGNA
Investments, Inc., a wholly-owned subsidiary of CIGNA Corporation. He is a
member of the International Council of Shopping Centers, the Urban Land
Institute, the National Association of Industrial and Office Parks and the
Society of Industrial and Office Realtors. He is a director of the Connecticut
Housing Investment Fund.
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SENIOR MANAGEMENT OF THE GENERAL PARTNERS
The following table sets forth certain information with respect to the
executive officers of the Managing General Partner, which officers also hold the
same positions in the Company.
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
Melvin Simon(1)............... 70 Co-Chairman
Herbert Simon(1).............. 62 Co-Chairman
David Simon(1)................ 35 Chief Executive Officer
Richard S. Sokolov............ 46 President and Chief Operating Officer
Randolph L. Foxworthy......... 52 Executive Vice President -- Corporate
Development
William J. Garvey............. 57 Executive Vice President -- Property
Development
James A. Napoli............... 50 Executive Vice President -- Leasing
John R. Neutzling............. 44 Executive Vice President -- Property
Management
James M. Barkley.............. 44 General Counsel; Secretary
Stephen E. Sterrett........... 41 Treasurer
- ---------------
(1) Melvin Simon is the brother of Herbert Simon and the father of David Simon.
Set forth below is a summary of the business experience of the executive
officers whose business experience is not summarized above.
Mr. Foxworthy is the Executive Vice President -- Corporate Development. He
served as a Director of the Company from the IPO until the Merger. Mr. Foxworthy
joined MSA, Inc. in 1980 and has been an Executive Vice President of MSA, Inc.
since 1986 in charge of Corporate Development and has held the same position
with the Company since the IPO. Prior to assuming the position of Executive Vice
President, Mr. Foxworthy served as General Counsel, in which capacity he
supervised all legal operations of MSA, Inc.
Mr. Garvey is the Executive Vice President -- Property Development. Mr.
Garvey, who was Executive Vice President and Director of Development at MSA,
Inc., joined MSA, Inc. in 1979 and has held various positions with MSA, Inc.
since that date and has held his current position with the Company since the
IPO.
Mr. Napoli is the Executive Vice President -- Leasing of the Company. Mr.
Napoli also served as Executive Vice President and Director of Leasing of MSA,
Inc. and has held his current position with the Company since the IPO. Mr.
Napoli was Executive Vice President and Director of Leasing for May Centers,
Inc. before he joined MSA, Inc. in 1989.
Mr. Neutzling is the Executive Vice President -- Property Management, and
as such oversees all property and asset management functions of the Company. He
has held his current position with the Company since the IPO. Mr. Neutzling
joined MSA, Inc. in 1974 and has held various positions with MSA, Inc. since
that date.
Mr. Barkley serves as General Counsel and Secretary. Mr. Barkley holds the
same position for MSA, Inc. and has held his current position with the Company
since the IPO. He joined MSA, Inc. in 1978 as Assistant General Counsel for
Development Activity.
Mr. Sterrett serves as Treasurer and has held his current position with the
Company since the IPO. He joined MSA, Inc. in 1989 and has held various
positions with MSA, Inc. since that date. Prior to that, he was a Senior Manager
at Price Waterhouse.
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UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
the related underwriting agreement (the "Underwriting Agreement"), the Operating
Partnership has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
the respective principal amount of the Notes set forth below opposite their
respective names. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
PRINCIPAL
UNDERWRITER AMOUNT
--------------------------------------------------------------- -------------
Merrill Lynch, Pierce, Fenner & Smith $
Incorporated......................................
J.P. Morgan Securities Inc.....................................
Morgan Stanley & Co. Incorporated..............................
Salomon Brothers Inc...........................................
UBS Securities LLC.............................................
---------------
Total................................................ $
===============
The Underwriters have advised the Operating Partnership that they propose
initially to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such price less a concession not in excess of % of the principal amount
thereof. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of % of the principal amount thereof to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Notes are a new issue of securities with no established trading market.
The Operating Partnership does not intend to apply for listing of the Notes on a
national securities exchange. The Operating Partnership has been advised by the
Underwriters that the Underwriters intend to make a market in the Notes as
permitted by applicable laws and regulations, but the Underwriters are not
obligated to do so and may discontinue market-making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Notes.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
certain of the Underwriters have from time to time provided, and may continue to
provide in the future, various investment banking, commercial banking and/or
financial advisory services (including in the case of J.P. Morgan Securities
Inc., the Agreement as more fully described in "Recent
Developments -- Financings and Indebtedness") to the Company, the Operating
Partnership and SPG, LP, for which customary compensation has been, and will be,
received. In connection with the Merger, the Company has agreed to pay Merrill
Lynch a fee of approximately $4 million for financial advisory services provided
by Merrill Lynch to the Company and Morgan Stanley & Co. Incorporated ("Morgan
Stanley") was paid a fee of approximately $3.875 million by DRC for financial
advisory services provided to DRC by Morgan Stanley. Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Securities Inc. and Union Bank
of Switzerland, New York Branch, an affiliate of UBS Securities LLC are lead
agents under the Credit Facility, and as such are receiving a portion of the net
proceeds of the Offering in connection with amounts being repaid with respect
thereto.
S-49
52
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present the unaudited pro forma
combined condensed balance sheet of the Operating Partnership as of September
30, 1996 and the unaudited pro forma combined condensed statements of operations
of the Operating Partnership for the nine-month period ended September 30, 1996
and for the year ended December 31, 1995.
The unaudited pro forma combined condensed balance sheet as of September
30, 1996 is presented as if the issuance of $200 million of Notes (the
"Offering") and the issuance of $200 million of Series B Cumulative Redeemable
Preferred Stock (the "Preferred Offering") had occurred on September 30, 1996
and retroactively reflect at September 30, 1996 the limited partners' interest
in the Operating Partnership as partners' equity. The unaudited pro forma
combined condensed statements of operations for the nine month period ended
September 30, 1996 and for the year ended December 31, 1995 are presented as if
the Offering, the Preferred Offering and the Merger had occurred as of January
1, 1995 and were carried forward through September 30, 1996.
Preparation of the pro forma financial information was based on assumptions
deemed appropriate by the management of the General Partners. The assumptions
give effect to the Offering, the Preferred Offering and the Merger, under the
purchase method of accounting, in accordance with generally accepted accounting
principles and to the arrangement which results in the change in accounting for
the limited partners' interest in the Operating Partnership as partners' equity.
The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the transactions
had been consummated at the beginning of the periods presented, nor does it
purport to represent the future financial position and results of operations for
future periods. The pro forma information should be read in conjunction with the
historical financial statements of Simon DeBartolo Group, L.P. ("SDG, LP"),
Simon Property Group, L.P. ("SPG, LP") and DeBartolo Realty Partnership L.P.
("DRP, LP"), each included in the accompanying Prospectus.
The pro forma adjustments included in the unaudited pro forma combined
condensed financial statements are based upon currently available information
and upon certain assumptions that management of the General Partners believes
are reasonable. There can be no assurance that the actual adjustments will not
differ significantly from the pro forma adjustments reflected in the pro forma
financial information.
SF-1
53
SIMON DEBARTOLO GROUP, L.P.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
SDG, LP PRO FORMA
(HISTORICAL) ADJUSTMENTS TOTAL PRO FORMA
--------------- ----------- ---------------
ASSETS:
Investment properties, net.................... $ 4,989,949 $ -- $ 4,989,949
Cash, cash equivalents and short-term
investments................................ 92,575 -- 92,575
Receivables................................... 150,954 -- 150,954
Note receivable from the Management
Companies.................................. 54,128 -- 54,128
Investment in partnerships and joint ventures,
at equity.................................. 368,225 -- 368,225
Other assets.................................. 142,499 2,000(A) 144,499
--------------- ----------- ---------------
Total assets............................. $ 5,798,196 $ 2,000 $ 5,800,196
=========== ========= ============
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgages and other notes payable............. $ 3,555,123 $ 2,000(B) $ 3,557,123(D)
Accounts payable, accrued expenses and other
liabilities................................ 250,097 -- 250,097
Cash distributions and losses in partnerships
and joint ventures, at equity.............. 16,796 -- 16,796
Investment in the Management Companies........ 13,415 -- 13,415
--------------- ----------- ---------------
Total liabilities........................ 3,835,431 2,000 3,837,431
--------------- ----------- ---------------
LIMITED PARTNERS' EQUITY INTEREST, at redemption
value......................................... 1,542,792 (1,542,792)(C) --
PARTNERS' EQUITY:
Series A Preferred Units...................... 99,923 -- 99,923
Series B Preferred Units...................... 193,471 -- 193,471
General Partners.............................. 1,029,774 -- 1,029,774
Limited Partners.............................. -- 645,472(C) 645,472
Adjustment to exclude limited partners' equity
interest, at redemption value.............. (897,320) 897,320(C) --
Unamortized restricted stock award............ (5,875) -- (5,875)
--------------- ----------- ---------------
Total partners' equity................... 419,973 1,542,792 1,962,765
--------------- ----------- ---------------
Total liabilities, limited partners'
equity interest and partners'
equity................................ $ 5,798,196 $ 2,000 $ 5,800,196
=========== ========= ============
The accompanying notes and management's assumptions are an integral part of
these statements.
SF-2
54
SIMON DEBARTOLO GROUP, L.P.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
(UNAUDITED)
SDG, LP (NOTE 1)
-----------------------------------------------------------
DRP, LP OFFERING AND
(HISTORICAL) PRO PREFERRED
SDG, LP FOR THE PERIOD MERGER FORMA OFFERING
(HISTORICAL) JANUARY 1, 1996 TO PRO FORMA COMBINED PRO FORMA TOTAL
(NOTE 1) AUGUST 9, 1996 ADJUSTMENTS CONDENSED ADJUSTMENTS PRO FORMA
------------ ------------------- --------------- --------- ------------ -----------
REVENUE
Minimum rent.................. $ 277,313 $ 136,594 $ 2,068(A) $415,975 $ -- $ 415,975
Overage rent.................. 17,738 6,188 -- 23,926 -- 23,926
Tenant reimbursements......... 157,738 52,398 -- 210,136 -- 210,136
Other income.................. 32,851 11,455 -- 44,306 -- 44,306
------------ ---------- --------------- --------- ------------ -----------
Total revenue.......... 485,640 206,635 2,068 694,343 -- 694,343
------------ ---------- --------------- --------- ------------ -----------
EXPENSES
Property and other operating
expenses.................... 182,652 86,183 (12,164)(B) 256,671 -- 256,671
Depreciation and
amortization................ 88,913 38,706 6,823(C) 134,442 -- 134,442
Write off of minority
interest.................... -- 13,854 (13,854)(D) -- -- --
Merger expenses............... 7,236 13,512 (20,748)(E) -- -- --
------------ ---------- --------------- --------- ------------ -----------
Total expenses......... 278,801 152,255 (39,943) 391,113 -- 391,113
------------ ---------- --------------- --------- ------------ -----------
OPERATING INCOME................ 206,839 54,380 42,011 303,230 -- 303,230
INTEREST EXPENSE................ 135,346 74,714 (7,459)(F) 202,601 (5,887)(I) 196,714
------------ ---------- --------------- --------- ------------ -----------
INCOME BEFORE MINORITY
INTEREST...................... 71,493 (20,334) 49,470 100,629 5,887 106,516
MINORITY PARTNERS' INTEREST..... (2,394) (528) -- (2,922 ) -- (2,922)
GAIN ON SALE OF ASSETS.......... 88 -- -- 88 -- 88
------------ ---------- --------------- --------- ------------ -----------
INCOME BEFORE UNCONSOLIDATED
ENTITIES...................... 69,187 (20,862) 49,470 97,795 5,887 103,682
INCOME FROM UNCONSOLIDATED
ENTITIES...................... 7,452 8,422 -- 15,874 -- 15,874
------------ ---------- --------------- --------- ------------ -----------
NET INCOME FROM CONTINUING
OPERATIONS.................... 76,639 (12,440) 49,470 113,669 5,887 119,556
GENERAL PARTNERS PREFERRED UNIT
REQUIREMENT................... 6,286 -- -- 6,286 12,933(J) 19,219
------------ ---------- --------------- --------- ------------ -----------
NET INCOME FROM CONTINUING
OPERATIONS AVAILABLE TO
UNITHOLDERS................... $ 70,353 $ (12,440) $ 49,470 $107,383 $ (7,046) $ 100,337
============ ================= =============== ========= =========== ============
NET INCOME AVAILABLE TO
UNITHOLDERS ATTRIBUTED TO:
GENERAL PARTNERS.............. $ 43,061 $ (7,697) $ 30,569 $ 65,933 $ (4,326) $ 61,607
LIMITED PARTNERS.............. 27,292 (4,743) 18,901(G) 41,450 (2,720)(K) 38,730
------------ ---------- --------------- --------- ------------ -----------
$ 70,353 $ (12,440) $ 49,970 $107,383 $ (7,046) $ 100,337
============ ================= =============== ========= =========== ============
NET INCOME PER UNIT............. $ 0.65 $ 0.64
============ ============
WEIGHTED AVERAGE UNITS
OUTSTANDING................... 107,607,202 156,925,688(H)
============ ============
The accompanying notes and management's assumptions are an integral part of
these statements.
SF-3
55
SIMON DEBARTOLO GROUP, L.P.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
(UNAUDITED)
SDG, LP (NOTE 1)
-----------------------------------------------------------
OFFERING AND
SPG, LP PRO PREFERRED
(HISTORICAL) MERGER FORMA OFFERING
(THE PREDECESSOR DRP, LP PRO FORMA COMBINED PRO FORMA TOTAL
TO SDG, LP) (HISTORICAL) ADJUSTMENTS CONDENSED ADJUSTMENTS PRO FORMA
---------------- --------------- --------------- --------- ------------ ------------
REVENUE
Minimum rent.................. $ 307,849 $ 205,056 $ 3,400(A) $516,305 $ -- $ 516,305
Overage rent.................. 23,278 12,924 -- 36,202 -- 36,202
Tenant reimbursements......... 191,535 82,147 -- 273,682 -- 273,682
Other income.................. 30,995 32,530 -- 63,525 -- 63,525
---------------- --------------- --------------- --------- ------------ ------------
Total revenue.......... 553,657 332,657 3,400 889,714 -- 889,714
---------------- --------------- --------------- --------- ------------ ------------
EXPENSES
Property and other operating
expenses.................... 209,782 118,498 (20,000)(B) 308,280 -- 308,280
Depreciation and
amortization................ 92,739 58,603 11,218(C) 162,560 -- 162,560
---------------- --------------- --------------- --------- ------------ ------------
Total expenses......... 302,521 177,101 8,782 470,840 -- 470,840
---------------- --------------- --------------- --------- ------------ ------------
OPERATING INCOME................ 251,136 155,556 12,182 418,874 -- 418,874
INTEREST EXPENSE................ 150,224 124,567 (21,035)(F) 253,756 (10,197)(I) 243,559
---------------- --------------- --------------- --------- ------------ ------------
INCOME BEFORE MINORITY
INTEREST...................... 100,912 30,989 33,217 165,118 10,197 175,315
MINORITY PARTNERS' INTEREST..... (2,681) 1,029 -- (1,652 ) -- (1,652)
GAIN ON SALE OF ASSETS.......... 1,871 5,460 -- 7,331 -- 7,331
---------------- --------------- --------------- --------- ------------ ------------
INCOME BEFORE UNCONSOLIDATED
ENTITIES...................... 100,102 37,478 33,217 170,797 10,197 180,994
INCOME FROM UNCONSOLIDATED
ENTITIES...................... 1,403 8,865 -- 10,268 -- 10,268
---------------- --------------- --------------- --------- ------------ ------------
NET INCOME FROM CONTINUING
OPERATIONS.................... 101,505 46,343 33,217 181,065 10,197 191,262
GENERAL PARTNERS PREFERRED UNIT
REQUIREMENT................... 1,490 -- -- 1,490 17,500(J) 18,990
---------------- --------------- --------------- --------- ------------ ------------
NET INCOME FROM CONTINUING
OPERATIONS AVAILABLE TO
UNITHOLDERS................... $ 100,015 $ 46,343 $ 33,217 $179,575 $ (7,303) $ 172,272
=============== ============== =============== ========= =========== =============
NET INCOME AVAILABLE TO
UNITHOLDERS ATTRIBUTABLE TO:
GENERAL PARTNERS.............. $ 59,718 $ 27,628 $ 22,913 $110,259 $ (4,425) $ 105,775
LIMITED PARTNERS.............. 40,297 18,715 10,304(G) 69,316 (2,878)(K) 66,497
---------------- --------------- --------------- --------- ------------ ------------
$ 100,015 $ 46,343 $ 33,217 $179,575 $ (7,303) $ 172,272
=============== ============== =============== ========= =========== =============
NET INCOME PER UNIT............. $ 1.08 $ 1.12
=============== =============
WEIGHTED AVERAGE UNITS
OUTSTANDING................... 92,666,469 153,809,452(H)
=============== =============
The accompanying notes and management's assumptions are an integral part of
these statements.
SF-4
56
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED, IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT AMOUNTS)
1. BASIS OF PRESENTATION
Simon Property Group, L.P. ("SPG, LP"), the predecessor to Simon DeBartolo
Group, LP for financial reporting purposes, was formed as a Delaware limited
partnership in 1993 in connection with Simon Property Group, Inc.'s ("SPG")
initial public offering (the "IPO"). SPG, as general partner of SPG, LP, has
full, exclusive and complete responsibility and discretion in the management and
control of SPG, LP. Immediately prior to the Merger (see below), SPG owned 61.1%
of SPG, LP. SPG, LP is engaged primarily in the ownership, operation,
management, leasing, acquisition, expansion and development of real estate
properties, primarily regional malls and community shopping centers. As of
September 30, 1996, SPG, LP owned or held an interest in 122 income-producing
properties, which consist of 62 regional malls, 55 community shopping centers,
two specialty retail centers and three mixed-use properties. SPG, LP also owned
interests in two regional malls and one specialty retail center under
construction and seven parcels of land held for future development.
On August 9, 1996, the merger and other related transactions, pursuant to
the agreement and plan of merger between SPG, an acquisition subsidiary of SPG
and DeBartolo Realty Corporation ("DRC"), were consummated (the "Merger").
Pursuant to the Merger, SPG acquired all the outstanding shares of common stock
of DRC (55,712,529 shares), through the acquisition subsidiary, at an exchange
ratio of 0.68 share of SPG common stock for each share of DRC common stock (the
"Exchange Ratio"). DRC and the acquisition subsidiary merged, with DRC the
surviving entity, becoming a 99.9% subsidiary of SPG. This portion of the
transaction was valued at approximately $923.4 million and resulted in SPG
obtaining an indirect 61.9% general partnership interest in DRC's operating
partnership, DeBartolo Realty Partnership, L.P. ("DRP, LP"). The value of the
acquisition of DRC was based upon the number of shares (55,712,529 shares) of
DRC common stock acquired, the Exchange Ratio and the last reported sales price
per share of SPG's common stock on August 9, 1996 ($24.375).
SDG, LP, like SPG, LP, is engaged primarily in the ownership, operation,
management, leasing, acquisition, expansion and development of real estate
properties, primarily regional malls and community shopping centers. As of
September 30, 1996, SDG, LP owned or held an interest in 50 regional malls, 11
community shopping centers and land held for future development.
In connection with the Merger, SPG changed its name to Simon DeBartolo
Group, Inc. ("SDG" or the "Company"). In addition, simultaneous with the Merger,
the general and limited partners of SPG, LP contributed 99% of their interests
(49.5% partnership interest and an additional 49.5% interest in the profits of
SPG, LP) to DRP, LP in exchange for units of partnership interest in DRP, LP,
whose name had since changed to Simon DeBartolo Group, LP ("SDG, LP"). The
limited partners of DRP, LP approved the contribution made by the partners of
SPG, LP and simultaneously exchanged their 38.1% partnership interest in DRP,
LP, adjusted for the Exchange Ratio, for a smaller partnership interest in SDG,
LP. The exchange of the limited partners' interest in DRP, LP for units of
partnership interest in SDG, LP has been accounted for as an acquisition of
minority interest and is valued based on the estimated fair value of the
consideration issued (approximately $566.9 million). The limited partnership
units of SDG, LP may under certain circumstances be exchangeable for common
stock of SDG on a one-for-one basis. Therefore, the value of the acquisition of
the limited partners' interest acquired was based upon the number of units of
partnership interest (34,203,623 units) in DRP, LP exchanged, the Exchange Ratio
and the last reported sales price per share of SPG's common stock on August 9,
1996 ($24.375). The limited partners of SPG, LP received a 23.8% partnership
interest in SDG, LP for contributing their 38.9% partnership interest in SPG, LP
to SDG, LP. The interests transferred by the partners of SPG, LP to DRP, LP have
been appropriately reflected at historical costs. Upon completion of the Merger,
the Company directly and indirectly owned a controlling 61.2% partnership
interest in SDG, LP.
SF-5
57
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DRP, LP for consideration
valued at $1,518,102, including related transaction costs. The purchase price
has been allocated to the fair value of the assets and liabilities of DRP, LP.
At September 30, 1996, certain assumptions were made which management of the
General Partners believes are reasonable. Management expects to finalize the
purchase price during the fourth quarter of 1996. The final allocation is not
expected to differ materially from the allocation made at September 30, 1996.
Although the Company was the accounting acquirer, DRP, LP (which is now
known as SDG, LP ("SDG, LP")) became the primary operating partnership through
which the future business of the Company will be conducted. As a result of the
Merger, SPG's initial operating partnership, SPG, LP, became a subsidiary of
SDG, LP, with 99% of the profits allocable to SDG, LP and 1% of the profits
allocable to the Company. Cash flow allocable to the Company's 1% profit
interest in SPG, LP will be absorbed by public company costs and related
expenses incurred by the Company. Because the Company was the accounting
acquirer and, upon completion of the Merger, acquired majority control of DRP,
LP, SPG, LP is the predecessor to SDG, LP for financial reporting purposes.
Accordingly, the financial statements and ratios disclosed by SDG, LP for
post-merger periods will reflect the reverse acquisition of DRP, LP by the
Company using the purchase method of accounting and for all pre-merger
comparative periods, the financial statements and ratios disclosed by SDG, LP
will reflect the financial statements and ratios of SPG, LP as the predecessor
to SDG, LP for financial reporting purposes.
The accompanying financial statements present the unaudited pro forma
combined condensed balance sheet of the Operating Partnership as of September
30, 1996 and the unaudited pro forma combined condensed statements of operations
of the Operating Partnership for the nine-month period ended September 30, 1996
and for the year ended December 31, 1995.
The unaudited pro forma combined condensed balance sheet as of September
30, 1996 is presented as if the Offering had occurred on September 30, 1996 and
retroactively reflects the limited partners' interest in the Operating
Partnership as partners' equity. The unaudited pro forma combined condensed
statements of operations for the nine month period ended September 30, 1996 and
for the year ended December 31, 1995 are presented as if the Offering, the
Preferred Offering and the Merger, which resulted in a reverse acquisition at
the operating partnership level, had occurred as of January 1, 1995 and were
carried forward through September 30, 1996.
Preparation of the pro forma financial information was based on assumptions
deemed appropriate by the management of the General Partners. The assumptions
give effect to the Offering, the Preferred Offering, the Merger, which resulted
in a reverse acquisition at the operating partnership level, under the purchase
method of accounting in accordance with generally accepted accounting principles
and the arrangement which results in the change in accounting for the limited
partners' interest in the Operating Partnership as partners' equity. The pro
forma financial information is unaudited and is not necessarily indicative of
the results which actually would have occurred if the transactions had been
consummated at the beginning of the periods presented, nor does it purport to
represent the future financial position and results of operations for future
periods. The pro forma information should be read in conjunction with the
historical financial statements of SPG, LP and DRP, LP included in the
accompanying Prospectus.
The pro forma adjustments included in the unaudited pro forma combined
financial statements are based upon currently available information and upon
certain assumptions that management of the General Partners believes are
reasonable. There can be no assurance that the actual adjustments will not
differ significantly from the pro forma adjustments reflected in the pro forma
financial information.
SF-6
58
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
2. LIMITED PARTNERS' INTEREST
Because the Operating Partnership does not control whether cash will be
used to settle the limited partners' exchange rights, the limited partners'
equity have not been included in partners' equity. The consolidated condensed
balance sheets reflect the limited partners' interest in the Operating
Partnership, measured at redemption value.
On November 13, 1996, an agreement was reached between the Company and the
Operating Partnership which restricts the Company's ability to cause the
Operating Partnership to redeem for cash the limited partners' units without
contributing cash to the Operating Partnership as partners' equity sufficient to
effect the redemption. If sufficient cash is not contributed, the Company will
be deemed to have elected to acquire the limited partners' units for shares of
the Company's common stock. Accordingly, prospectively the limited partners'
interest in SDG, LP will be reflected in the consolidated balance sheet of SDG
LP as partners' equity at historical carrying value.
3. ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(A) To record deferred debt issuance costs related to the Offering...... $ 2,000
==========
(B) To reflect the issuance of $200,000 in Notes from the Offering
($2,000 used to pay debt issuance costs) with an average interest
rate of 7.50% and to reflect the use of $198,000 in net proceeds
from the Offering to repay existing mortgage indebtedness of
$117,645 with an average interest rate of 7.75% and to reduce the
amount outstanding under the revolving credit facility of $80,355
with an interest rate of 6.71%...................................... 2,000
==========
(C) To reflect the limited partners' interest as partners' equity at
historical carrying value:
Limited partners interest at historical carrying value.............. $ 645,472
Adjustment to exclude the limited partners' interest at redemption
value............................................................... 897,320
Limited partners' equity interest, at redemption value.............. $(1,542,792)
==========
(D) A portion of the proceeds ($65,600) from the Preferred Offering were
used on an interim basis in September 1996 to reduce amounts
outstanding under the Credit Facility. In October 1996 this amount
was borrowed under the Credit Facility to repay mortgage
indebtedness. The ultimate use of the proceeds have been reflected
in the accompanying Pro Forma Combined Condensed Balance Sheet.
Mortgage Indebtedness............................................... $ (65,600)
Credit Facility..................................................... 65,600
-----------
Mortgage & Other Notes Payable...................................... $ --
==========
SF-7
59
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
4. ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
DRP, LP incurred $13,512 of expenses in connection with the Merger and
these expenses have been excluded from the Pro Forma Combined Condensed
Statements of Operations (see (D) below).
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------- ----------
(A) To recognize revenue from straightlining
rent related to leases which have been
reset in connection with the Merger....... $ 2,068 $ 3,400
========== ==========
(B) To reflect cost savings to eliminate
duplicative public company costs and other
identified redundancies which have been
estimated based upon historical costs for
those items as a result of the Merger..... $ (12,164) $ (20,000)
========== ==========
(C) To reflect the increase in depreciation as
a result of recording the investment
properties of DRP, LP at acquisition value
versus historical cost and utilizing an
estimated useful life of 35 years offset
by the decrease in amortization expense as
a result of the elimination of deferred
leasing costs............................. $ 6,823 $ 11,218
========== ==========
(D) To eliminate the adjustment to write-off
minority interest recorded in connection
with the Merger........................... $ (13,854) $ --
========== ==========
(E) To reflect the elimination of Merger
related costs expensed during the nine
month period ended September 30, 1996..... $ (20,748) $ --
========== ==========
(F) To reflect the following adjustments to
interest expense as a result of the
Merger:
1. To reflect the elimination of
amortization of deferred mortgage costs,
related to DRP, LP, written-off in
connection with the Merger............. $ (6,175) $ (18,929)
2. To reflect the amortization of the
premium required to adjust mortgages and
other notes payable to fair value...... (1,284) (2,106)
---------- ----------
$ (7,459) $ (21,035)
========== ==========
SF-8
60
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------- ----------
(G) To adjust the allocation of the Limited
Partners' interest after giving effect to
the Merger in the net income of the
Operating Partnership, taking into
consideration the preferred unit
distribution. The Limited Partners' pro
forma weighted average ownership interest
for the nine months ended September 30,
1996 and for the year ended December 31,
1995 was 38.5% and 39.4%, respectively.... $ 18,901 $ 10,304
========== ==========
(H) The pro forma weighted average units
outstanding is computed as follows:
SPG, LP Historical Weighted Average Units
Outstanding............................... 107,607,202 92,666,469
Issuance of units in connection with the
Merger (assuming that there are 89,916,152
units of DRP, LP outstanding immediately
prior to the Merger)...................... 49,318,486 61,142,983
---------- ----------
156,925,688 153,809,452
========== ==========
(I) To reflect the following adjustments to
interest expense:
1. To record the reduction in interest
expense as a result of the use of $177,200
of the net proceeds of $193,000 from
the Preferred Offering to reduce
mortgages, other notes payable and the
Credit Facility........................ $ (9,523) $ (12,996)
2. To record the net increase in interest
expense and deferred debt issuance cost
amortization as a result of the
Offering............................... 3,636 2,799
---------- ----------
$ (5,887) $ (10,197)
========== ==========
(J) To reflect preferred unit distributions
related to the Preferred Offering......... $ 12,933 $ 17,500
========== ==========
SF-9
61
SIMON DEBARTOLO GROUP, L.P.
NOTES AND MANAGEMENT ASSUMPTIONS TO
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------- ----------
(K) To adjust the allocation of the Limited
Partners' interest after giving effect to
the Offering, the Preferred Offering and
the Merger in the net income of the
Operating Partnership after consideration
of the preferred unit distribution related
to the Series B Preferred Stock. The
Limited Partners' pro forma weighted
average ownership interest for the nine
months ended September 30, 1996 and for
the year ended December 31, 1995 was 38.5%
and 39.4%, respectively................... $ (2,720) $ (2,878)
========== ==========
SF-10
62
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
$750,000,000
SIMON DEBARTOLO GROUP, L.P.
DEBT SECURITIES
------------------------
Simon DeBartolo Group, L.P. (the "Operating Partnership") may from time to
time offer in one or more series unsecured non-convertible investment grade debt
securities ("Debt Securities") with an aggregate public offering price of up to
$750,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be set forth in one
or more supplements to this Prospectus (each a "Prospectus Supplement"). The
Operating Partnership is a subsidiary of Simon DeBartolo Group, Inc. (the
"Company") and is the Company's primary operating partnership following the
consummation on August 9, 1996 of the merger of DeBartolo Realty Corporation
with a subsidiary of the Company. Simon Property Group, L.P., a Delaware limited
partnership and a subsidiary partnership of the Operating Partnership, will
guarantee (the "Guarantee") the due and punctual payment of the principal of,
premium, if any, interest on, and any other amounts payable with respect to, the
Debt Securities, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise, and
as set forth in the applicable Prospectus Supplement with respect to such Debt
Securities.
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include a specific title, aggregate principal amount,
currency, form (which may be registered or bearer, or certificated or global),
authorized denominations, maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, covenants and any initial public offering price.
The applicable Prospectus Supplement will also contain information, where
applicable, concerning material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Debt Securities
covered by such Prospectus Supplement.
The Debt Securities may be offered directly, through agents designated from
time to time by the Operating Partnership, or to and through underwriters or
dealers. If any agents, dealers or underwriters are involved in the sale of any
of the Debt Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Debt Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such series of Debt Securities.
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will, unless otherwise described in the applicable Prospectus
Supplement, rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. On September 30, 1996, the total
outstanding debt of the Operating Partnership including its pro rata share of
joint venture debt was approximately $3,988.3 million, approximately 90% of
which was secured debt. Except as otherwise described in the applicable
Prospectus Supplement, the Indenture pursuant to which the Debt Securities are
issued does not limit the amount of other indebtedness of the Operating
Partnership that may rank equally with or senior to the Debt Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is November , 1996.
63
AVAILABLE INFORMATION
Simon DeBartolo Group, Inc. (the "Company") is the holder of approximately
a 99.99% interest in SD Property Group, Inc., which is the managing general
partner of the Operating Partnership. Simon Property Group, L.P. ("SPG, LP") is
a subsidiary partnership of the Operating Partnership. The Company is the
general partner of SPG, LP. The Company and SPG, LP are and, following the
effectiveness of the registration statement of which this Prospectus is a part,
the Operating Partnership will be, subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, the Company and SPG, LP file and the Operating Partnership
may be required to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company and SPG, LP can be
inspected and copied, at the prescribed rates, at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 W.
Madison Street, Chicago, Illinois 60661. The Company's Common Stock is traded on
the New York Stock Exchange ("NYSE"). Reports and other information concerning
the Company may be inspected at the principal office of the NYSE at 20 Broad
Street, New York, New York 10005.
The Company, SPG, LP and the Operating Partnership will provide without
charge to each person to whom a copy of this Prospectus is delivered, upon
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents). Written requests
for such copies should be addressed to National City Center, 115 West Washington
Street, Suite 15 East, Indianapolis, Indiana 46204, Attn: Investor Relations,
telephone number (317) 685-7330.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Operating Partnership and SPG, LP
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Debt Securities offered hereby. This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto, in accordance with the rules
and regulations of the Commission. For further information concerning the
Operating Partnership, SPG, LP and the Debt Securities offered hereby, reference
is hereby made to the Registration Statement and the exhibits and schedules
filed therewith, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of which
may be obtained from the Commission at prescribed rates. The Commission
maintains a World Wide Web Site (http://www.sec.gov) that contains such material
regarding issuers that file electronically with the Commission. This
Registration Statement has been so filed and may be obtained at such site. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
Certain information, including, but not limited to, information relating to
the Operating Partnership's and SPG, LP's properties, principal security
holders, management, executive compensation, certain relationships and related
transactions and legal proceedings that would be required to be disclosed in a
prospectus included in a registration statement on Form S-11, has been omitted
from this Prospectus because such information is not materially different from
the information contained in the Company's and SPG, LP's periodic reports, proxy
statements and other information filed by the Company and SPG, LP with the
Commission.
2
64
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company and SPG, LP which have been filed
with the Commission are hereby incorporated by reference in this Prospectus.
1. The Company's Registration Statement on Form S-4 (Registration No.
333-06933);
2. The Company's Proxy Statement dated June 28, 1996, relating to the
annual and special meeting of stockholders held on August 7, 1996;
3. The Company's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/A-1;
4. The Company's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1996, as amended by Form 10-Q/A, June 30, 1996 and September 30,
1996, as amended by Form 10-Q/A;
5. The Company's Current Reports on Form 8-K filed on March 21, April 1,
May 17, August 12, August 14, August 26, September 18, and September 27, 1996;
6. SPG, LP's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Forms 10-K/A-1 and 10-K/A-2;
7. SPG, LP's Quarterly Reports on Form 10-Q for the calendar quarters ended
March 31, June 30 and September 30, 1996, as amended by Form 10-Q/A; and
8. SPG, LP's Current Report on Form 8-K filed on August 26, 1996, as
amended on August 28, 1996, and on October 21, 1996.
The Exchange Act filing numbers of the Company and SPG, LP are 1-12618 and
33-98364, respectively.
Each document filed by the Company, SPG, LP or the Operating Partnership
subsequent to the date of this Prospectus pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act and prior to termination of the offering of all
Debt Securities to which this Prospectus relates shall be deemed to be
incorporated by reference in this Prospectus and shall be part hereof from the
date of filing of such document. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus (in the case of a statement in a
previously-filed document incorporated or deemed to be incorporated by reference
herein), in any accompanying Prospectus Supplement relating to a specific
offering of Debt Securities or in any other subsequently filed document that is
also incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
The foregoing documents of the Company and SPG, LP filed under the Exchange
Act have been incorporated by reference herein because they contain information
concerning business, properties, operations and management of the Operating
Partnership through which the Company conducts its operations.
3
65
THE OPERATING PARTNERSHIP
Simon DeBartolo Group, L.P. (the "Operating Partnership") is a subsidiary
partnership of Simon DeBartolo Group, Inc. (the "Company") (formerly known as
Simon Property Group, Inc. ("SPG")), and is the primary operating partnership of
the Company as a result of the merger of DeBartolo Realty Corporation ("DRC")
with a subsidiary of the Company. Such merger and related transactions thereto
(the "Merger") were consummated on August 9, 1996 (the "Merger Date"), at which
time DRC became an approximately 99.99% owned subsidiary of the Company and was
renamed SD Property Group, Inc. (the "Managing General Partner"). The Managing
General Partner and the Company are both general partners of the Operating
Partnership, but the Managing General Partner is the sole managing general
partner of the Operating Partnership. As part of the Merger, the Company, as
general partner of Simon Property Group, L.P. ("SPG, LP" and, together with the
Operating Partnership, the "Partnerships"), and as owner of 61.1% of the then
outstanding partnership units in SPG, LP, transferred to the Operating
Partnership 10.6% of such partnership units then outstanding and an additional
49.5% interest in the profits (but not the capital) of SPG, LP in exchange for
37.3% of the partnership interests in the Opening Partnership pursuant to a
Contribution Agreement, dated June 25, 1996, and a related Instrument of
Assignment, dated August 9, 1996. All of the limited partners of SPG, LP
contributed another 38.9% of the then outstanding partnership units in SPG, LP
to the Operating Partnership pursuant to similar contribution agreements and
related instruments of assignment. Therefore in total, the Operating Partnership
acquired a 49.5% limited partnership interest in, and an additional 49.5%
interest in the profits of, SPG, LP. See "The Merger." Following certain
redemptions of the Company's interest in SPG, LP completed since the Merger, the
Company owns a 40.8% partnership interest in the capital of SPG, LP and the
Operating Partnership owns a 58.2% special limited partnership in, and an
additional 40.8% interest in the profits of, SPG, LP.
The Company is the parent of the Managing General Partner and owned
effectively as of the Merger Date a controlling 61.5% equity interest in the
Operating Partnership. As of the Merger Date, Melvin Simon, Herbert Simon, David
Simon and certain of their affiliates, including certain other Simon family
members and estates, trusts and other entities established for their benefit
(collectively, the "Simons"), effectively owned a 21.7% equity interest in the
Operating Partnership, and the estate of Edward J. DeBartolo, Edward J.
DeBartolo, Jr., M. Denise DeBartolo York, The Edward J. DeBartolo Corporation,
an Ohio corporation ("EJDC"), and certain of their affiliates, including certain
other DeBartolo family members and estates and trusts established for their
benefit (collectively, the "DeBartolos"), effectively owned a 14.2% equity
interest in the Operating Partnership.
After the Merger, SPG, LP continues to hold interests in certain properties
and is a party to various agreements binding on itself and on subsidiary
partnerships of which it is the general partner. These agreements require the
continued existence of SPG, LP and the consents necessary under these agreements
to permit the combination of SPG, LP and the Operating Partnership were not
obtained at the time of the Merger. To date, all of the required consents have
been obtained. As a result thereof, it is currently expected that subsequent to
the first anniversary of the date of the Merger, reorganizational transactions
will be effected so that the Operating Partnership will directly own all of the
assets and partnership interests now owned by SPG, LP. Prior to such proposed
reorganizational transactions, holders of the Debt Securities to be offered
hereby will not, as a result of the Guarantee be structurally subordinated to
holders of unsecured and unsubordinated indebtedness of SPG, LP but will rank
pari passu with them. After the proposed reorganizational transactions, holders
of the Debt Securities will remain pari passu with holders of such indebtedness.
However, there can be no assurance that such reorganizational transactions will
be so effected.
As of September 30, 1996, on a combined basis: the Operating Partnership
owns or holds interests in a diversified portfolio of 183 income producing
properties (the "Portfolio Properties"), including 112 super-regional and
regional malls, 65 community shopping centers, two specialty retail centers and
four mixed-use properties located in 33 states; the Portfolio Properties contain
an aggregate of more than 111 million square feet of gross leasable area
("GLA"), of which approximately 65 million square feet is GLA owned by the
Partnerships ("Owned GLA"); more than 3,600 different retailers occupy
approximately 12,000 stores in the Portfolio Properties; total estimated retail
sales at the Portfolio Properties approached $16 billion in fiscal 1995; the
Operating Partnership has interests in seven properties under construction in
the United States
4
66
aggregating approximately six million square feet of GLA, and owns land held for
future development. The Operating Partnership, together with its affiliated
management companies (collectively, the "Management Companies"), manage over 127
million square feet of GLA of retail and mixed-use properties.
As of November 14, 1996, the Operating Partnership and the Management
Companies had approximately 8,000 employees. The Operating Partnership's
executive offices are located at National City Center, 115 West Washington
Street, Suite 15 East, Indianapolis, Indiana 46204, and its telephone number is
(317) 636-1600.
The following chart depicts the organizational and ownership structure of
the Operating Partnership and certain affiliates:
[ORGANIZATIONAL CHART]
- ---------------
(1) The Simons own less than 1% of the outstanding shares of common stock of the
Company and all of the Class B common stock of the Company.
(2) The DeBartolos own less than 1% of the outstanding common stock of the
Company and all of the Class C common stock of the Company.
(3) The Company owns over 99.9% of the common stock of SD Property Group, Inc.
and, both directly and indirectly through its ownership of the SD Property
Group, Inc., owns at November 14, 1996 61.5% interest in the Operating
Partnership and, as general partner, owns 1% of the partnership units in
SPG, LP and a 40.8% interest in the capital of SPG, LP.
(4) The former limited partners of the Operating Partnership and SPG, LP as a
group (including the Simons and the DeBartolos) own a 38.5% beneficial
interest in the Operating Partnership, of which the Simons own 21.7% and the
DeBartolos own 14.2%.
(5) The Operating Partnership owns at November 14, 1996 58.2% special limited
partnership interest in, and an additional 40.8% interest in the profits of,
SPG, LP.
(6) Properties owned by SPG, LP will be held as they were held in the pre-merger
structure. Later acquired properties will be held by, and future operations
will be conducted through, the Operating Partnership. It is currently
expected that subsequent to the first anniversary of the date of the Merger,
reorganizational
5
67
transactions will be effected so that the Operating Partnership will
directly own all of the assets and partnership interests now owned by SPG,
LP. However, there can be no assurance that such reorganizational
transactions will be so effected.
(7) SPG, LP will guarantee the due and punctual payment of the principal of,
premium, if any, interest on, and any other amounts payable with respect to,
the Notes, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise.
See "Description of the Debt Securities -- The Guarantee."
THE MERGER
On August 9, 1996, the merger and other related transactions, pursuant to
the agreement and plan of merger among Simon Property Group, Inc. ("SPG"), an
acquisition subsidiary of SPG and DeBartolo Realty Corporation ("DRC"), were
consummated (the "Merger"). Pursuant to the Merger, SPG acquired all the
outstanding shares of common stock of DRC (55,712,529 shares) through the
acquisition subsidiary, at an exchange ratio of 0.68 share of SPG common stock
for each share of DRC common stock (the "Exchange Ratio"). A total of 37,884,520
shares of SPG common stock were issued by the Company, through the acquisition
subsidiary, to the DRC shareholders. DRC and the acquisition subsidiary merged,
with DRC as the surviving entity and becoming a 99.9% subsidiary of SPG. This
portion of the transaction was valued at approximately $923.4 million, based
upon the number of DRC shares of common stock acquired (55,712,529 shares), the
Exchange Ratio and the last reported sales price per share of SPG's common stock
on August 9, 1996 ($24.375). In connection therewith, SPG changed its name to
Simon DeBartolo Group, Inc. (the "Company") and DRC changed its name to SD
Property Group, Inc. (the "Managing General Partner").
In connection with the Merger, the general and limited partners of the
operating partnership of SPG, Simon Property Group, L.P. ("SPG, LP"),
contributed 49.5% (47,442,212 units) of the total outstanding units of
partnership interest in SPG, LP to the operating partnership of DRC, DeBartolo
Realty Partnership, L.P. ("DRP, LP") in exchange for 47,442,212 units of
partnership interest in DRP, LP, whose name has since been changed to Simon
DeBartolo Group, L.P. ("SDG, LP"). The Company retained a 50.5% partnership
interest (48,400,614 units) in SPG, LP but assigned its rights to receive
distributions of profits on 49.5% (47,442,212 units) of the outstanding units of
partnership interest in SPG, LP to SDG, LP. The limited partners of DRP, LP
approved the contribution made by the partners of SPG, LP and simultaneously
exchanged their 38.1% (34,203,623 units) partnership interest in DRP, LP,
adjusted for the Exchange Ratio, for a smaller partnership interest in SDG, LP.
The exchange of the limited partners' 38.1% partnership interest in DRP, LP for
units of partnership interest in SDG, LP has been accounted for as an
acquisition of minority interest by the Company and is valued based on the
estimated fair value of the consideration issued (approximately $566.9 million).
The units of partnership interest in SDG, LP may under certain circumstances be
exchangeable for stock of the Company on a one-for-one basis. Therefore, the
value of the acquisition of the DRP, LP limited partners' interest acquired was
based upon the number of DRP, LP units of partnership interest exchanged
(34,203,623 units), the Exchange Ratio and the last reported sales price per
share of SPG's common stock on August 9, 1996 ($24.375). The limited partners of
SPG, LP received a 23.7% partnership interest in SDG, LP (37,282,628 units) for
the contribution of their 38.9% partnership interest in SPG, LP (37,282,628
units) to SDG, LP. The interests transferred by the partners of SPG, LP to DRP,
LP have been appropriately reflected at historical costs.
Upon completion of the Merger, the Company became a general partner of SDG,
LP with 36.9% (57,605,796 units) of the outstanding partnership units in SDG, LP
and the Managing General Partner became the managing general partner of SDG, LP
with 24.3% (37,873,965 units in SPG, LP) of the outstanding partnership units in
SDG, LP. The Company remained the sole general partner of SPG, LP with 1% of the
outstanding partnership units (958,429 units) and 49.5% interest in the capital
of SPG, LP, and SDG, LP became a special limited partner in SPG, LP with 49.5%
(47,442,212 units) of the outstanding partnership units in SPG, LP and an
additional 49.5% interest in the profits of SPG, LP. SPG, LP did not acquire any
interest in SDG, LP. Upon completion of the Merger, the Company directly and
indirectly owned a controlling 61.2% (95,479,761 units) partnership interest in
SDG, LP.
6
68
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company, using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DRP, LP for consideration
valued at $1.523 billion, including related transaction costs. Although the
Company was the accounting acquirer, SDG, LP (formerly DRP, LP) became the
primary operating partnership through which the future business of the Company
will be conducted, As a result of the Merger, the Company's initial operating
partnership, SPG, LP, became a subsidiary of SDG, LP. However, because the
Company was the accounting acquirer and upon completion of the Merger acquired
majority control of SDG, LP, SPG, LP is the predecessor to SDG, LP for financial
reporting purposes. Accordingly the financial statements and ratios disclosed by
SDG, LP for the post-merger periods will reflect the reverse acquisition of DRP,
LP by the Company using the purchase method of accounting and for all pre-merger
comparative periods, the financial statements and ratios disclosed by SDG, LP
will reflect the financial statements and ratios of SPG, LP as the predecessor
to SDG, LP for financial reporting purposes.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
SPG, LP. However, there can be no assurance that such reorganizational
transactions will be so effected. See "The Operating Partnership."
In connection with the Merger, M.S. Management Associates, Inc., a SPG
management company, purchased from The Edward J. DeBartolo Corporation all of
the voting stock (665 shares of common stock) of DeBartolo Properties
Management, Inc., a DRC management company, for $2.5 million in cash. SDG, LP
continues to hold substantially all of the economic interest in DeBartolo
Properties Management, Inc. The Company holds substantially all of the economic
interest in M.S. Management Associates, Inc., while the voting stock are held by
the Simons and their affiliates.
For an organizational chart of the Company after the Merger, see page 5.
7
69
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement,
proceeds to the Operating Partnership from the sale of the Debt Securities
offered hereby will be added to the working capital of the Operating Partnership
and will be available for general purposes, which may include the repayment of
indebtedness, the financing of capital commitments and possible future
acquisitions associated with the continued expansion of the Partnerships'
business.
RATIO OF EARNINGS TO FIXED CHARGES
SDG, LP's ratio of earnings to fixed charges for the nine months ended
September 30, 1996 and 1995 was 1.50x and 1.64x, respectively, and for the
fiscal years ended December 31, 1995 and 1994 was 1.67x and 1.43x, respectively.
From the commencement of its operations on December 20, 1993 through December
31, 1993, the ratio of earnings to fixed charges for SPG, LP was 3.36x. SPG, LP
is for financial reporting purposes the predecessor to the Operating
Partnership. See "The Merger."
For purposes of computing the ratio of earnings to fixed charges, earnings
have been calculated by adding fixed charges, excluding capitalized interest, to
income (loss) from continuing operations including income from minority
interests which have fixed charges, and including distributed operating income
from unconsolidated joint ventures instead of income from unconsolidated joint
ventures. Fixed charges consist of interest costs, whether expensed or
capitalized, the interest component of rental expense and amortization of debt
issuance costs.
Prior to the commencement of business by SPG, LP in December 1993, the
predecessor of SPG, LP maintained a different ownership and equity structure.
The predecessor's operating properties have historically generated positive net
cash flow. The financial statements of the predecessor show net income for the
period January 1, 1993 through December 19, 1993, and net losses for the fiscal
years ended December 31, 1992 and 1991. The ratio of earnings to fixed charges
for the period January 1, 1993 through December 19, 1993 was 1.11x. As a
consequence of the net losses for the fiscal years ended December 31, 1992 and
1991, the computation of the ratio of earnings to fixed charges for these fiscal
years indicates that earnings were inadequate to cover fixed charges by
approximately $12.8 million and $18.7 million, respectively.
The new capitalization of the Company effected in December 1993 in
connection with its initial public offering permitted the Company to deleverage
significantly, resulting in an improved ratio of earnings to fixed charges
subsequent to its commencement of operations.
8
70
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
among the Operating Partnership, SPG, LP, as guarantor, and The Chase Manhattan
Bank, as trustee. The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available for inspection at
the corporate trust office of the trustee at 450 West 33rd Street, 15th Floor,
New York, New York 10001, or as described above under "Available Information."
The Indenture is subject to, and governed by, the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made hereunder or in any Prospectus
Supplement relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
The Debt Securities to be offered hereby and in any applicable Prospectus
Supplement will be "investment grade" securities, meaning at the time of the
offering of such Debt Securities, at least one nationally recognized statistical
rating organization (as defined in the Exchange Act) has rated such Debt
Securities in one of its generic rating categories which signifies investment
grade (typically the four highest rating categories, within which there may be
sub-categories or gradations indicating relative standing, signify investment
grades). An investment grade rating is not a recommendation to buy, sell or hold
securities, is subject to revision or withdrawal at any time by the assigning
entity, and should be evaluated independently of any other rating.
In connection with the first takedown proposed to be made by the Operating
Partnership from the shelf registration statement of which this Prospectus forms
a part, the Company has entered into a forward treasury lock agreement, pursuant
to which the Company and the counterparty to the agreement have agreed to
exchange payments with respect to a notional principal amount of $100 million
based on how a specified interest rate on U.S. Treasuries will have varied from
a base rate of 6.307% on November 22, 1996. The Company will either receive or
make a payment, depending on whether such specified interest rate is above or
below 6.307%. In connection with future takedowns under the registration
statement, the Operating Partnership may enter into interest rate protection
agreements which hedge the interest rate exposure associated with such future
debt offerings.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and, unless otherwise described in the applicable Prospectus
Supplement, will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. No partner (whether limited or
general, including the Company and the Managing General Partner) of the
Operating Partnership has any obligation for payment of principal of (and
premium, if any) and interest, if any, on, or any other amount with respect to,
the Debt Securities (Section 1602). At September 30, 1996, the total outstanding
debt of the Operating Partnership including its pro rata share of joint venture
debt was approximately $3,988.3 million, approximately 90% of which was secured
debt. Except as otherwise described in the applicable Prospectus Supplement, the
Indenture does not limit the amount of other indebtedness of the Operating
Partnership that may rank equally with or senior to the Debt Securities. The
Debt Securities may be issued without limit as to aggregate principal amount, in
one or more series, in each case as established from time to time in or pursuant
to authority granted by a resolution of the Board of Directors of the Managing
General Partner, as the managing general partner of the Operating Partnership or
as established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301).
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture
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separate and apart from the trust administered by any other Trustee (Section
609), and, except as otherwise indicated herein, any action described herein to
be taken by a Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon acceleration of
the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates,
or the method by which any such record date shall be determined, the person
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(7) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon the Operating Partnership in respect of such
Debt Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Operating
Partnership, if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to
the extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof if other than $5,000, and any integral multiple thereof and the
terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein, or any modification thereof;
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(16) if such Debt Securities are to be issued upon the exercise of
debt warrants, the time, manner and place of such Debt Securities to be
authenticated and delivered;
(17) whether and under what circumstances the Operating Partnership
will pay additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu of
making such payment;
(18) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as a
change of control of the Operating Partnership), (i) the possible effects
of such provisions on the market price of the Operating Partnership's
securities or in deterring certain mergers, tender offers or other takeover
attempts, and the intention of the Operating Partnership to comply with the
requirements of Rule 14e-1 under the Exchange Act and any other applicable
securities laws in connection with such provisions; (ii) whether the
occurrence of the specified events may give rise to cross-defaults on other
indebtedness such that payment on such Debt Securities may be effectively
subordinated; and (iii) the existence of any limitation on the Operating
Partnership's financial or legal ability to repurchase such Debt Securities
upon the occurrence of such an event (including, if true, the lack of
assurance that such a repurchase can be effected) and the impact, if any,
under the Indenture of such a failure, including whether and under what
circumstances such a failure may constitute an Event of Default; and
(19) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon acceleration of the maturity thereof ("Original Issue
Discount Securities"). If material or applicable, special U.S. federal income
tax, accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as described under "-- Merger, Consolidation or Sale" below or as
may be set forth in any Prospectus Supplement, the Indenture does not contain
any other provisions that would limit the ability of the Operating Partnership
to incur indebtedness or that would afford holders of the Debt Securities
protection in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the Company or the management of the
Company, or any affiliate of any such party, (ii) a change of control, or (iii)
a reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the holders of the Debt
Securities. In addition, subject to the limitations set forth under "-- Merger,
Consolidation or Sale," the Operating Partnership may, in the future, enter into
certain transactions, such as the sale of all or substantially all of its assets
or the merger or consolidation of the Operating Partnership, that would increase
the amount of the Operating Partnership's indebtedness or substantially reduce
or eliminate the Operating Partnership's assets, which may have an adverse
effect on the Operating Partnership's ability to service its indebtedness,
including the Debt Securities. Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the events of default or covenants that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities unless the Holders of
at least a majority in principal amount of all outstanding Debt Securities of
such series consent to such waiver, except to the extent that the defeasance and
covenant defeasance provisions of the Indenture described under "-- Discharge"
and "-- Defeasance and Covenant Defeasance" below apply to such series of Debt
Securities. See "-- Modification of the Indenture."
Debt Securities may be denominated and payable in a foreign currency or
units of two or more foreign currencies or a composite currency or currencies.
As more fully described in the applicable Prospectus Supplement, awards or
judgments by a court in the United States in connection with a claim with
respect to any Debt Securities denominated other than in United States dollars
(or a judgment denominated other than
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in United States dollars in respect of such claims) may be converted into United
States dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 and any integral multiple thereof (Section
302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
in registered form will be payable at the corporate trust office of the Trustee,
initially located at , provided that, at the
option of the Operating Partnership, payment of interest may be made by check
mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Unless otherwise specified in the applicable Prospectus Supplement, any
interest not punctually paid or duly provided for on any Interest Payment Date
with respect to a Debt Security in registered form ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each place of
payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on (A) if such Debt Securities are
issuable only as Registered Securities, the day of the mailing of the relevant
notice of redemption and (B) if such Debt Securities are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if such Debt Securities are also issuable as Registered
Securities and there is no publication, the mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Registered
Security so selected for redemption in whole or in part, except, in the case of
any Registered Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except that, to the extent provided with respect to such Bearer Security, such
Bearer Security may be exchanged for a Registered Security of that series and of
like tenor, provided that such Registered Security shall be simultaneously
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surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the
option of the Holder, except the portion, if any, of such Debt Security not to
be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity, provided that (a) the Operating Partnership shall be the continuing
entity, or the successor entity (if other than the Operating Partnership) formed
by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness which becomes an obligation of
the Operating Partnership, such successor entity or any Subsidiary as a result
thereof as having been incurred by the Operating Partnership, such successor
entity or such Subsidiary at the time of such transaction, no Event of Default
under the Indenture, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale"
above, the Operating Partnership is required to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (statutory and charter) and franchises; provided, however, that the
Operating Partnership shall not be required to preserve any such right or
franchise if it determines that the loss thereof is not disadvantageous in any
material respect to the Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that the Operating
Partnership and its subsidiaries shall not be prevented from selling or
otherwise disposing for value their respective properties in the ordinary course
of business (Section 1007).
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value
(subject to reasonable deductibles determined from time to time by the Operating
Partnership) with financially sound and reputable insurance companies (Section
1008).
Payment of Taxes and Other Claims. The Operating Partnership is required
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary, and (ii) all lawful claims for labor, materials and
suppliers which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission
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on or prior to the respective dates (the "Required Filing Dates") by which the
Operating Partnership would have been required so to file such documents if the
Operating Partnership were so subject. The Operating Partnership will also in
any event (x) within 15 days of each Required Filing Date (i) transmit by mail
to all Holders of Debt Securities, as their names and addresses appear in the
Security Register, without cost to such Holders, copies of the annual reports
and quarterly reports which the Operating Partnership would have been required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if the Operating Partnership were subject to such Sections and (ii) file with
the Trustee copies of the annual reports, quarterly reports and other documents
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Operating
Partnership were subject to such Sections and (y) if filing such documents by
the Operating Partnership with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1010).
Additional Covenants. Any additional or different covenants of the
Operating Partnership with respect to any series of Debt Securities will be set
forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series at its Maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), such default having continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of an aggregate principal
amount exceeding $30,000,000 of any recourse indebtedness of the Operating
Partnership, however evidenced, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled within 10
days after written notice as provided in the Indenture; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership or any Significant Subsidiary
or any of their respective property; and (g) any other Event of Default provided
with respect to a particular series of Debt Securities (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series of the Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership (and to the Trustee if given by the Holders); provided, that in the
case of an Event of Default described under paragraph (f) of the preceding
paragraph, acceleration is automatic. However, at any time after such
acceleration with respect to Debt Securities of such series has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of not less than a majority in principal amount of
Outstanding Debt Securities of such series may rescind and annul such
acceleration and its consequences if (a) the Operating Partnership shall have
deposited with the Trustee all amounts due otherwise than on account of such
declaration, plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the non-payment of accelerated
principal of the Debt Securities of such series, have been cured or waived as
provided in the Indenture (Section 502). The Indenture also provides that the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may waive any past default with respect to such series
and its consequences, except a default (x) in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
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The Trustee will be prepared to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if a trust committee of Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any Holders of any series of Debt
Securities then Outstanding under the Indenture, unless such Holders shall have
offered to the Trustee thereunder reasonable security or indemnity (Section
602). The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee with
respect to the Debt Securities of such series. However, the Trustee may refuse
to follow any direction which is in conflict with any law or the Indenture,
which may involve the Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the Operating Partnership, stating whether or not such
officer has knowledge of any default under the Indenture and, if so, specifying
each such default and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities which are affected by such
modification or amendment (voting as one class); provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby: (a) change the Stated Maturity of the principal
of, or premium (if any) or any installment of interest on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon acceleration of the maturity thereof or that would be provable
in bankruptcy, or adversely affect any right of repayment at the option of the
holder of any such Debt Security; (c) change the Place of Payment, or the coin
or currency, for payment of principal of, premium, if any, or interest on any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage in principal amount of Outstanding Debt Securities
necessary to modify or amend the Indenture, reduce the percentage of Outstanding
Debt Securities of any series necessary to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder, or to reduce
the quorum or voting requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the percentage
required to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the Holder of each Outstanding
Debt Security affected thereby (Section 902).
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The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership with certain covenants relating to
such series of Debt Securities in the Indenture (Section 1013).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Trustee without the consent of any Holder
of Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Operating Partnership as obligor under the
Indenture; (ii) to add to the covenants of the Operating Partnership for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, to change or eliminate any restrictions on payment of
the principal of or premium or interest on Debt Securities, to modify the
provisions relating to global Debt Securities, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the interests of the Holders of the Debt Securities
of any series in any material respect; (v) to change or eliminate any provisions
of the Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities Outstanding of any series
created prior thereto which are entitled to the benefit of such provision or
such amendment shall not apply to any then Outstanding Debt Security; (vi) to
secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series; (viii) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; or (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
acceleration of the maturity thereof, (ii) the principal amount of a Debt
Security denominated in a foreign currency that shall be deemed Outstanding
shall be the U.S. dollar equivalent, determined on the issue date for such Debt
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of such Debt Security of
the amount determined as provided in (i) above) of such Debt Security, (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series issuable, in whole or in part, as Bearer Securities
(Section 1501). A meeting will be permitted to be called at any time by the
Trustee, and also, upon request, by the Operating Partnership or the Holders of
at least 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given as provided in the Indenture (Section
1502). Except for any consent that must be given by the Holder of each Debt
Security affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage in principal amount of the Outstanding Debt
Securities of a series may be adopted at a meeting at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Any resolution passed
or
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decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action which may be made, given or taken by the Holders
of not less than a specified percentage in principal amount of the Outstanding
Debt Securities of a series, then with respect to such action (and only such
action) the Persons holding or representing such specified percentage in
principal amount of the Outstanding Debt Securities of such series will
constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in an amount
sufficient to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium, if any) and interest to the date of such deposit (if
such Debt Securities have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 401).
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay Additional Amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under Sections 1004 to 1010, inclusive, of the
Indenture (including the restrictions described under "-- Certain Covenants"
above) and its obligations with respect to any other covenant, and any omission
to comply with such obligations shall not constitute a default or an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Operating Partnership
with the Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor (Section 1404).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts,
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in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such Opinion of Counsel,
in the case of defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligations or a specific payment of interest on
or principal of any such Government Obligations held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership has deposited funds or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into a currency, currency unit or composite currency in which such
Debt Security becomes payable as a result of such election or such Conversion
Event based on the applicable market exchange rate (Section 1405). "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Community or (iii) any currency
unit (or composite currency) other than the ECU for the purposes for which it
was established (Section 101). Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest on any Debt Security that is payable in a foreign currency that ceases
to be used by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "-- Events of Default, Notice and
Waiver" with respect to Sections 1004 to 1010, inclusive, of the Indenture
(which sections would no longer be applicable to such Debt Securities) or
described in clause (g) under "-- Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership would remain liable to make
payment of such amounts due at the time of acceleration.
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The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above with respect to the Debt
Securities of or within a particular series.
THE GUARANTEE
The Indenture provides that SPG, LP will, and as further set forth in
detail in the applicable Prospectus Supplement, guarantee (the "Guarantee") the
due and punctual payment of the principal of, premium, if any, interest on, and
any other amounts payable with respect to, the Debt Securities, when and as the
same shall become due and payable, whether at a maturity date, on redemption, by
declaration of acceleration or otherwise in accordance with the terms of the
Debt Securities and the Indenture (Section 1701). The Indenture provides that
(i) the Trustee may exercise its rights thereunder on behalf of the Holders and
(ii) SPG, LP shall covenant that it shall take no action which would cause the
Operating Partnership to violate any covenant, agreement or any other condition
thereunder (Section 1705). The Guarantee will terminate upon the consummation of
the reorganizational transactions pursuant to which the Operating Partnership is
expected to own directly all of the assets and partnership interest then owned
by SPG, LP (Section 1706). However, there can be no assurance that such
reorganizational transactions will be so effected. See "The Operating
Partnership." No partner (whether limited or general, including the Company) of
SPG, LP will have any obligation for any obligations of SPG, LP under the
Guarantee (Section 1707).
In the absence of the Guarantee, Holders of the Debt Securities will have
no claims, with regards to any payments in connection with the Debt Securities
against the assets of SPG, LP or the assets of any other Subsidiary of the
Operating Partnership. Any such claim that such Holders may make will have to be
made indirectly through the equity interest that the Operating Partnership has
in SPG, LP (or other Subsidiaries), and will thus be structurally subordinated
to the claims of creditors of SPG, LP (or other Subsidiaries). As a result of
the Guarantee, Holders of the Debt Securities, upon exercising their rights with
respect to the Guarantee against SPG, LP, will be considered creditors of SPG,
LP and their claims will rank pari passu with those of unsecured and
unsubordinated creditors of SPG, LP and will not be structurally subordinated to
such creditors.
MISCELLANEOUS
No Conversion Rights. The Debt Securities will not be convertible into or
exchangeable for any capital stock of the Company or equity interest in the
Operating Partnership.
Global Securities. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities (the "Global
Securities") that will be deposited with, or on behalf of, a depositary (the
"Depositary") identified in the applicable Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
PLAN OF DISTRIBUTION
The Operating Partnership may sell the Debt Securities to or through
underwriters, and also may sell the Debt Securities directly to one or more
other purchasers or through agents. The distribution of the Debt Securities may
be effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
The Prospectus Supplement will set forth terms of the offering of the Debt
Securities, including (i) the name of any underwriters or agents with whom the
Operating Partnership has entered into arrangements with respect to the sale or
issuance of Debt Securities, (ii) the initial public offering or purchase price
of the Debt Securities, (iii) any underwriting discounts, commissions and other
items constituting underwriter's compensation from the Operating Partnership and
any other discounts, concessions or commissions allowed or reallowed or paid by
any underwriters to other dealers, (iv) any commissions paid to any agents and
(v) the net proceeds to the Operating Partnership. In connection with the sale
of Debt Securities, underwriters may
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81
receive compensation from the Operating Partnership or from purchasers of Debt
Securities, for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell Debt Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of Debt Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Operating
Partnership, and any profit on the resale of Debt Securities they realize, may
be deemed to be underwriting discounts and commissions under the Securities Act.
Under agreements the Operating Partnership may enter into, underwriters,
dealers and agents who participate in the distribution of Debt Securities may be
entitled to indemnification by the Operating Partnership against certain
liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Operating Partnership in the
ordinary course of business.
Unless otherwise set forth in the Prospectus Supplement relating to the
issuance of Debt Securities, the obligations of the underwriters to purchase
such Debt Securities will be subject to certain conditions precedent and each of
the underwriters with respect to such Debt Securities will be obligated to
purchase all of the Debt Securities allocated to it if any such Debt Securities
are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If so indicated in the applicable Prospectus Supplement, the Operating
Partnership will authorize underwriters or other persons acting as the Operating
Partnership's agents to solicit offers by certain institutions to purchase Debt
Securities from the Operating Partnership pursuant to contracts providing for
payment and delivery on a future date. Institutions with which such contracts
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases such institutions must be approved by the Operating
Partnership. The obligations of any purchaser under any such contract will be
subject only to the condition that the purchase of the Debt Securities shall not
at any time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
LEGAL MATTERS
The validity of each issue of the Debt Securities will be passed upon for
the Operating Partnership by Paul, Weiss, Rifkind, Wharton & Garrison, New York,
New York. Paul, Weiss, Rifkind, Wharton & Garrison will also pass upon certain
tax matters. Rogers & Wells, New York, New York, will act as counsel to any
underwriters, dealers or agents.
EXPERTS
The audited financial statements and schedules of SPG incorporated by
reference, and SPG, LP included, in the Registration Statement of which this
Prospectus is a part, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are incorporated by reference or included herein in reliance
upon the authority of said firm as experts in giving said reports.
The audited financial statements and schedules of DRC incorporated by
reference, and the Operating Partnership (formerly DeBartolo Realty Partnership,
L.P.) included, in the Registration Statement of which this Prospectus is a
part, to the extent and for the periods indicated in their reports, have been
audited by Ernst & Young LLP, independent public accountants, and are
incorporated by reference or included, as the case may be, herein in reliance
upon the authority of said firm as experts in giving said report.
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CERTAIN INFORMATION WITH RESPECT
TO SIMON DEBARTOLO GROUP, L.P.
PAGE NO.
--------
Selected Financial and Operating Data.............................................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 26
Simon DeBartolo Group L.P. Consolidated Condensed Balance Sheet as of September 30,
1996 (unaudited) and Simon Property Group, L.P. (the Predecessor to Simon DeBartolo
Group, L.P.) Consolidated Condensed Balance Sheet as of December 31, 1995
(unaudited)........................................................................ 36
Simon DeBartolo Group, L.P. Consolidated Condensed Statement of Operations for the
nine month period ended September 30, 1996 (unaudited) and Simon Property Group,
L.P. (the Predecessor to Simon DeBartolo Group, L.P.) Consolidated Condensed
Statement of Operations for the nine month period ended September 30, 1995
(unaudited)........................................................................ 37
Simon DeBartolo Group, L.P. Consolidated Condensed Statements of Cash Flows for the
nine month period ended September 30, 1996 (unaudited) and Simon Property Group,
L.P. (the Predecessor to Simon DeBartolo Group, L.P.) Consolidated Condensed
Statement of Cash Flows for the nine month period ended September 30, 1995
(unaudited)........................................................................ 38
Notes to Financial Statements...................................................... 39
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SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth certain selected financial and operating
data on a historical basis for Simon DeBartolo Group, L.P. ("SDG, LP"), and its
Predecessor, Simon Property Group, L.P. ("SPG, LP"). All references herein to
the "Operating Partnership" are to SDG, LP or SPG, LP, as the case may be. The
financial statements of SDG, LP for the post-merger periods will reflect the
reverse acquisition of DeBartolo Realty Partnership, L.P. ("DRP, LP") by Simon
DeBartolo Group Inc. ("SDG" or the "Company") using the purchase method of
accounting and for all pre-merger comparative periods the financial statements
disclosed by SDG, LP will reflect the financial statements of its Predecessor
for financial reporting purposes, SPG, LP. See "The Merger." The historical
financial information should be read in conjunction with the financial
statements and notes thereto included herein.
SIMON SIMON PROPERTY GROUP, L.P.
DEBARTOLO (SPG, LP, THE PREDECESSOR OF SDG, LP) SIMON PROPERTY GROUP
GROUP, L.P. ------------------------------------------------------- (THE PREDECESSOR OF SPG, LP)
------------- FOR THE ----------------------------------------
FOR THE FOR THE PERIOD FROM FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20 PERIOD FROM YEAR YEAR
ENDED ENDED YEAR ENDED YEAR ENDED TO JANUARY 1 TO ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992 1991
------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND RATIOS)
OPERATING DATA:(1)
Total Revenue...... $ 485,640 $ 398,297 $ 553,657 $ 473,676 $ 18,424 $ 405,869 $ 400,852 $ 378,029
Expenses:
Operating
Expenses........ 189,888 151,914 209,782 183,433 4,095 175,801 176,682 173,923
Depreciation and
Amortization.... 88,913 65,212 92,739 75,945 2,051 60,243 58,104 56,033
Interest
Expense(2)...... 135,346 112,125 150,224 150,164 3,548 156,909 178,075 159,798
Income (Loss)
before
Extraordinary
Items........... 76,639 72,681 101,505 60,308 8,707 6,912 (11,692) (15,865)
Net Income
(Loss).......... $ 73,844 $ 69,797 $ 98,220 $ 42,328 $ (21,774) $ 33,101 $ (11,692) $ (15,865)
Preferred
Distributions..... 6,286 -- 1,490 -- -- -- -- --
Net Income (Loss)
available to unit
holders........... 67,558 69,797 96,730 42,328 (21,774) 33,101 (11,692) (15,865)
Net Income per
unit before
extraordinary
items........... $ 0.65 $ 0.79 $ 1.08 $ 0.71 $ 0.11 N/A N/A N/A
Net Income per
unit(3)......... $ 0.63 $ 0.76 $ 1.04 $ 0.50 $ (0.28) N/A N/A N/A
Distributions per
unit(14)........ $ 1.14 $ 1.48 $ 1.97 $ 1.90 -- N/A N/A N/A
Weighted average
units
outstanding....... 107,607 91,663 92,666 84,510 78,447 N/A N/A N/A
BALANCE SHEET DATA
(as of end of
period):
Investment in Real
Estate, net..... $ 4,989,949 $ 1,985,841 $2,009,344 $1,829,111 $1,350,360 N/A $1,156,009 $1,143,050
Cash and cash
equivalents..... 92,575 72,983 62,721 105,139 110,625 N/A 42,682 31,840
Total Assets...... 5,798,196 2,407,499 2,556,436 2,316,860 1,793,654 N/A 1,494,289 1,432,028
Total Debt(4)..... 3,555,123 1,986,072 1,980,759 1,938,091 1,455,884 N/A 1,711,778 1,548,292
Limited Partners'
Interest........ 1,542,792 949,126 908,764 909,306 848,373 N/A N/A N/A
Owner's Equity
(Deficit)....... $ 419,973 $ (709,583) $ (589,126) $ (807,613) $ (791,820) N/A $ (565,566) $ (418,697)
OTHER DATA:
Cash flow provided
by (used in):
Operating
activities..... $ 140,736 $ 129,544 $ 194,336 $ 128,023 N/A N/A N/A N/A
Investing
activities..... (57,971) (101,191) (222,679) (266,772) N/A N/A N/A N/A
Financing
activities..... (52,911) (60,509) (14,075) 133,263 N/A N/A N/A N/A
Restated Funds
from Operations
(FFO) (5)....... $ 173,482 $ 137,287 $ 197,909 $ 167,761 N/A N/A N/A N/A
RATIO OF EARNINGS
TO FIXED CHARGES
OR COVERAGE
DEFICIT(6)........ 1.52x 1.64x 1.67x 1.43x 3.36x 1.11x $ (12,821) $ (18,719)
OTHER RATIOS (as of
end of period)(1):
Ratio of EBITDA
After Minority
Interest to Fixed
Charges and
Preferred Unit
Distributions(7)(8)... 2.10x 2.14x 2.18x 2.18x N/A N/A N/A N/A
Ratio of Debt to
Adjusted Total
Assets(9)....... 48.52% 47.63% 46.51% 50.64% N/A N/A N/A N/A
Ratio of Secured
Debt to Adjusted
Total
Assets(10)...... 44.49% 42.84% 42.18% 45.74% N/A N/A N/A N/A
Ratio of
Unencumbered
Assets to
Unsecured
Debt(11)........ 5.80x 5.49x 5.49x 3.84x N/A N/A N/A N/A
Ratio of EBITDA
After Minority
Interest to
Interest Expense
(7)(12)........... 2.37x 2.34x 2.39x 2.36x N/A N/A N/A N/A
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SIMON
DEBARTOLO SIMON PROPERTY GROUP, L.P. SIMON PROPERTY GROUP
GROUP, L.P. (SPG, LP, THE PREDECESSOR OF SDG, LP) (THE PREDECESSOR OF SPG, LP)
------------- ------------------------------------------------------- ---------------------------------------
FOR THE
FOR THE FOR THE PERIOD FROM FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20 PERIOD FROM YEAR YEAR
ENDED ENDED YEAR ENDED YEAR ENDED TO JANUARY 1 TO ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992 1991
-------- -------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND RATIOS)
PORTFOLIO DATA (as
of end of period):
Total EBITDA(6)... $ 390,156 $ 315,276 $ 437,548 $ 386,835 $ 346,679(7) N/A $ 316,535 $ 282,326
EBITDA After
Minority
Interest(6)..... 313,201 257,123 357,158 307,372 256,169(7) N/A 227,931 210,634
Number of
Portfolio
Properties at
End of Period... 183 120 122 119 114 N/A 110 108
Total GLA at End
of Period
(thousands of
square feet).... 111,124 59,644 62,232 58,200 54,042 N/A 52,404 51,375
-------- -------- -------- -------- ------- -------- -------- --------
- ---------------
(1) The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail
sales are typically at their highest levels. In addition, shopping malls
achieve most of their temporary tenant rents during the holiday season. As
a result, earnings are generally highest in the fourth quarter of each
year.
(2) Interest expense for the year ended December 31, 1994 includes $27.2
million of additional non-recurring contingent interest paid in connection
with the refinancing of a Portfolio Property. The property lender was
entitled to participate in the appreciated market value of the Portfolio
Property upon refinancing. Management does not presently expect to enter
into financing arrangements with similar participation features in the
future. Accordingly, management considers the payment made to the lender
unusual in nature. As explained in footnote (5) below, unusual or
extraordinary items are excluded for purposes of computing FFO.
Accordingly, this item has been excluded from FFO in this table and
elsewhere herein.
(3) Per unit data are reflected only for the periods from December 20, 1993
through September 30, 1996. Per unit data are not relevant for the
historical combined financial statements of Simon Property Group, the
Predecessor to SPG, LP, since such financial statements are a combined
presentation of partnerships and corporations.
(4) Historical debt of the Operating Partnership as of September 30, 1996 and
1995 and December 31, 1995 includes $3,232.1 million, $1,775.1 million and
$1,784.8 million, respectively, of mortgage indebtedness and $323.0
million, $208.0 million and $196.0 million, respectively, of outstanding
indebtedness under the credit facilities, respectively.
(5) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means consolidated net income
without giving effect to depreciation and amortization, gains or losses
from extraordinary items, gains or losses on sales of real estate, gains or
losses on investments in marketable securities and any provision/benefit
for income taxes for such period, plus the allocable portion, based on
ownership interest, of FFO of unconsolidated joint ventures, all determined
on a consistent basis in accordance with generally accepted accounting
principles. Management believes that FFO is an important and widely used
measure of the operating performance of REITs which provides a relevant
basis for comparison among REITs. FFO is presented to assist investors in
analyzing the performance of the Operating Partnership. The Operating
Partnership's method of calculating FFO may be different from the methods
used by other REITs. FFO (i) does not represent cash flows from operations
as defined by generally accepted accounting principles, (ii) should not be
considered as an alternative to net income as a measure of operating
performance or to cash flows from operating, investing and financing
activities and (iii) is not an alternative to cash flows as a measure of
liquidity. In March 1995, NAREIT modified its definition of FFO. The
modified definition provides that amortization of deferred financing costs
and depreciation of nonrental real estate assets are no longer to be added
back to net income in arriving at FFO. The modified definition was adopted
by the Operating Partnership beginning in 1996. Additionally the FFO for
prior periods have been restated to reflect the new definition in order to
make the amounts comparative.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
have been calculated by adding fixed charges, excluding capitalized
interest, to income (loss) from continuing operations including income from
minority interests which have fixed charges, and including distributed
operating income from unconsolidated joint ventures instead of income from
unconsolidated joint ventures. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
(7) Total EBITDA represents earnings before interest, taxes, depreciation and
amortization for all properties. EBITDA After Minority Interest represents
earnings before interest, taxes, depreciation and amortization for all
properties after distribution to third party joint venture partners. EBITDA
(i) does not represent cash flow from operations as defined by generally
accepted accounting principles, (ii) should not be considered as an
alternative to net income as a measure of operating performance or
23
85
to cash flows from operating, investing and financing activities; and (iii)
is not an alternative to cash flows as a measure of liquidity. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measurement for assessing the operating performance
of an equity REIT because, together with net income and cash flows, EBITDA
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as revenues and operating expenses, should be considered.
The Operating Partnership's method of calculating EBITDA may be different
from the methods used by other REITs. The Company's weighted average
ownership interest in the operating results for the nine months ended
September 30, 1996 and 1995 was 61.2% and 59.3%, respectively, and was
60.3%, 55.2% and 52.2% during 1995, 1994 and 1993, respectively. The
Company's ownership interest in the Operating Partnership was 61.5% and
60.9% at September 30, 1996 and 1995, respectively, and was 61.0% and 56.4%
at December 31, 1995 and 1994, respectively.
(8) For purposes of computing the ratio of EBITDA After Minority Interest to
Fixed Charges and Preferred Unit Distributions, Fixed Charges and Preferred
Unit Distributions consist of interest costs, whether expensed or
capitalized and including the Operating Partnership's pro rata share of
joint venture interest expense, the interest component of rental expense
and amortization of debt issuance costs, plus any distributions on
outstanding preferred units.
(9) Debt consists of indebtedness of the Operating Partnership and its
consolidated subsidiaries, less any portion attributable to minority
interests, plus the Operating Partnership's allocable portion of
indebtedness of unconsolidated joint ventures from borrowed money, secured
indebtedness, reimbursement obligations in connection with letters of
credit and capitalized leases. "Adjusted Total Assets" as of any date means
the sum of (i) the amount determined by multiplying the sum of the shares
of common stock of the Company issued in the initial public offering of the
Company ("IPO") and the units of the Operating Partnership not held by the
Company outstanding on the date of the IPO, by $22.25 (the "IPO Price"),
(ii) the principal amount of the outstanding consolidated debt of the
Company on the date of the IPO, less any portion applicable to minority
interests, (iii) the Operating Partnership's allocable portion, based on
its ownership interest, of outstanding indebtedness of unconsolidated joint
ventures on the date of the IPO, (iv) the purchase price or cost of any
real estate assets acquired (including the value, at the time of such
acquisition, of any units of the Operating Partnership or shares of common
stock of the Company issued in connection therewith) or developed after the
IPO by the Operating Partnership or any Subsidiary, less any portion
attributable to minority interests, plus the Operating Partnership's
allocable portion, based on its ownership interest, of the purchase price
or cost of any real estate assets acquired or developed after the IPO by
any unconsolidated joint venture, (v) the value of the Merger compiled as
the sum of (a) the purchase price including all related closing costs and
(b) the value of all outstanding indebtedness less any portion attributable
to minority interests, including the Operating Partnership's allocable
share, based on its ownership interest, of outstanding indebtedness of
unconsolidated joint ventures at the Merger date, and (vi) working capital
of the Operating Partnership; subject, however, to reduction by the amount
of the proceeds of any real estate assets disposed of after the IPO by the
Operating Partnership or any Subsidiary, less any portion applicable to
minority interests, and by the Operating Partnership's allocable portion,
based on its ownership interest, of the proceeds of any real estate assets
disposed of after the IPO by unconsolidated joint ventures. On a pro forma
basis as of September 30, 1996, the Operating Partnership's Adjusted Total
Assets were $8.02 billion.
(10) Secured Debt consists of Debt secured by a mortgage or other encumbrance on
any property of the Operating Partnership or any Subsidiary.
(11) Unencumbered Assets is equal to Adjusted Total Assets multiplied by a
fraction, the numerator of which is Unencumbered Annualized EBITDA After
Minority Interest and the denominator of which is Annualized EBITDA After
Minority Interest. Unencumbered Annualized EBITDA means Annualized EBITDA
less any portion attributable to assets serving as collateral for Secured
Debt. Annualized EBITDA means earnings before interest, taxes, depreciation
and amortization for all portfolio properties with other adjustments as are
necessary to exclude the effect of items classified as extraordinary items
in accordance with generally accepted accounting principles, adjusted to
reflect the assumption that (i) any income earned as a result of any assets
having been placed in service since the end of such period had been earned
on an annualized basis, during such period, and (ii) in the case of an
acquisition or disposition by the Operating Partnership, any Subsidiary or
any unconsolidated joint venture in which
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the Operating Partnership or any Subsidiary owns an interest, of any assets
since the first day of such period, such acquisition or disposition and any
related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition. Annualized EBITDA After Minority Interest means Annualized
EBITDA after distributions to third party joint venture partners. Unsecured
Debt means Debt not secured by a mortgage or other encumbrance on any
property of the Operating Partnership or any subsidiary.
(12) For purposes of computing the ratio of EBITDA After Minority Interest to
Interest Expense, Interest Expense includes the Company's pro rata share,
based on ownership interest, of joint venture interest expense and is
reduced by amortization of debt issuance costs.
(13) Represents the combined EBITDA and EBITDA After Minority Interest of the
Portfolio Properties for the full year ended December 31, 1993.
(14) In connection with the Merger, the Operating Partnership declared a special
distribution of 0.1515 per unit and adjusted its distribution cycle
accordingly. As a result, the third quarter distribution of 0.4925 per unit
was declared on October 10, 1996 and is payable on November 22, 1996.
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SIMON DEBARTOLO GROUP, LP AND SIMON PROPERTY GROUP, LP
(PREDECESSOR TO SIMON DEBARTOLO GROUP, L.P.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, and all of the financial statements and notes thereto included
elsewhere herein.
GENERAL BACKGROUND
Historical results and percentage relationships set forth in Selected
Financial Data are not necessarily indicative of future financial position and
results of operations of Simon DeBartolo Group, L.P. or its predecessor, Simon
Property Group, L.P. All references herein to the Operating Partnership refer to
Simon DeBartolo Group, L.P., and its predecessor for financial reporting
purposes, Simon Property Group, L.P.
The financial statement results presented for the twelve-day period from
December 20, 1993 through December 31, 1993 are not indicative of the Operating
Partnership's performance on an annual basis. Similarly, the results presented
in the combined financial statements for the Simon Property Group (the
predecessor to SPG, L.P.) cover only 353 days of 1993, the period prior to the
date that the Operating Partnership acquired the assets and liabilities of the
Simon Property Group. Therefore, the discussion of and results of operations and
liquidity and capital resources for 1993 are presented on a combined basis to
compare to the full year 1994. Management believes presentation in this manner
provides a more meaningful discussion of year-to-year results.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Operating Partnership to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, which
will, among other things, affect demand for retail space or retail goods,
availability and creditworthiness of prospective tenants, lease rents and the
terms and availability of financing; adverse changes in the real estate markets
including, among other things, competition with other companies and technology;
risks or real estate development and acquisition; governmental actions and
initiatives; and environmental/safety requirements.
RESULTS OF OPERATIONS
The financial results reported reflect the results of Simon Property Group,
L.P. through August 9, 1996 and the combined Simon DeBartolo Group, L.P. for all
periods subsequent to the Merger completion on August 9, 1996 of a subsidiary of
Simon Property Group, Inc. and DeBartolo Realty Corporation. This is in
accordance with the purchase method of accounting utilized to record this Merger
transaction. This Merger resulted in an additional 50 regional malls and 11
community shopping centers to the portfolio, of which additions, 41 regional
malls and 10 community shopping centers are being accounted for on the
consolidated method of accounting. The effects of this increase in the portfolio
and the Merger integration costs are highlighted in the following discussion of
the interim period financial comparisons.
In addition to the Merger, three other transactions (the "Property
Transactions"), each resulting in the consolidation of a mall previously
accounted for using the equity method of accounting, occurred and had
significant effects on the comparison of the nine-month and three-month periods.
Effective July 31, 1995, the Operating Partnership acquired the remaining 50%
interest in Crossroads Mall. Effective September 25, 1995, the Operating
Partnership acquired the remaining 55% interest in East Towne Mall. On April 11,
1996, the Operating Partnership acquired the remaining 50% economic ownership
interest in Ross Park Mall.
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
VS. THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Total revenue increased by $64.4 million or 46.6% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily the result of the Merger ($56.0 million) and the Property
Transactions ($9.1 million).
Total operating expenses increased by $45.9 million, or 62.1%, for the
three months ended September 30, 1996, as compared to the same period in 1995.
This increase is primarily the result of the Merger ($36.3 million), the
Property Transactions ($4.1 million) and an increase in depreciation and
amortization ($5.0 million).
Interest expense increased by $19.7 million, or 54.1% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily as a result of the Merger ($15.0 million) and the Property
Transactions ($3.7 million).
Income from unconsolidated entities increased by $3.6 million for the three
months ended September 30, 1996, as compared to the same period in 1995. This is
primarily due to the Merger ($2.2 million) and an increase in the Operating
Partnership's pro rata share of income from M.S. Management Associates, Inc.
(together with its subsidiaries, the "Management Company") ($2.3 million),
partially offset by a decrease in the Operating Partnership's pro rata share of
income from the pre-Merger unconsolidated joint venture properties ($0.9
million).
Net income was $26.3 million for the three months ended September 30, 1996,
as compared to $24.3 million for the same period in 1995, reflecting a net
increase of $2.0 million, after Merger integration costs of $7.2 million and for
the reasons described above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
VS. NINE MONTHS ENDED SEPTEMBER 30, 1995
Total revenue increased by $87.3 million or 21.9% for the nine months ended
September 30, 1996, as compared to the same period in 1995. Of this increase,
$56.0 million is a result of the Merger and $25.1 million is a result of the
Property Transactions. The remaining increase is primarily the result of
increases in minimum rent ($5.3 million), lease settlement income ($2.1
million), and a gain on the sale of a peripheral property ($2.6 million),
partially offset by a decrease in tenant reimbursements ($5.9 million).
Total operating expenses increased by $61.7 million, or 28.4%, for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of the Merger ($36.3 million), the Property
Transactions ($12.9 million) and an increase in depreciation and amortization
($10.2 million).
The gain on sale of an asset in the nine months ended September 30, 1995
($2.4 million) relates to the sale of a minority partnership interest in land
previously held for development in Denver, Colorado.
Interest expense increased by $23.2 million for the nine months ended
September 30, 1996, as compared to the same period in 1995. This increase was
primarily the result of the Merger ($15.0 million) and the Property Transactions
($9.5 million).
Income from unconsolidated entities increased by $4.2 million for the nine
months ended September 30, 1996, as compared to the same period in 1995. This is
primarily due to the Merger ($2.2 million) and an increase in the Operating
Partnership's pro rata share of income from the Management Company ($2.2
million).
Net income was $47.6 million for the nine months ended September 30, 1996,
as compared to $41.4 million for the same period in 1995, reflecting a net
increase of $6.2 million after Merger integration costs of $7.2 million, and for
the reasons described above, was allocated first to the holders of the Preferred
Units, then to the partners based on each partner's ownership interest in the
Operating Partnership during the period.
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YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
During 1994 and 1995, the Operating Partnership acquired several new
properties through purchase, acquisition and merger, and, as a result of a
change in controlling interest, changed the way it accounted for several
properties (using either the consolidated method of accounting or the equity
method of accounting for non-controlled joint venture entities) (the "Property
Transactions"). The following is a listing of such transactions: The Operating
Partnership began including The Forum Shops at Caesars ("Forum") as a
consolidated property due to the Operating Partnership's ability to demonstrate
control effective April 1, 1994. On September 1, 1994, the Operating Partnership
consolidated 15 properties as a result of the merger of MSA Realty Corporation
into the Company (the "MSAR Merger"). During December 1994, the Operating
Partnership acquired a 100% interest in Independence Mall, Orange Park Mall,
Broadway Square and University Mall (Florida). On February 23, 1995, the
Operating Partnership acquired an additional 50% interest in White Oaks Mall and
is now accounting for the property using the consolidated method of accounting.
Effective July 1, 1995, the Operating Partnership relinquished its ability to
direct certain activities related to the control of North East Mall, and as a
result is now accounting for the property using the equity method of accounting.
On July 31, 1995, the Operating Partnership purchased the remaining 50%
ownership in Crossroads Mall and subsequently began accounting for the property
using the consolidated method of accounting. On September 25, 1995, the
Operating Partnership acquired the remaining 55% ownership in East Towne Mall
and subsequently began accounting for the property using the consolidated method
of accounting. (See the "Liquidity and Capital Resources" discussion for
additional information regarding these transactions.)
Total revenue increased by $80.0 million, or 16.9%, in 1995. Of this
increase, $72.8 million is attributable to the 1995 Property Transactions, and
the full-year impact in 1995 of the 1994 Property Transactions. The remaining
$7.2 million increase is primarily the result of an increase in revenue
resulting from increases of $1.25 and $0.18 in average base minimum rents per
square foot for regional mall stores and community shopping centers as evidenced
by leasing spreads for regional mall store and community shopping center leases
executed during 1995 over those leases expiring in 1995 of $5.38 and $1.22 per
square foot, respectively. These increases are partially offset by a decrease in
overage rent resulting primarily from static sales in the portfolio and a
decline of $1.8 million in overage rent at Texas border properties due to the
devaluation of the Mexican peso. Management expects these properties to return
to their prior performance level, as they have done historically after previous
peso devaluations.
Total operating expenses increased by $43.1 million, or 16.6%, in 1995. Of
this increase, $37.9 million, or 87.9%, is the result of the Property
Transactions. Other than increases from the Property Transactions, total
operating expenses experienced an increase of only 2.0% attributable to
increased depreciation and amortization derived from an increase in investment
properties.
Interest expense, excluding prior year non-recurring interest expense,
increased by a net of $27.2 million, or 22.2%, to $150.2 million for 1995 as
compared to $123.0 million for 1994. Of this increase, $26.5 million, or 97.4%
is the result of the Property Transactions. Partially offsetting this increase
is interest savings realized as a result of restructuring the Operating
Partnership's credit facilities, and from using the proceeds of the Company's
6,241,854 share add-on and over-allotment offerings to reduce the debt of the
Operating Partnership.
The net gain on the sale of assets in 1995 resulted from a gain on the sale
of a minority partnership interest in land previously held for development in
Denver, Colorado ($2.4 million), partially offset by a loss on the sale of an
equity investment in Arborland Mall ($0.5 million).
Income (loss) from unconsolidated entities increased from a loss of $0.1
million in 1994 to income of $1.4 million in 1995 resulting from an increase in
the Operating Partnership's share of income from partnerships and joint
ventures, partially offset by an increase in its share of losses of the
Management Company. The Operating Partnership's share of income from
partnerships and joint ventures improved by $4.1 million from $1.0 million in
1994 to $5.1 million in 1995. This increase is primarily attributable to gains
from sales of peripheral property ($3.4 million) and the change, for North East
Mall, to the equity method of accounting ($1.7 million). The Operating
Partnership's share of the Management Company's results declined
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by $2.6 million from an allocated net loss of $1.1 million for 1994 to an
allocated net loss of $3.7 million for 1995. This decrease is the result of the
Management Company's losses related to the settlement of a mortgage receivable
and the liquidation of a partnership investment in 1995, partially offset by a
$1.6 million increase in the Management Company's operating income.
Extraordinary items of $3.3 million in 1995 and $18.0 million in 1994
resulted from costs associated with the refinancing of debt.
Net income available to Unitholders increased from $42.3 million for 1994
to $96.7 million for 1995, an increase of $54.4 million, for the reasons
discussed above.
YEAR ENDED DECEMBER 31, 1994 VS. COMBINED YEAR ENDED DECEMBER 31, 1993
Total revenue increased by $49.4 million, or 11.6%, to $473.7 million for
1994, as compared to $424.3 million in 1993. This increase is the result of
increases in all components of revenue. The $28.2 million increase in minimum
rent is a result of an overall increase in occupancy levels and the replacement
of expiring tenant leases with renewal leases at higher minimum base rents ($7.2
million), the inclusion of Forum as a consolidated property ($10.3 million) and
the MSAR Merger ($8.7 million). The increase in overage rent of $5.4 million to
$25.5 million for 1994, as compared to $20.1 million in 1993, is attributable to
an overall increase in tenant sales volume ($0.9 million) and the inclusion of
Forum as a consolidated property ($4.2 million). Tenant reimbursements increased
$12.4 million as a result of the increased occupancy and overall tenant
recoverability of costs ($4.0 million), the inclusion of Forum as a consolidated
property ($4.0 million) and the MSAR Merger ($4.0 million). The $3.4 million
increase in other income is primarily attributable to the increase in interest
and dividend income from the Management Company ($9.7 million), the increase in
interest income from cash equivalents due to the increase in funds invested and
higher interest rates ($1.1 million), the consolidation of Forum ($1.4 million)
and the MSAR Merger ($1.1 million), offset in part by the sale of an anchor
store in March 1993 ($8.9 million).
Total operating expenses increased by $17.2 million, or 7.1%, to $259.4
million for 1994 as compared to $242.2 million for 1993. This increase is the
result of increases in depreciation and amortization, real estate taxes, repairs
and maintenance, and advertising and promotion, offset by decreases in property
operating expenses and other expenses. The increase in depreciation and
amortization of $13.7 million is attributable to the purchase of minority
partners' interest in the Predecessor with the application of the offering
proceeds ($5.5 million), the inclusion of Forum as a consolidated property ($3.5
million), the MSAR Merger ($1.8 million) and additional renovation and expansion
costs incurred in 1992 and 1993 at several Portfolio Properties. The increases
in real estate taxes ($3.7 million) and repairs and maintenance ($2.3 million)
are primarily attributable to the consolidation of Forum ($0.3 million and $1.0
million, respectively) and the MSAR Merger ($2.1 million and $0.5 million,
respectively). Tenant contributions funded a substantial portion of the $2.4
million increase in advertising and promotion campaigns. The $6.7 million
decrease in property operating expenses is the result of the reduction in the
costs related to the self-management of wholly owned properties ($5.9 million),
a decrease in insurance costs due to an overall reduction in premiums and loss
occurrences ($1.7 million) and the decrease in general and administrative
expenses ($3.0 million). These decreases in property operating expenses are
partially offset by the inclusion of Forum as a consolidated property ($3.6
million) and the MSAR Merger ($0.5 million). The $1.3 million increase in other
expenses is attributable to the inclusion of Forum as a consolidated property
($2.1 million) and public company costs ($1.2 million), offset in part by the
decrease in ground rent relating to the buyout of various ground leases with the
application of the offering proceeds.
Interest expense, excluding non-recurring interest expense, decreased by
$37.5 million, or 23.4%, to $123.0 million for 1994 as compared to $160.5
million for 1993. This decrease is primarily the result of: (i) the application
of net proceeds of the offering and the concurrent financing to reduce
indebtedness ($34.4 million); and (ii) lower interest rates on debt ($12.1
million); offset by (iii) the inclusion of Forum as a consolidated property
($3.7 million), the MSAR Merger ($4.3 million) and an increase in amortization
of deferred financing costs related to the refinancings ($2.5 million).
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On December 1, 1994, as part of a debt restructuring and the termination of
the lender's participation in future cash flow for one of the Portfolio
Properties, the Operating Partnership incurred a non-recurring interest expense
charge of $27.2 million. The Operating Partnership has reflected this item as a
separate line in the Consolidated Statements of Operations.
Minority interest in 1994 reflects the purchase of minority partners'
interest in the Predecessor with the application of the IPO proceeds and the
inclusion of the minority partner's interest in Forum.
Income (loss) from unconsolidated entities improved by $2.3 million. The
Operating Partnership's share of the Management Company's results improved from
an allocation of a net loss of $1.4 million for 1993 to a net loss of $1.1
million for 1994. The 1994 amount is after interest and preferred dividend
charges payable to the Operating Partnership of $9.1 million. There were no
similar charges in 1993. The Operating Partnership's share of income from
partnerships and joint ventures improved from a net loss of $1.0 million for
1993 to net income of $1.0 million for 1994. This increase is attributable to
the consolidation of Forum, the MSAR Merger and land sale activity.
The extraordinary items of $18.0 million in 1994 and $4.3 million in 1993
resulted from costs associated with the early extinguishment or refinancing of
debt.
Net income available to Unitholders increased from $11.3 million for 1993
to net income of $42.3 million for 1994, an increase of $31.0 million, for the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Operating Partnership's balance of cash and cash
equivalents was $92.5 million, not including its proportionate share of cash
held by the joint venture properties and the Management Company. In addition to
its cash reserves, the Operating Partnership had unused capacity under its
unsecured revolving credit facility totaling $427.0 million.
Offering. On September 6, 1996, the Operating Partnership filed a shelf
registration statement with the Securities and Exchange Commission to provide
for the offering, from time to time, of up to $750 million aggregate principal
amount of unsecured debt securities of the Operation Partnership. The Operating
Partnership intends to offer, immediately upon effectiveness, an aggregate of
$200 million in unsecured debt securities. The proceeds of such offering will be
used primarily to retire mortgage indebtedness and to paydown the unsecured
revolving credit facility.
Effective December 15, 1995, SPG, LP completed a shelf registration filing
for $500.0 million of non-convertible investment grade debt securities. As of
September 30, 1996 SPG, LP had not offered any of these debt securities.
DeBartolo Merger. As described in the footnotes to the financial
statements, on August 9, 1996 the Company assumed the outstanding indebtedness
of DeBartolo Realty Partnership, L.P. Such amount aggregated $1,567.8 million at
September 30, 1996.
Acquisitions. On April 11, 1996, the Operating Partnership drew an
additional $115.0 million on its then existing revolving credit facility
primarily to finance the acquisition of the remaining economic ownership
interest in Ross Park Mall ($44 million) and to retire a portion of the
property's debt ($54 million).
In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996 for $12.5 million an
additional 20% limited partnership interest in North East Mall. At the same
time, the Operating Partnership exercised its option to acquire the remaining
30% limited partnership interest in North East Mall owned by the Simons in
exchange for 472,410 partnership units in the Operating Partnership, as well as
the Simons' 50% general partnership interest which the Operating Partnership
acquired for nominal consideration. The Simons had previously contributed to the
Operating Partnership in exchange for partnership units, the right to receive
distributions relating to its 50% general partnership interest. Therefore the
Operating Partnership, as a result of the transactions, owns 100% of North East
Mall and accounts for it using the consolidated method of accounting.
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Financing and Refinancing. On February 23, 1996, the Operating Partnership
borrowed the initial $100.0 million tranche of a $184.0 million two-tranche loan
facility for The Forum Shops at Caesar's ("Forum") and retired the existing
$89.7 million mortgage debt for Forum. The initial funding bears interest at
LIBOR plus 100 basis points and matures in February 2000. The remaining proceeds
are being used to provide funds for the approximately 250,000-square-foot phase
II expansion of this property.
On June 28, 1996, the Operating Partnership obtained an additional $200
million unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points and would mature in August of 1998. Terms for the
facility were identical to those of the Operating Partnership's other $400
million credit facility.
On September 10, 1996, the Operating Partnership retired the DRC secured
line of credit, in the amount of $112.0 million, which bore interest at LIBOR
plus 175 basis points, with proceeds from SPG, LP's two unsecured credit
facilities, which bore interest at LIBOR plus 132.5 basis points.
On September 27, 1996, the Company completed a $200 million public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193
million. The Company contributed the proceeds of such offering to the Operating
Partnership in exchange for preferred units in the Operating Partnership, which
ultimately used the net proceeds to repay $142.8 million of outstanding mortgage
indebtedness, $34.4 million under SPG, LP's two unsecured credit facilities,
$12.5 million for the acquisition of the remaining ownership of North East Mall
in Hurst, Texas and the remainder for working capital.
On September 27, 1996, the Operating Partnership obtained a $750 million,
unsecured, three-year credit facility (the "Credit Facility"), with a one year
extension at the option of the Operating Partnership which initially bears
interest at LIBOR plus 90 basis points and retired the outstanding borrowings of
SPG, LP in the aggregate principal amount of $323 million under SPG, LP's two
unsecured credit facilities, which bore interest at LIBOR plus 132.5 basis
points. The Credit Facility increases the Operating Partnership's available
capital by $150 million.
Both the Operating Partnership and the Company anticipate in the future
issuing additional debt or equity securities on a public or private basis. The
Operating Partnership is currently contemplating an issuance of unsecured debt
in the near future in an amount currently expected not to exceed $100 million.
During the first nine months of 1996, the Operating Partnership drew an
additional $33.2 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55.6 million was
outstanding on this construction loan.
Development, Expansions and Renovations. The Operating Partnership is
involved in several development, expansion and renovation efforts.
The Operating Partnership is completing demolition of the existing Bakery
Centre in South Miami, Florida, in preparation for the $130 million development
of The Shops at Sunset Place. Pre-development efforts continue for this
75%-owned 500,000-square-foot retail and entertainment center.
Cottonwood Mall opened on July 31, 1996, in Albuquerque, New Mexico. This
1.0 million-square-foot regional mall is wholly-owned by the Operating
Partnership. Cottonwood Mall is anchored by Dillard's, Foley's, JCPenney,
Mervyn's, Montgomery Ward, and a 76,000-square-foot United Artists STARPORT
entertainment complex, which is scheduled to open by the end of 1996.
Construction also continues on the following projects:
- A 250,000-square-foot phase II expansion of Forum, in which the
Operating Partnership has a 55% ownership interest, is scheduled to
open in the fall of 1997. The $90 million costs of the Forum project
are being funded with a portion of a $184 million two-tranche
financing facility which closed February 23, 1996.
- Ontario Mills, a 1.4 million-square-foot value-oriented regional mall
in Ontario, California, in which the Operating Partnership has a 25%
ownership interest, opens November 14, 1996. A
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$110 million construction loan on this project has been obtained on
this approximately $168 million partnership venture with The Mills
Corporation. The Operating Partnership funded its $15.0 million equity
commitment for this project in July 1996.
- The Operating Partnership owns 50% of the Indian River Mall and a
related community center, Indian River Commons. These developments are
being financed with $22.0 million of partner's equity and a $52.0
million construction loan. At September 30, 1996 $36.1 million of the
loan was outstanding. The mall will open November 15, 1996 and the
community center in the spring of 1997.
- The Source, a 730,000-square-foot retail development project in
Westbury (Long Island), New York, is expected to open in August of
1997. This new $150 million development will adjoin an existing
Fortunoff store. The Operating Partnership has a total equity
requirement of $31.1 million for this project. Construction Financing
of $120 million closed on this property in July of 1996. The loan
carries interest at LIBOR plus 170 basis points and matures on July
16, 1999. The Operating Partnership has made a $21.7 million equity
investment in this 50%-owned joint venture development through
September 30, 1996.
- Arizona Mills, a 1,225,000-square-foot retail development project in
Tempe, Arizona, broke ground on August 1, 1996. This $183 million
development is expected to open in November of 1997. A commitment has
been obtained for a five-year $145 million construction loan with
interest at LIBOR plus 160 basis points. The Operating Partnership has
an $11.2 million equity investment and a 25% ownership interest in
this joint venture development.
- Grapevine Mills, a 1,450,000-square-foot retail development project in
Fort Worth, Texas, broke ground on July 10, 1996, and is expected to
open in October of 1997. A commitment has been obtained for a
four-year $140 million construction loan with interest at LIBOR plus
165 basis points. The Operating Partnership will have a $13.9 million
equity commitment on this $188 million development project. The
Operating Partnership owns 37.5% of this joint venture development.
- The Tower Shops in Las Vegas, Nevada, is an approximately $24 million,
60,000-square-foot retail development project in which the Operating
Partnership owns a 50% interest. This retail development is currently
under construction and is scheduled to open late in 1996. The
Operating Partnership contributed its $3.2 million equity commitment
in April of 1996.
Several renovation and expansion projects are currently under construction
and management continues to review additional projects. It is anticipated that
these projects will be financed principally with external borrowings, existing
corporate credit facilities and cash flows from operations.
Debt. At September 30, 1996, the Operating Partnership had consolidated
debt of $3,555.1 million, of which $2,481.6 million is fixed-rate debt and
$1,073.5 million is variable-rate debt. As of September 30, 1996, the Operating
Partnership had interest-rate protection agreements relating to $626.1 million
of the variable-rate debt, respectively. The agreements are generally in effect
until the related variable-rate debt matures.
The Operating Partnership's ratio of consolidated debt-to-market
capitalization was approximately 45.3% at September 30, 1996.
Distributions. The Operating Partnership declared a distribution of
$0.4925 per Unit in each of the first three quarters of 1996. In addition, a
special distribution of $0.1515 per unit was declared on August 9, 1996 to align
the time periods of distributions for the Company and DeBartolo Realty
Corporation under the definitive merger agreement. Future distributions will be
determined based on actual results of operations and cash available for
distribution. Preferred distributions of $0.5078 per Series A Preferred Unit
were also declared per quarter.
Capital Resources. Management anticipates that cash generated from
operating performance will provide the necessary funds on a short- and long-term
basis for its operating expenses, interest expense on
32
94
outstanding indebtedness, recurring capital expenditures and distributions to
holders of Preferred Units and Units.
Management continues to actively review and evaluate property acquisition
opportunities. Management believes that funds on hand and amounts available
under the Credit Facility, together with the ability to issue shares of common
stock of the Company and/or Units, provide the means to finance certain
acquisitions. No assurance can be given that the Operating Partnership will not
be required to, or will not elect to, even if not required to, obtain funds from
outside sources, including through the sale of debt or equity securities, to
finance significant acquisitions, if any.
Investing and Financing Activities. Cash used in investing activities for
the nine months ended September 30, 1996 was $58.0 million. Cash used in
investing activities included approximately $44 million for the acquisition of
the remaining economic ownership interest in Ross Park Mall, tenant allowances,
capital expenditures and development related costs of $110.7 million including
$31.3 million, $11.7 million, $6.1 million and $4.7 million at Cottonwood Mall,
Forum, Muncie Mall and The Shops at Sunset Place, respectively; and advances to
unconsolidated joint ventures totaling approximately $54.4 million, including
$18.9 million, $15.0 million, $5.7 million and $3.2 million in equity
contributions made to The Source, Ontario Mills, Arizona Mills and The Tower
Shops, respectively, to fund development activity. Cash received in connection
with the Merger and consolidation of joint venture properties was $66.7 million.
Cash received from unconsolidated entities of $45.4 million included a $30.9
million return of equity from Smith Haven Mall. Additionally, a note repayment
was received from M.S. Management Associates ($38.6 million). Cash used in
investing activities for the nine months ended September 30, 1995 included $61.5
million for tenant allowances, capital expenditures and development related
costs, a $14.6 million equity investment in Rolling Oaks Mall, and $3.1 million
for the acquisition of a joint venture interest in a parcel of land to be held
for development in Little Rock, Arkansas and $18.6 million for the acquisition
of East Towne Mall, partially offset by $2.6 million of net proceeds from the
sale of a joint venture interest in land held for development, distributions
from unconsolidated entities ($4.3 million) and cash of $3.4 million included in
the acquisition of interest in White Oaks Mall.
Cash used in financing activities for the nine months ended September 30,
1996 was $7.6 million less than the nine months ended September 30, 1995. The
decrease in cash used in 1996 as compared to 1995 was primarily the result of
$193.5 million in partnership contributions from the sale of preferred stock in
1996 partially offset by an increase of $41.7 million in distributions to
Unitholders and proceeds from sales of common stock in 1995 of $142.1 million.
EBITDA-EARNINGS FROM OPERATING RESULTS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION
Management believes that there are several important factors that
contribute to the ability of the Operating Partnership to increase rent and
improve profitability of its shopping centers, including aggregate tenant sales
volume, sales per square foot, occupancy levels and tenant costs. Each of these
factors has a significant effect on EBITDA. Management believes that EBITDA is
an effective measure of shopping center operating performance because: (i) it is
industry practice to evaluate real estate properties based on operating income
before interest, taxes, depreciation and amortization, which is generally
equivalent to EBITDA; and (ii) EBITDA is unaffected by the debt and equity
structure of the property owner. EBITDA: (i) does not represent cash flow from
operations as defined by generally accepted accounting principles; (ii) should
not be considered as an alternative to net income as a measure of the Operating
Partnership's operating performance; (iii) is not indicative of cash flows from
operating, investing and financing activities; and (iv) is not an alternative to
cash flows as a measure of the Operating Partnership's liquidity.
Total EBITDA for the portfolio properties increased from $315.3 million for
the nine months ended September 30, 1995 to $390.2 million for the same period
in 1996, representing a growth rate of 24%. This increase is primarily
attributable to the malls opened or acquired during 1995. During this period,
operating profit margin decreased slightly from 63.1% to 61.4%.
33
95
FFO-FUNDS FROM OPERATIONS
FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), means the consolidated net income of the Operating
Partnership and its subsidiaries without giving effect to depreciation and
amortization, gains or losses from extraordinary items, gains or losses on sales
of real estate, gains or losses on investments in marketable securities and any
provision/benefit for income taxes for such period, plus the allocable portion,
based on the Operating Partnership's ownership interest, of funds from
operations of unconsolidated joint ventures, all determined on a consistent
basis in accordance with generally accepted accounting principles. Management
believes that FFO is an important and widely used measure of the operating
performance of REITs which provides a relevant basis for comparison among REITs.
FFO is presented to assist investors in analyzing the performance of the
Operating Partnership. FFO: (i) does not represent cash flow from operations as
defined by generally accepted accounting principles; (ii) should not be
considered as an alternative to net income as a measure of the Operating
Partnership's operating performance or to cash flows from operating, investing
and financing activities; and (iii) is not an alternative to cash flows as a
measure of the Operating Partnership's liquidity. In March, 1995, NAREIT
modified its definition of FFO. The modified definition provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
The modified definition was adopted by the Operating Partnership beginning in
1996. Additionally, the prior year FFO is being restated to reflect the new
definition in order to make the amounts comparative. Under the previous
definition, FFO for the three months and nine months ended September 30, 1995,
would have been $52.3 million and $145.4 million, respectively.
The following summarizes FFO and reconciles net income to FFO for the
periods presented:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(IN THOUSANDS)
FFO......................................................... $ 74,270 $ 49,492 $ 173,482 $ 137,287
======== ======== ========= =========
Reconciliation:
Net Income.................................................. $ 24,085 $ 24,310 $ 67,558 $ 69,797
Plus:
Extraordinary items -- Losses on extinguishments of debt.... 2,530 2,636 2,689 2,884
Depreciation and amortization from consolidated
properties.............................................. 37,469 21,894 88,507 64,855
The Operating Partnership's share of depreciation and
amortization from unconsolidated affiliates............. 3,775 1,329 9,725 4,340
Merger Integration Costs 7,236 N/A 7,236 --
Less:
Gain on sale of asset..................................... (88) (677) (88) (2,350)
Minority interest portion of depreciation, amortization
and extraordinary items................................. (737) -- (2,145) (2,239)
-------- -------- --------- ---------
FFO......................................................... $ 74,270 $ 49,492 $ 173,482 $ 137,287
======== ======== ========= =========
PORTFOLIO DATA
Operating statistics give effect to the merger of the Company and DeBartolo
Realty Corporation and are based upon the business and properties of the Company
and DRC on a combined basis.
Aggregate Tenant Sales Volume. For the nine months ended September 30,
1996 compared to the same period in 1995, total reported retail sales for mall
and freestanding stores at the regional malls and all stores at the community
shopping centers for GLA owned by the Operating Partnership ("Owned GLA")
increased 4.4% from $5,050 million to $5,331 million. Retail sales at Owned GLA
affect revenue and profitability levels because they 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.) the
tenants can afford to pay.
Occupancy Levels. Occupancy levels for regional malls were 84.3% at both
September 30, 1995 and September 30, 1996. Occupancy levels for community
shopping centers decreased from 94.0% at Septem-
34
96
ber 30, 1995 to 92.1% at September 30, 1996. Total GLA has increased 3.0 million
square feet from September 30, 1995 to September 30, 1996, primarily as a result
of the October 1995 opening of Lakeline Mall, the December 1995 acquisition of
Smith Haven Mall and the July 1996 opening of Cottonwood Mall.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 5.8%, from $19.08 to
$20.18 as of September 30, 1996 as compared to September 30, 1995. In community
shopping centers, average base rents per square foot of Owned GLA increased
3.2%, from $7.26 to $7.49 during this same period.
INFLATION
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the portfolio properties.
Nonetheless, substantially all of the tenants' leases contain provisions
designed to lessen the impact of inflation. Such provisions include clauses
enabling the Operating Partnership to receive percentage rentals based on
tenants' gross sales, which generally increase as prices rise, and/or escalation
clauses, which generally increase rental rates during the terms of the leases.
In addition, many of the leases are for terms of less than ten years, which may
enable the Operating Partnership to replace existing leases with new leases at
higher base and/or percentage rentals if rents of the existing leases are below
the then-existing market rate. Substantially all of the leases, other than those
for anchors, require the tenants to pay a proportionate share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the Operating Partnership's exposure to increases in costs and
operating expenses resulting from inflation.
However, inflation may have a negative impact on some of the Operating
Partnership's other operating items. Interest and general and administrative
expenses may be adversely affected by inflation as these specified costs could
increase at a rate higher than rents. Also, for tenant leases with stated rent
increases, inflation may have a negative effect as the stated rent increases in
these leases could be lower than the increase in inflation at any given time.
OTHER
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail sales
are typically at their highest levels. In addition, shopping malls achieve most
of their temporary tenant rents during the holiday season. As a result of the
above, earnings are generally highest in the fourth quarter of each year.
Management recognizes the retail industry is cyclical in nature and some
tenants continue to experience difficulties, which is reflected in sales trends
and in the bankruptcies and continued restructuring of several prominent retail
organizations. Continuation of these trends could impact future earnings
performance.
35
97
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS:
Investment properties, at cost................................... $ 5,226,532 $2,162,161
Less -- accumulated depreciation................................. (236,583) 152,817
---------- ----------
4,989,949 2,009,344
Cash and cash equivalents........................................ 92,575 62,721
Tenant receivables and accrued revenue, net...................... 150,954 144,400
Notes receivable and advances due from Management Company........ 54,128 102,522
Investment in partnerships and joint ventures, at equity......... 368,225 113,676
Deferred costs, net.............................................. 77,384 81,398
Other assets..................................................... 64,981 42,375
---------- ----------
Total assets.................................................. $ 5,798,196 $2,556,436
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable................................ $ 3,555,123 $1,980,759
Accounts payable and accrued expenses............................ 199,942 113,131
Accrued distributions............................................ 2,223 48,594
Cash distributions and losses in partnerships and joint ventures,
at equity..................................................... 16,796 54,120
Investment in Management Company................................. 13,415 20,612
Other liabilities................................................ 47,932 19,582
---------- ----------
Total liabilities............................................. 3,835,431 2,236,798
---------- ----------
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' EQUITY INTEREST, 60,501,640 and 37,282,628 units
outstanding at redemption value(Note 10)......................... 1,542,792 908,764
PARTNERS' EQUITY:
Series A Preferred units, 4,000,000 authorized, issued and
outstanding................................................... 99,923 99,923
Series B Preferred units, 8,000,000 authorized, issued and
outstanding................................................... 193,471 --
General Partner, 96,507,387 and 58,360,195 units outstanding at
September 30, 1996 and December 31, 1995, respectively........ 1,029,774 135,710
Adjustment to reflect limited partners' equity interest at
redemption value (Note 10).................................... (897,320) (822,072)
Unamortized restricted stock award............................... (5,875) (2,687)
---------- ----------
Total partners' equity (deficit).............................. 419,973 (589,126)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit)................................... $ 5,798,196 $2,556,436
========== ==========
The accompanying notes are an integral part of these statements.
36
98
SIMON DEBARTOLO GROUP L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUE:
Minimum rent...................................... $117,375 $ 75,242 $277,313 $222,701
Overage rent...................................... 6,987 5,982 17,738 15,877
Tenant reimbursements............................. 63,511 50,536 157,738 140,030
Other income...................................... 14,563 6,282 32,851 19,689
-------- -------- -------- --------
Total revenue.................................. 202,436 138,042 485,640 398,297
-------- -------- -------- --------
EXPENSES:
Property operating................................ 35,089 26,647 85,608 72,623
Depreciation and amortization..................... 37,606 22,015 88,913 65,212
Real estate taxes................................. 19,676 13,321 48,040 39,854
Repairs and maintenance........................... 10,006 5,740 22,546 16,926
Advertising and promotion......................... 5,542 4,093 14,439 12,013
Merger integration costs.......................... 7,236 -- 7,236 --
Provision for doubtful accounts................... 1,116 (200) 2,867 2,203
Other............................................. 3,450 2,235 9,152 8,295
-------- -------- -------- --------
Total operating expenses....................... 119,721 73,851 278,801 217,126
-------- -------- -------- --------
OPERATING INCOME.................................... 82,715 64,191 206,839 181,171
INTEREST EXPENSE.................................... 56,212 36,468 135,346 112,125
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST..................... 26,503 27,723 71,493 69,046
MINORITY INTEREST................................... (1,219) (605) (2,394) (1,940)
GAIN ON SALE OF ASSET............................... 88 -- 88 2,350
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES............... 25,372 27,118 69,187 69,456
INCOME FROM UNCONSOLIDATED ENTITIES................. 3,467 (172) 7,452 3,225
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS................... 28,839 26,946 76,639 72,681
EXTRAORDINARY ITEMS -- Losses on extinguishments of
debt.............................................. (2,530) (2,636) (2,795) (2,884)
-------- -------- -------- --------
NET INCOME.......................................... 26,309 24,310 73,844 69,797
GENERAL PARTNER PREFERRED UNIT REQUIREMENT.......... (2,224) -- (6,286) --
-------- -------- -------- --------
NET INCOME AVAILABLE TO UNITHOLDERS................. $ 24,085 $ 24,310 $ 67,558 $ 69,797
======== ======== ======== ========
NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE TO:
General Partner................................ $ 14,784 $ 14,774 $ 41,350 $ 41,368
Limited Partners............................... 9,301 9,536 26,208 28,429
-------- -------- -------- --------
$ 24,085 $ 24,310 $ 67,558 $ 69,797
======== ======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items.............. $ 0.20 $ 0.28 $ 0.65 $ 0.79
Extraordinary items............................ (0.02) (0.03) (0.02) (0.03)
-------- -------- -------- --------
Net income..................................... $ 0.18 $ 0.25 $ 0.63 $ 0.76
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
37
99
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 73,844 $ 69,797
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization.......................................... 94,976 71,761
Losses on extinguishments of debt...................................... 265 2,888
Gain on sale of asset.................................................. (88) (2,350)
Straight-line rent..................................................... 1,754 (1,237)
Minority interest...................................................... 2,394 1,940
Equity in income of unconsolidated entities............................ (7,452) (3,225)
Changes in assets and liabilities
Tenant receivables and accrued revenue................................. 9,034 3,727
Deferred costs and other assets........................................ (4,224) (9,420)
Accounts payable, accrued expenses and other liabilities............... (29,767) (4,337)
--------- ---------
Net cash provided by operating activities........................... 140,736 129,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions........................................................... (43,941) (31,155)
Capital expenditures................................................... (110,679) (61,510)
Cash from Merger and consolidation of joint ventures................... 66,736 4,346
Proceeds from sale of asset............................................ 399 2,550
Investments in unconsolidated entities................................. (54,442) (19,696)
Distributions from unconsolidated entities............................. 45,403 4,274
Loan repayment from Management Company................................. 38,553
--------- ---------
Net cash used in investing activities............................... (57,971) (101,191)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions.............................................. 195,205 142,130
Minority interest distributions........................................ (3,810) (2,823)
Partnership distributions.............................................. (171,346) (130,643)
Proceeds from borrowings, net of transaction costs..................... 273,824 359,338
Mortgage, bond and other payments...................................... (346,784) (428,511)
--------- ---------
Net cash used in financing activities............................... (52,911) (60,509)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 29,854 (32,156)
CASH AND CASH EQUIVALENTS, beginning of period........................... 62,721 105,139
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................................. $ 92,575 $ 72,983
========= =========
The accompanying notes are an integral part of these statements.
38
100
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION
On August 9, 1996, the merger and other related transactions pursuant to
the agreement and plan of merger among Simon Property Group, Inc. ("SPG"), an
acquisition subsidiary of SPG and DeBartolo Realty Corporation ("DRC") were
consummated (the "Merger"). Pursuant to the Merger, SPG acquired all the
outstanding shares of common stock of DRC (55,712,529 shares) through the
acquisition subsidiary, at an exchange ratio of 0.68 share of SPG common stock
for each share of DRC common stock (the "Exchange Ratio"). A total of 37,884,520
shares of SPG common stock were issued by SPG, through the acquisition
subsidiary, to the DRC shareholders. DRC and the acquisition subsidiary merged,
with DRC as the surviving entity and becoming a 99.9% subsidiary of SPG. This
portion of the transaction was valued at approximately $923.4 million, based
upon the number of DRC shares of common stock acquired (55,712,529 shares), the
Exchange Ratio and the last reported sales price per share of SPG's common stock
on August 9, 1996 ($24.375). In connection therewith, SPG changed its name to
Simon DeBartolo Group, Inc. (the "Company") and DRC changed its name to SD
Property Group, Inc. (the "Managing General Partner").
In connection with the Merger, the general and limited partners of the
operating partnership of SPG, Simon Property Group, L.P. ("SPG, LP"),
contributed 49.5% (47,442,212 units) of the total outstanding units of
partnership interest in SPG, LP to the operating partnership of DRC, DeBartolo
Realty Partnership, L.P. ("DRP, LP") in exchange for 47,442,212 units of
partnership interest in DRP, LP, whose name has since been changed to Simon
DeBartolo Group, L.P. ("SDG, LP"). The Company retained a 50.5% partnership
interest (48,400,614 units) in SPG, LP but assigned its rights to receive
distributions of profits on 49.5% (47,442,212 units) of the outstanding units of
partnership interest in SPG, LP to SDG, LP. The limited partners of DRP, LP
approved the contribution made by the partners of SPG, LP and simultaneously
exchanged their 38.1% (34,203,623 units) partnership interest in DRP, LP,
adjusted for the Exchange Ratio, for a smaller partnership interest in SDG, LP.
The exchange of the limited partners' 38.1% partnership interest in DRP, LP for
units of SDG, LP has been accounted for as an acquisition of minority interest
by the Company and is valued based on the estimated fair value of the
consideration issued (approximately $566.9 million). The units of SDG, LP may
under certain circumstances be exchangeable for stock of the Company on a
one-for-one basis. Therefore, the value of the acquisition of the DRP, LP
limited partners' interest acquired was based upon the number of DRP, LP units
exchanged (34,203,623 units), the Exchange Ratio and the last reported sales
price per share of SPG's common stock on August 9, 1996 ($24.375). The limited
partners of SPG, LP received a 23.7% partnership interest in SDG, LP (37,282,628
units) for the contribution of their 38.9% partnership interest in SPG, LP
(37,282,628 units) to SDG, LP. The interests transferred by the partners of SPG,
LP to DRP, LP have been appropriately reflected at historical costs.
Upon completion of the Merger, the Company became a general partner of SDG,
LP with 36.9% (57,605,796 units) of the outstanding partnership units in SDG, LP
and the Managing General Partner became the managing general partner of SDG, LP
with 24.3% (37,873,965 units in SPG, LP) of the outstanding partnership units in
SDG, LP. The Company remained the sole general partner of SPG, LP with 1% of the
outstanding partnership units (958,429 units) and 49.5% interest in the capital
of SPG, LP, and SDG, LP became a special limited partner in SPG, LP with 49.5%
(47,442,212 units) of the outstanding partnership units in SPG, LP and an
additional 49.5% interest in the profits of SPG, LP. SPG, LP did not acquire any
interest in SDG, LP. Upon completion of the Merger, the Company directly and
indirectly owned a controlling 61.2% (95,479,761 units) partnership interest in
SDG, LP.
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company, using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DRP, LP for consideration
valued at $1.523 billion, including related transaction costs. The purchase
price has been allocated to the fair value of the assets and liabilities of DRP,
LP at September 30, 1996. Certain assumptions were made which management of the
General Partners believes are reasonable. Management expects to
39
101
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
finalize the purchase price allocation during the fourth quarter of 1996. The
final allocation is not expected to differ materially from the allocation made
at September 30, 1996.
Although the Company was the accounting acquirer, SDG, LP (formerly DRP,
LP) became the primary operating partnership through which the future business
of the Company will be conducted, As a result of the Merger, the Company's
initial operating partnership, SPG, LP, became a subsidiary of SDG, LP, with 99%
of the profits allocable to SDG, LP and 1% of the profits allocable to the
Company. Cash flow allocable to the Company's 1% profit interest in SDG, LP will
be absorbed by public company cost and related expenses incurred by the Company.
However, because the Company was the accounting acquirer and upon completion of
the Merger acquired majority control of SDG, LP, SPG, LP is the predecessor to
SDG, LP for financial reporting purposes. Accordingly the financial statements
and ratios disclosed by SDG, LP for the post-merger periods will reflect the
reverse acquisition of DRP, LP by the Company using the purchase method of
accounting and for all pre-merger comparative periods, the financial statements
and ratios disclosed by SDG, LP will reflect the financial statements and ratios
of SPG, LP as the predecessor to SDG, LP for financial reporting purposes.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
SPG, LP. However, there can be no assurance that such reorganizational
transactions will be so effected. See "The Operating Partnership."
In connection with the Merger, M.S. Management Associates, Inc., a SPG
management company, purchased from The Edward J. DeBartolo Corporation all of
the voting stock (665 shares of common stock) of DeBartolo Properties
Management, Inc., a DRC management company, for $2.5 million in cash. SDG, LP
continues to hold substantially all of the economic interest in DeBartolo
Properties Management, Inc. The Company holds substantially all of the economic
interest in M.S. Management Associates, Inc., while the voting stock are held by
the Simons and their affiliates. M.S. Management Associates, Inc. is accounted
for using the equity method of accounting.
The following unaudited pro forma summary financial information for the
nine month period ended September 30, 1996 combines the consolidated results of
operations of the Operating Partnership as if the Merger had occurred on January
1, 1995 and was carried forward through September 30, 1996:
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
----------- -----------
Revenue..................................................... $ 694,343 $ 645,398
========== ==========
Net Income.................................................. $ 107,383 $ 128,225
========== ==========
Net Income Attributable to:
General Partners.......................................... $ 65,933 $ 78,730
Limited Partners.......................................... 41,450 49,495
----------- -----------
$ 107,383 $ 128,225
========== ==========
Net Income per Unit......................................... $ 0.68 $ 0.84
========== ==========
Weighted Average Units Outstanding.......................... 156,925,688 152,806,432
========== ==========
NOTE 2 -- BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited;
however, they have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
40
102
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the consolidated
condensed financial statements for these interim periods have been included. The
results for the interim period ended September 30, 1996 are not necessarily
indicative of the results to be obtained for the full fiscal year. These
unaudited consolidated condensed financial statements should be read in
conjunction with the December 31, 1995 audited financial statements and notes
thereto included in the Simon Property Group, L.P. Annual Report on Form
10-K/A-1.
The accompanying unaudited consolidated condensed financial statements of
Simon DeBartolo Group, L.P. (the "Operating Partnership") include all the
accounts of the Operating Partnership and subsidiaries entities. Simon DeBartolo
Group, Inc. and affiliates (the "Company"), directly or indirectly owned 61.5%
and 61.0% of the Operating Partnership as of September 30, 1996 and December 31,
1995, respectively. Properties which are wholly owned or controlled by the
Operating Partnership have been consolidated. All significant intercompany
amounts have been eliminated.
The Operating Partnership's equity interests in certain partnerships and
joint ventures which represent noncontrolling 14.7% to 50.0% ownership interests
and the investment in M.S. Management Associates, Inc. (the "Management
Company" -- see Note 7) are accounted for under the equity method of accounting.
These investments are recorded initially at cost and subsequently adjusted for
net equity in income (loss) and cash contributions and distributions. An
additional 2% ownership in one property is accounted for using the cost method.
Net income is allocated to the partners based on each partner's preferred
unit preference and/or ownership interest in the Operating Partnership during
the period. The Company's weighted average ownership interest in the Operating
Partnership for the three months ended September 30, 1996 and 1995 was 61.3% and
60.8%, respectively. The Company's weighted average ownership interest for the
nine-month periods ended September 30, 1996 and 1995 was 61.2% and 59.3%,
respectively.
NOTE 3 -- RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1996 presentation.
NOTE 4 -- CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the nine months
ended September 30, 1996 was $126,774, as compared to $106,734 for the same
period in 1995. Accrued and unpaid distributions as of September 30, 1996 and
December 31, 1995 were $2,223, and $48,594, respectively, which includes accrued
and unpaid distributions on the units of partnership interest entitled to
preferential distribution of cash ("Preferred Units") of $2,223, and $1,490,
respectively.
As described in Note 1 the Operating Partnership issued units in connection
with the acquisition of DRC.
NOTE 5 -- PER UNIT DATA
Per unit data is based on the weighted average number of units of
partnership interest ("Units") of the Operating Partnership outstanding during
the period. As used herein, the term Units does not include Preferred Units. The
weighted average number of Units used in the computation for the three months
ended September 30, 1996 and 1995 was 131,056,267 and 95,196,569, respectively.
The weighted average number of Units used in the computation for the nine months
ended September 30, 1996 and 1995 was 107,607,202 and 91,663,449, respectively.
Units may be exchanged for shares of common stock of the Company on a one-for-
41
103
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
one basis in certain circumstances. Additionally, Series A Preferred Units may
be converted into common stock of the Company beginning in October of 1997 at an
initial conversion ratio equal to 0.9524. The stock options outstanding under
the Stock Option Plans and the Preferred Units have not been included in the
computations of per Unit data, as they do not have a dilutive effect.
NOTE 6 -- ACQUISITION
Prior to April 11, 1996, the Operating Partnership held a 50% joint venture
interest in Ross Park Mall in Pittsburgh, Pennsylvania. On April 11, 1996, the
Operating Partnership acquired the remaining economic ownership interest. The
purchase price included approximately $44,000 cash and the assumption of the
joint venture partner's share of existing debt ($57,000). The purchase price in
excess of the net assets acquired of $49,015 was allocated to investment
properties. Effective April 11, 1996, the property is being accounted for using
the consolidated method of accounting. It was previously accounted for using the
equity method of accounting.
In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996 for cash an additional 20%
limited partnership interest in North East Mall. At the same time, the Operating
Partnership exercised its option to acquire the remaining 30% limited
partnership interest in North East Mall owned by the Simons in exchange for
472,410 units in the Operating Partnership, as well as the Simons' 50% general
partnership interest which the Operating Partnership acquired for nominal
consideration. The Simons had previously contributed to the Operating
Partnership in exchange for units, the right to receive distributions relating
to its 50% general partnership interest. Therefore, the Operating Partnership as
a result of these transactions owns 100% of North East Mall and accounts for it
using the consolidated method of accounting.
42
104
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
Summary financial information of partnerships and joint ventures accounted
for using the equity method of accounting and a summary of the Operating
Partnership's investment in and share of income (loss) from such partnerships
and joint ventures follow:
PARTNERSHIPS AND JOINT
VENTURES
------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
BALANCE SHEETS
ASSETS:
Investment properties at cost, net....................... $ 1,763,739 $1,156,066
Cash and cash equivalents................................ 63,298 52,624
Tenant receivables....................................... 50,356 35,306
Other assets............................................. 45,446 32,626
---------- ----------
Total assets..................................... 1,922,839 $1,276,622
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgage and other notes payable......................... $ 1,071,932 $ 410,652
Accounts payable, accrued expenses and other
liabilities........................................... 159,446 127,322
---------- ----------
Total liabilities..................................... 1,231,378 537,974
Partners' equity...................................... 691,461 738,648
---------- ----------
Total liabilities and partners' equity........... 1,922,839 $1,276,622
========== ==========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets..................................... $ 551,500 $ 290,802
========== ==========
PARTNERS' EQUITY:
Investment in partnerships and joint ventures, at
equity................................................ $ 368,225 $ 113,676
Cash distributions and losses in partnerships and joint
ventures, at equity................................... (16,796) (54,120)
---------- ----------
$ 351,429 $ 59,556
========== ==========
PARTNERSHIPS AND JOINT VENTURES
--------------------------------------
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
----------------- ------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------- ------- -------- -------
REVENUE:
Minimum rent......................................... $37,295 $19,755 $ 91,334 $57,606
Overage rent......................................... 2,057 548 3,746 1,678
Tenant reimbursements................................ 18,487 10,002 46,000 28,651
Other income......................................... 2,903 1,757 9,061 11,064
------ ------ ------ ------
Total revenue..................................... 60,742 32,062 150,141 98,999
OPERATING EXPENSES:
Operating expenses and other......................... 22,888 11,019 55,737 32,456
Depreciation and amortization........................ 12,273 5,310 32,859 15,961
------ ------ ------ ------
Total operating expenses.......................... 35,161 16,329 88,596 48,417
------ ------ ------ ------
OPERATING INCOME....................................... 25,581 15,733 61,545 50,582
INTEREST EXPENSE....................................... 14,555 6,648 28,689 21,282
EXTRAORDINARY ITEMS.................................... -- (9) -- (9)
------ ------ ------ ------
NET INCOME............................................. 11,026 9,076 32,856 29,291
THIRD PARTY INVESTORS' SHARE OF NET INCOME............. 8,892 8,254 27,590 26,060
------ ------ ------ ------
THE OPERATING PARTNERSHIP'S SHARE OF NET INCOME........ $ 2,141 $ 822 $ 5,275 $ 3,231
====== ====== ====== ======
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these
43
105
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
agreements are not always consistent with the ownership interest held by each
general or limited partner or joint venturer, primarily due to partner
preferences.
Summary financial information of the Management Company accounted for using
the equity method of accounting and a summary of the Operating Partnership's
investment in and share of income from the Management Company follow:
MANAGEMENT COMPANY
----------------------------
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEETS 1996 1995
------------- ------------
ASSETS:
Current assets......................................... $ 62,874 $ 40,964
Undeveloped land and mortgage notes.................... 18,245 45,769
Other assets........................................... 24,889 13,813
-------- --------
Total assets................................... $ 106,008 $100,546
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities.................................... $ 52,584 $ 18,435
Notes payable and advances due to the Operating
Partnership at 11%, due 2008........................ 71,028 102,522
-------- --------
Total liabilities................................... 123,612 120,957
Shareholders' deficit............................... (17,604) (20,411)
-------- --------
Total liabilities and shareholders' deficit.... $ 106,008 $100,546
======== ========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets................................... $ 94,639 $ 80,437
======== ========
Shareholders' deficit.......................... $ (17,304) $(20,612)
======== ========
44
106
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
MANAGEMENT COMPANY
-------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------------- ------------- ------------- -------------
REVENUE:
Management fees................... $ 4,952 $ 4,158 $15,122 $15,113
Development and leasing fees...... 6,480 6,747 10,928 13,140
Cost-sharing income and other..... 1,935 1,706 7,237 5,221
------- ------- ------- -------
Total revenue.................. 13,367 12,611 33,287 33,474
EXPENSES:
Operating expenses................ 7,953 10,747 21,744 24,983
Depreciation...................... 693 579 1,947 1,679
Interest.......................... 1,539 1,999 4,690 5,691
------- ------- ------- -------
Total expenses................. 10,185 13,325 28,381 32,353
------- ------- ------- -------
NET INCOME (LOSS)................... 3,182 (714) 4,906 1,121
INTER-COMPANY PROFITS............... (1,232) -- (1,232) --
------- ------- ------- -------
NET INCOME (LOSS) AFTER
INTER-COMPANY ELIMINATION......... 1,950 (714) 3,674 1,121
PREFERRED DIVIDENDS................. 350 350 1,050 1,015
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE FOR
COMMON SHAREHOLDERS............... $ 1,600 $(1,064) $ 2,624 $ 106
======= ======= ======= =======
THE OPERATING PARTNERSHIP'S SHARE OF
NET INCOME (LOSS)................. $ 1,326 $ (994) $ 2,177 $ (6)
======= ======= ======= =======
The management, development and leasing activities related to the
non-wholly owned and other third-party properties are conducted by the
Management Company.
The Operating Partnership's share of allocated common costs were $7,524 and
$5,685, respectively, for the three-month periods and $21,949 and $17,704,
respectively, for the nine-month periods ended September 30, 1996 and 1995.
NOTE 8 -- DEBT
On February 23, 1996, the Operating Partnership borrowed the initial
$100,000 tranche of a $184,000 two-tranche loan facility for the Forum Shops at
Caesar's ("Forum") and retired the existing $89,701 mortgage debt for Forum. The
initial funding bears interest at LIBOR plus 100 basis points and matures in
February 2000. The remaining proceeds of the initial $100,000 tranche are being
used to provide funds for the approximately 250,000-square-foot phase II
expansion of this property.
On April 11, 1996, the Operating Partnership borrowed an additional
$115,000 on its then existing revolving credit facility. The funds were used
primarily to acquire the remaining economic ownership interest in Ross Park Mall
($44,000), and to retire a portion ($54,000) of the existing debt on Ross Park
Mall.
On June 28, 1996, the Operating Partnership obtained an additional $200,000
unsecured, revolving credit facility. The facility bore interest at LIBOR plus
132.5 basis points and would mature in August of 1998. Terms for the facility
were identical to those of the Operating Partnership's other $400,000 facility
obtained in August of 1995.
45
107
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
During the first nine months of 1996, the Operating Partnership drew an
additional $33,246 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55,645 million
was outstanding on the loan.
On September 10, 1996, the Operating Partnership retired the DRC secured
line of credit, which bore interest at LIBOR plus 175 basis points, with
proceeds from SPG, LP's two unsecured credit facilities, which bore interest at
LIBOR plus 132.5 basis points.
On September 27, 1996, the Company completed a $200,000 public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193,000.
The Company contributed the proceeds of such offering to the Operating
Partnership in exchange for preferred units in the Operating Partnership, which
used the net proceeds to repay $142,800 of outstanding mortgage indebtedness and
$50,200 under SPG, LP's two unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750,000,
unsecured, three-year credit facility (the "Credit Facility"), which will
initially bear interest at LIBOR plus 90 basis points, and retired the
outstanding borrowing of SPG, LP in the aggregate principal amount of $323,000
under SPG, LP's two unsecured credit facilities, which bore interest at LIBOR
plus 132.5 basis points. The Credit Facility increases the Operating
Partnership's available capital by $150,000.
On September 6, 1996, the Operating Partnership filed a shelf registration
statement with the Securities and Exchange Commission to provide for the
offering, from time to time, of up to $750,000 aggregate principal amount of
unsecured debt securities of the Operating Partnership. The Operating
Partnership is currently preparing to offer an aggregate of $200,000 in
unsecured debt securities for sale to the public, the proceeds of which will be
used primarily to retire mortgage indebtedness and to paydown the unsecured,
revolving credit facility.
At September 30, 1996, the Operating Partnership had consolidated debt of
$3,555,123, of which $2,481,639 was fixed-rate debt and $1,073,484 was
variable-rate debt. As of September 30, 1996 and December 31, 1995, the
Operating Partnership had interest-rate protection agreements related to
$626,100 and $551,600 of variable-rate debt, respectively. The agreements are
generally in effect until the related variable-rate debt matures. As a result of
the various interest rate protection agreements, interest savings were $654 and
$693 for the three months ended September 30, 1996 and 1995, respectively, and
$1,935 and $2,617 for the nine months ended September 30, 1996 and 1995,
respectively. The Operating Partnership's pro rata share of indebtedness of the
unconsolidated joint venture properties as of September 30, 1996 and December
31, 1995 was $414,424 and $167,644, respectively.
46
108
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- PARTNERS' EQUITY
The following table summarizes the change in the general partner and
limited partners' equity in the Operating Partnership since December 31, 1995.
GENERAL PARTNER
---------------------------------------------- UNAMORTIZED LIMITED PARTNERS
PREFERRED RESTRICTED -----------------------
UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD TOTAL UNITS AMOUNTS(1)
---------- -------- ---------- --------- ----------- --------- ---------- ----------
Balance at December 31,
1995.................... 4,000,000 $99,923 58,360,195 $(686,362) $(2,687) $(589,126) 37,282,628 $ 908,764
Stock Incentive Program... -- -- 200,030 4,751 (4,751) -- -- --
Amortization of stock
incentive............... -- -- -- -- 1,563 1,563 -- --
Preferred unit
contributions, net...... 8,000,000 193,471 -- -- -- 193,471 -- --
Adjustment to allocate net
equity of the Operating
Partnership............. -- -- -- (9,496) -- (9,496) -- 9,496
Adjustment to reflect
limited partners' equity
interest at redemption
value (Note 10)......... -- -- -- (75,248) -- (75,248) -- 75,248
Other..................... -- -- -- (62) -- (62) -- --
Partner contributions..... -- -- 37,947,162 924,075 -- 924,075 23,219,012 565,448
Distributions............. -- (6,286) -- (66,554) -- (72,840) -- (42,372)
Net Income................ -- 6,286 -- 41,350 -- 47,636 -- 26,208
---------- -------- ---------- --------- ---------- ---------- ---------- ---------
Balance at September 30,
1996.................... 12,000,000 $293,394 96,507,387 $ 132,454 $(5,875) $ 419,973 60,501,640 $1,542,792
========== ======== ========== ========= ========== ========== ========== =========
- ---------------
(1) At redemption value.
STOCK INCENTIVE PROGRAM
Two stock incentive programs are currently in effect for SDG LP.
Under the terms of the Simon Stock Incentive Program, on March 22, 1995, an
aggregate of 1,000,000 shares of restricted stock was awarded to 50 executives,
subject to certain performance standards and other terms of the plan. On March
22, 1995 and 1996, the board of directors of the Company approved the issuances
of 144,196 and 200,030 shares of common stock, respectively to eligible
executives. The value of these shares is being amortized pro-rata over the
respective four year vesting period. Approximately $1,563 and $525 have been
amortized for the nine-month periods ended September 30, 1996 and 1995,
respectively.
Under the terms of the DeBartolo stock incentive plan, 2,108,000 shares of
common stock are available for grant, subject to certain performance standards
and other terms of the plan. A total of 1,865,240 shares of common stock have
been approved by the compensation committee.
It is management's intent to merge the existing plans into a single plan
for key employees of SDG LP.
NOTE 10 -- LIMITED PARTNERS' INTEREST
Because the Operating Partnership does not control whether cash will be
used to settle the limited partners' exchange rights, the limited partners'
equity has not been included in partners' equity. The consolidated condensed
balance sheets reflect the limited partners' interest in the Operating
Partnership, measured at redemption value.
47
109
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On November 13, 1996, an agreement was reached between the Company and the
Operating Partnership which restricts the Company's ability to cause the
Operating Partnership to redeem for cash the limited partners' units without
contributing cash to the Operating Partnership as partners' equity sufficient to
effect the redemption. If sufficient cash is not contributed, the Company will
be deemed to have elected to acquire the limited partners' units for shares of
the Company's common stock. Accordingly, prospectively the limited partners'
interest in SDG LP will be reflected in the consolidated balance sheet of the
SDG LP as partners' equity at historical carrying value.
NOTE 11 COMMITMENTS AND CONTINGENCIES
On October 16, 1996, a complaint was filed in the Court of Common Pleas of
Mahoning County, Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty
Corp. et al. The named defendants are the Managing General Partner and DeBartolo
Properties Management, Inc., and the plaintiffs are 24 former employees of the
defendants. In the complaint, the number of plaintiffs allege that they were
recipients of deferred stock grants under the DRC 1994 Stock Incentive Plan (the
"Plan") and that these grants immediately vested under the Plan's "change in
control" provision as a result of the Merger. Plaintiffs assert that the
defendants' refusal to issue them approximately 579,000 shares of DRC common
stock, which is equivalent to approximately 394,000 shares of common stock of
the Company computed at the .68 exchange ratio used in the Merger, constitutes a
breach of contract and a breach of the implied covenant of good faith and fair
dealing under Ohio law. Plaintiffs seek damages equal to such number of shares
of DRC common stock, or cash in lieu thereof, equal to all deferred stock ever
granted to them under the Plan, dividends on such stock from the time of the
grants, compensatory damages for breach of the implied covenant of good faith
and fair dealing, and punitive damages.
The complaint was served on the defendants on October 28, 1996, and
pre-trial proceedings have not yet commenced. The Company is of the opinion that
it has meritorious defenses and accordingly intends to defend this action
vigorously. While it is difficult for the Company to predict the outcome of this
litigation at this stage, based on the information known to the Company to date,
the Company does not expect this action will have a material adverse effect on
the Company.
48
110
CERTAIN INFORMATION WITH RESPECT
TO SIMON PROPERTY GROUP, L.P.
PAGE NO.
--------
Selected Financial and Operating Data.............................................. 50
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 52
Simon Property Group, L.P. Consolidated Condensed Balance Sheets as of September
30, 1996 and December 31, 1995 (unaudited)....................................... 61
Simon Property Group, L.P. Consolidated Condensed Statements of Operations for the
three and nine month periods ended September 30, 1996 and 1995 (unaudited)....... 62
Simon Property Group, L.P. Consolidated Condensed Statements of Cash Flows for the
nine month periods ended September 30, 1996 and 1995 (unaudited)................. 63
Notes to Financial Statements...................................................... 64
Report of Independent Public Accountants........................................... 72
Simon Property Group, L.P. Consolidated Balance Sheets as of December 31, 1995 and
1994............................................................................. 73
Simon Property Group, L.P. Consolidated Statements of Operations for the years
ended December 31, 1995 and 1994 and for the period from inception of operations
(December 20, 1993) to December 31, 1993 and Simon Property Group (the
Predecessor to Simon Property Group, L.P.) Combined Statement of Operations for
the period from January 1, 1993 to December 31, 1993............................. 74
Simon Property Group, L.P. Consolidated Statements of Changes in Partners' Equity
and Owners' Deficit for the years ended December 31, 1995 and 1994 and for the
period from inception of operations (December 20, 1993) to December 31, 1993 and
Simon Property Group Combined Statement of Changes in Partners' Equity and
Owners' Deficit for the period from January 1, 1993 to December 31, 1993......... 75
Simon Property Group, L.P. Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and 1994 and for the period from inception of operations
(December 20, 1993) to December 31, 1993 and Simon Property Group Combined
Statement of Cash Flows for the period from January 1, 1993, to December 19,
1993............................................................................. 76
Notes to Financial Statements...................................................... 77
Report of Independent Public Accountants on Schedule III........................... 102
Schedule III -- Schedule of Real Estate and Accumulated Depreciation............... 103
Notes to Schedule III.............................................................. 107
49
111
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth certain selected financial and operating
data on a historical basis for SPG, LP, the Predecessor, for financial reporting
purposes, of SDG, LP and for Simon Property Group the Predecessor of SPG, LP for
the respective periods presented. The historical financial information should be
read in conjunction with the financial statements and notes thereto included
herein.
SIMON PROPERTY GROUP, L.P.
(SPG, LP, THE PREDECESSOR OF SDG, LP)
----------------------------------------------------------------------
FOR THE
FOR THE FOR THE PERIOD FROM
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20
ENDED ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND
RATIOS)
OPERATING DATA:
Total Revenue..................................... $ 429,600 $ 398,297 $ 553,657 $ 473,676 $ 18,424
Expenses:
Operating Expenses............................... 164,562 151,914 209,782 183,433 4,095
Depreciation and Amortization.................... 37,913 65,212 92,739 75,945 2,051
Interest Expense(1).............................. 120,370 112,125 150,224 150,164 3,548
Income (Loss) before Extraordinary Items......... 70,229 72,681 101,505 60,308 8,707
Net Income (Loss)................................ $ 67,434 $ 69,797 $ 98,220 $ 42,328 $ (21,774)
Preferred Unit Distributions...................... 6,094 -- 1,490 -- --
Net Income (Loss) available to unit holders....... 61,340 69,797 96,730 42,328 (21,774)
Net Income per unit before extraordinary items... $ .73 $ 0.79 $ 1.08 $ 0.71 $ 0.11
Net Income per unit(2)........................... $ .75 $ 0.76 $ 1.04 $ 0.50 $ (0.28)
Distributions per unit........................... $ 1.14 $ 1.48 $ 1.97 $ 1.90 --
Weighted average units outstanding................ 107,607 91,663 92,666 84,510 78,447
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net................... $ 2,129,373 $ 1,985,841 $2,009,344 $1,829,111 $1,350,360
Cash and cash equivalents........................ 44,635 72,983 62,721 105,139 110,625....
Total Assets..................................... 2,683,384 2,407,499 2,556,436 2,316,860 1,793,654
Total Debt(3).................................... 2,136,651 1,986,072 1,980,759 1,938,091 1,455,884
Limited Partners' Interest....................... -- 949,126 908,764 909,996 848,373
Owner's Equity (Deficit)......................... $ 273,553 $ (709,583) $ (589,126) $ (807,613) $ (791,820)
OTHER DATA:
Cash flow provided by (used in):
Operating activities........................... $ 144,086 $ 129,544 $ 194,336 $ 128,023 N/A
Investing activities........................... (114,709) (101,191) (222,679) (266,772) N/A
Financing activities........................... (47,463) (60,509) (14,075) 133,263 N/A
Restated Funds from Operations (FFO) (4)......... $ 148,189 $ 137,287 $ 197,909 $ 167,761 N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE 1.61x 1.64x 1.67x 1.43x 3.36x
DEFICIT(5).......................................
PORTFOLIO DATA (as of end of period):
Total EBITDA(6).................................. $ 346,200 $ 315,276 $ 437,548 $ 386,835 $ 346,679(7)
EBITDA After Minority Interest(6)................ 277,408 257,123 357,158 307,372 256,169(7)
Number of Portfolio Properties................... 122 120 122 119 114
Total GLA (thousands of square feet)............. 63,360 59,644 62,232 58,200 54,042
-------- -------- -------- -------- -------
SIMON PROPERTY GROUP
(THE PREDECESSOR OF SPG, LP)
----------------------------------------
FOR THE FOR THE FOR THE
PERIOD FROM YEAR YEAR
JANUARY 1 TO ENDED ENDED
DECEMBER 19, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------ ------------ ------------
OPERATING DATA:
Total Revenue..................................... $ 405,869 $ 400,852 $ 378,029
Expenses:
Operating Expenses............................... 175,801 176,682 173,923
Depreciation and Amortization.................... 60,243 58,104 56,033
Interest Expense(1).............................. 156,909 178,075 159,798
Income (Loss) before Extraordinary Items......... 6,912 (11,692) (15,865)
Net Income (Loss)................................ $ 33,101 $ (11,692) $ (15,865)
Preferred Unit Distributions...................... -- -- --
Net Income (Loss) available to unit holders....... 33,101 (11,692) (15,865)
Net Income per unit before extraordinary items... N/A N/A N/A
Net Income per unit(2)........................... N/A N/A N/A
Distributions per unit........................... N/A N/A N/A
Weighted average units outstanding................ N/A N/A N/A
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net................... N/A $1,156,009 $1,143,050
Cash and cash equivalents........................ N/A 42,682 31,840
Total Assets..................................... N/A 1,494,289 1,432,028
Total Debt(3).................................... N/A 1,711,778 1,548,292
Limited Partners' Interest....................... N/A N/A N/A
Owner's Equity (Deficit)......................... N/A $ (565,566) $ (418,697)
OTHER DATA:
Cash flow provided by (used in):
Operating activities........................... N/A N/A N/A
Investing activities........................... N/A N/A N/A
Financing activities........................... N/A N/A N/A
Restated Funds from Operations (FFO) (4)......... N/A N/A N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE 1.11x $ (12,821) $ (18,719)
DEFICIT(5).......................................
PORTFOLIO DATA (as of end of period):
Total EBITDA(6).................................. N/A $ 316,535 $ 282,326
EBITDA After Minority Interest(6)................ N/A 227,931 210,634
Number of Portfolio Properties................... N/A 110 108
Total GLA (thousands of square feet)............. N/A 52,404 51,375
-------- -------- --------
- ---------------
(1) Interest expense for the year ended December 31, 1994 includes $27.2
million of additional non-recurring contingent interest paid in connection
with the refinancing of a Portfolio Property. The property lender was
entitled to participate in the appreciated market value of the Portfolio
Property upon refinancing. Management does not presently expect to enter
into financing arrangements with similar participation features in the
future. Accordingly, management considers the payment made to the lender
unusual in nature. As explained in footnote (4) below, unusual or
extraordinary items are excluded for purposes of computing FFO.
Accordingly, this item has been excluded from FFO in this table and
elsewhere herein.
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(2) Per unit data are reflected only for the periods from December 20, 1993
through September 30, 1996. Per unit data are not relevant for the
historical combined financial statements of Simon Property Group, the
Predecessor to SPG, LP, since such financial statements are a combined
presentation of partnerships and corporations.
(3) Historical debt of SPG, LP as of September 30, 1996 and 1995 and December
31, 1995 includes $1,813.6 million, $1,778.1 million and $1,784.8 million,
respectively, of mortgage indebtedness and $323.0 million, $208.0 million
and $196.0 million, respectively, of outstanding indebtedness under credit
facilities, respectively.
(4) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means combined net income SGP, LP
without giving effect to depreciation and amortization, gains or losses
from extraordinary items, gains or losses on sales of real estate, gains or
losses on investments in marketable securities and any provision/benefit
for income taxes for such period, plus the allocable portion, based on
ownership interest of SGP, LP, of FFO of unconsolidated joint ventures, all
determined on a consistent basis in accordance with generally accepted
accounting principles. Management believes that FFO is an important and
widely used measure of the operating performance of REITs which provides a
relevant basis for comparison among REITs. FFO is presented to assist
investors in analyzing the performance of SGP, LP. SGP, LP's method of
calculating FFO may be different from the methods used by other REITs. FFO
(i) does not represent cash flows from operations as defined by generally
accepted accounting principles, (ii) should not be considered as an
alternative to net income as a measure of operating performance or to cash
flows from operating, investing and financing activities and (iii) is not
an alternative to cash flows as a measure of liquidity. In March 1995,
NAREIT modified its definition of FFO. The modified definition provides
that amortization of deferred financing costs and depreciation of nonrental
real estate assets are no longer to be added back to net income in arriving
at FFO. The modified definition was adopted by SGP, LP beginning in 1996.
Additionally the FFO for prior periods have been restated to reflect the
new definition in order to make the amounts comparative.
(5) For purposes of computing the Ratio of Earnings to Fixed Charges, earnings
have been calculated by adding fixed charges, excluding capitalized
interest, to income (loss) from continuing operations including income from
minority interests which have fixed charges, and including distributed
operating income from unconsolidated joint ventures instead of income from
unconsolidated joint ventures. Fixed Charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
(6) Total EBITDA represents earnings before interest, taxes, depreciation and
amortization for all properties. EBITDA After Minority Interest represents
earnings before interest, taxes, depreciation and amortization for all
properties after distribution to the third-party joint venture partners.
EBITDA (i) does not represent cash flow from operations as defined by
generally accepted accounting principles, (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measurement for assessing the operating performance of
an equity REIT because, together with net income and cash flows, EBITDA
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as revenues and operating expenses, should be considered.
SGP, LP's method of calculating EBITDA may be different from the methods
used by other REITs. The Company's weighted average ownership interest in
the operating results of SGP, LP for the nine months ended September 30,
1996 and 1995 was 61.2% and 59.3%, respectively, and was 60.3%, 55.2% and
52.2% in 1995, 1994 and 1993, respectively. The Company's ownership interest
in SPG, LP was 61.5% and 60.9% at September 30, 1996 and 1995, respectively,
and was 61.0% and 56.4% at December 31, 1995 and 1994, respectively.
(7) Represents the combined EBITDA and EBITDA After Minority Interest of the
properties for the full year ended December 31, 1993.
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SIMON PROPERTY GROUP L.P. AND SIMON PROPERTY GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, and all of the financial statements and notes thereto included
elsewhere herein.
GENERAL BACKGROUND
Simon Property Group L.P. ("SPG, LP" or the "Simon Operating Partnership")
was formed in connection with the initial public offering of Simon Property
Group, Inc. As a result of the merger between a subsidiary of Simon Property
Group, Inc. and DeBartolo Realty Corporation ("DRC"), the Simon Operating
Partnership became a subsidiary of Simon DeBartolo Group, L.P. ("SDG, LP"). The
accompanying financial statements reflect the operations of the Simon Operating
Partnership on a stand alone basis.
Historical results and percentage relationships set forth in Selected
Financial Data are not necessarily indicative of future financial position and
results of operations of the Simon Operating Partnership.
The financial statement results presented for the twelve-day period from
December 20, 1993 through December 31, 1993 are not indicative of the Simon
Operating Partnership's performance on an annual basis. Similarly, the results
presented in the combined financial statements for the Predecessor of the Simon
Operating Partnership cover only 353 days of 1993, the period prior to the date
that the Simon Operating Partnership acquired the assets and liabilities of the
Predecessor of the Simon Operating Partnership. Therefore, the discussion of and
results of operations and liquidity and capital resources for 1993 are presented
on a combined basis to compare to the full year 1994. Management believes
presentation in this manner provides a more meaningful discussion of
year-to-year results.
RESULTS OF OPERATIONS
Three property ownership changes (the "Property Transactions") affect the
comparison of the three-month periods. Effective July 31, 1995, the Simon
Operating Partnership acquired the remaining 50% interest in Crossroads Mall and
subsequently began including Crossroads in the financial statements using the
consolidated method of accounting. Effective September 25, 1995, the Simon
Operating Partnership acquired the remaining 55% interest in East Towne Mall and
subsequently began including East Towne in the financial statements using the
consolidated method of accounting. And finally, on April 11, 1996, the Simon
Operating Partnership acquired the remaining 50% economic interest in Ross Park
Mall and subsequently began including Ross Park in the financial statements
using the consolidated method of accounting.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenue increased by $8.4 million or 6.1% for the three months ended
September 30, 1996, as compared to the same period in 1995. This increase is
primarily the result of the Property Transactions ($9.1) million, an increase in
minimum rent ($2.4 million), and a gain on the sale of a peripheral property
($2.6 million), partially offset by a decrease in tenant reimbursements ($4.6
million).
Total operating expenses increased by $9.5 million, or 12.9%, for the three
months ended September 30, 1996 as compared to the same period in 1995. This
increase is primarily a result of the Property Transactions ($4.1 million) and
an increase in depreciation and amortization ($5.0 million).
Interest expense increased by $4.8 million, or 13.1% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily as a result of the Property Transactions ($3.7 million).
Income from unconsolidated entities increased by $1.5 million for the three
months ended September 30, 1996, as compared to the same period in 1995. This
increase is the result of an increase in the Simon Operating Partnership's pro
rata share of income from M.S. Management Associates, Inc. (together with its
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subsidiaries, "the Management Company") ($2.3 million), partially offset by a
decrease in income allocated from the nonconsolidated joint venture properties
($0.8 million).
Net income was $19.9 million for the three months ended September 30, 1996
as compared to $24.3 million for the same period in 1995, reflecting a decrease
of $4.4 million, for the reasons discussed above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenue increased by $31.3 million or 7.9% for the nine months ended
September 30, 1996, as compared to the same period in 1995. Of this increase,
$25.1 million is a result of the Property Transactions. The remaining increase
is primarily the result of increases in minimum rent ($5.3 million), lease
settlement income ($2.1 million), and a gain on the sale of peripheral property
($2.6 million), partially offset by a decrease in tenant reimbursements ($5.9
million).
Total operating expenses increased by $25.6 million, or 11.8%, for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of the Property Transactions ($25.3) and an
increase in depreciation and amortization ($10.2 million).
The gain on sale of an asset in the nine months ended September 30, 1995
($2.4 million) relates to the sale of a minority partnership interest in land
previously held for development in Denver, Colorado.
Interest expense increased by $8.2 million or 7.4% for the nine months
ended September 30, 1996, as compared to the same period in 1995. This increase
was primarily the result of the Property Transactions ($9.5 million), partially
offset by interest savings resulting from debt payments made with proceeds
obtained from the Company's secondary common stock offering in April 1995 and
the sale of preferred stock in October 1995.
Income from unconsolidated entities increased by $2.0 million for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of an increase in the Simon Operating
Partnership's pro rata share of income from the Management Company ($2.2
million).
Simon Property Group, Inc.'s (the "Company") preferred unit requirement
increased by $6.1 million as a result of $100 million in net proceeds received
in connection with the Company's issuance of 8 1/8% Series A convertible
preferred stock.
Net income was $61.3 million for the nine months ended September 30, 1996,
as compared to $69.8 million for the same period in 1995, reflecting a decrease
of $8.5 million, for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
During 1994 and 1995, the Simon Operating Partnership acquired several new
properties through purchase, acquisition and merger, and, as a result of a
change in controlling interest, changed the way it accounted for several
properties (using either the consolidated method of accounting or the equity
method of accounting for non-controlled joint venture entities) (the "Property
Transactions"). The following is a listing of such transactions: The Simon
Operating Partnership began including The Forum Shops at Caesars ("Forum") as a
consolidated property due to the Simon Operating Partnership's ability to
demonstrate control effective April 1, 1994. On September 1, 1994, the Simon
Operating Partnership consolidated 15 properties as a result of the merger of
MSA Realty Corporation into the Company (the "MSAR Merger"). During December
1994, the Simon Operating Partnership acquired a 100% interest in Independence
Mall, Orange Park Mall, Broadway Square and University Mall (Florida). On
February 23, 1995, the Simon Operating Partnership acquired an additional 50%
interest in White Oaks Mall and is now accounting for the property using the
consolidated method of accounting. Effective July 1, 1995, the Simon Operating
Partnership relinquished its ability to direct certain activities related to the
control of North East Mall, and as a result is now accounting for the property
using the equity method of accounting. On August 1, 1995, the Simon Operating
Partnership purchased the remaining 50% ownership in Crossroads Mall and
subsequently began accounting for the property using the consolidated method of
accounting. On September 25, 1995, the Simon Operating Partnership acquired the
remaining 55% ownership in East Towne Mall and subsequently began
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accounting for the property using the consolidated method of accounting. (See
the "Liquidity and Capital Resources" discussion for additional information
regarding these transactions.)
Total revenue by increased $80.0 million, or 16.9%, in 1995. Of this
increase, $72.8 million is attributable to the 1995 Property Transactions, and
the full-year impact in 1995 of the 1994 Property Transactions. The remaining
$7.2 million increase is primarily the result of an increase in revenue
resulting from increases of $1.25 and $0.18 in average base minimum rents per
square foot for regional mall stores and community shopping centers as evidenced
by leasing spreads for regional mall store and community shopping center leases
executed during 1995 over those leases expiring in 1995 of $5.38 and $1.22 per
square foot, respectively. These increases are partially offset by a decrease in
overage rent resulting primarily from static sales in the portfolio and a
decline of $1.8 million in overage rent at Texas border properties due to the
devaluation of the Mexican peso. Management expects these properties to return
to their prior performance level, as they have done historically after previous
peso devaluations.
Total operating expenses increased by $43.1 million, or 16.6%, in 1995. Of
this increase, $37.9 million, or 87.9%, is the result of the Property
Transactions. Other than increases from the Property Transactions, total
operating expenses experienced an increase of only 2.0% attributable to
increased depreciation and amortization derived from an increase in investment
properties.
Interest expense, excluding prior year non-recurring interest expense,
increased by a net of $27.2 million, or 22.2%, to $150.2 million for 1995 as
compared to $123.0 million for 1994. Of this increase, $26.5 million, or 97.4%
is the result of the Property Transactions. Partially offsetting this increase
is interest savings realized as a result of restructuring the Simon Operating
Partnership's credit facilities, and from using the proceeds of the Company's
add-on offering of 6,241,854 shares of common stock and over-allotment offerings
to reduce the outstanding indebtedness of SPG, LP.
The net gain on the sale of assets in 1995 resulted from a gain on the sale
of a minority partnership interest in land previously held for development in
Denver, Colorado ($2.4 million), partially offset by a loss on the sale of an
equity investment in Arborland Mall ($0.5 million).
Income (loss) from unconsolidated entities increased from a loss of $0.1
million in 1994 to income of $1.4 million in 1995 resulting from an increase in
the Simon Operating Partnership's share of income from partnerships and joint
ventures, partially offset by an increase in its share of losses of the
Management Company. The Simon Operating Partnership's share of income from
partnerships and joint ventures improved $4.1 million from $1.0 million in 1994
to $5.1 million in 1995. This increase is primarily attributable to gains from
sales of peripheral property ($3.4 million) and the change to accounting for
North East Mall using the equity method of accounting ($1.7 million). The Simon
Operating Partnership's share of the Management Company's results declined $2.6
million from an allocated net loss of $1.1 million for 1994 to an allocated net
loss of $3.7 million for 1995. This decrease is the result of the Management
Company's losses related to the settlement of a mortgage receivable and the
liquidation of a partnership investment in 1995, partially offset by a $1.6
million increase in the Management Company's operating income.
Extraordinary items of $3.3 million in 1995 and $18.0 million in 1994
result from costs associated with the refinancing of debt.
Net income available to Unitholders increased from $42.3 million for 1994
to $96.7 million for 1995, an increase of $54.4 million, for the reasons
discussed above.
COMPARISON OF CONSOLIDATED OPERATING RESULTS FOR THE
YEAR ENDED DECEMBER 31, 1994 TO THE COMBINED YEAR ENDED DECEMBER 31, 1993
Total revenue increased by $49.4 million, or 11.6%, to $473.7 million for
1994, as compared to $424.3 million in 1993. This increase is the result of
increases in all components of revenue. The $28.2 million increase in minimum
rent is a result of an overall increase in occupancy levels and the replacement
of expiring tenant leases with renewal leases at higher minimum base rents ($7.2
million), the inclusion of Forum as a consolidated property ($10.3 million) and
the MSAR Merger ($8.7 million). The increase in overage rent of $5.4 million to
$25.5 million for 1994, as compared to $20.1 million in 1993, is attributable to
an overall increase in tenant sales volume ($0.9 million) and the inclusion of
Forum as a consolidated property ($4.2 million). Tenant reimbursements increased
$12.4 million as a result of the increased occupancy and overall
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tenant recoverability of costs ($4.0 million), the inclusion of Forum as a
consolidated property ($4.0 million) and the MSAR Merger ($4.0 million). The
$3.4 million increase in other income is primarily attributable to the increase
in interest and dividend income from the Management Company ($9.7 million), the
increase in interest income from cash equivalents due to the increase in funds
invested and higher interest rates ($1.1 million), the consolidation of Forum
($1.4 million) and the MSAR Merger ($1.1 million), offset in part by the sale of
an anchor store in March 1993 ($8.9 million).
Total operating expenses increased by $17.2 million, or 7.1%, to $259.4
million for 1994 as compared to $242.2 million for 1993. This increase is the
result of increases in depreciation and amortization, real estate taxes, repairs
and maintenance, and advertising and promotion, offset by decreases in property
operating expenses and other expenses. The increase in depreciation and
amortization of $13.7 million is attributable to the purchase of minority
partners' interest in the Predecessor of SPG,LP with the application of the
offering proceeds ($5.5 million), the inclusion of Forum as a consolidated
property ($3.5 million), the MSAR Merger ($1.8 million) and additional
renovation and expansion costs incurred in 1992 and 1993 at several Portfolio
Properties. The increases in real estate taxes ($3.7 million) and repairs and
maintenance ($2.3 million) are primarily attributable to the consolidation of
Forum ($0.3 million and $1.0 million, respectively) and the MSAR Merger ($2.1
million and $0.5 million, respectively). Tenant contributions funded a
substantial portion of the $2.4 million increase in advertising and promotion
campaigns. The $6.7 million decrease in property operating expenses is the
result of the reduction in the costs related to the self-management of wholly
owned properties ($5.9 million), a decrease in insurance costs due to an overall
reduction in premiums and loss occurrences ($1.7 million) and the decrease in
general and administrative expenses ($3.0 million). These decreases in property
operating expenses are partially offset by the inclusion of Forum as a
consolidated property ($3.6 million) and the MSAR Merger ($0.5 million). The
$1.3 million increase in other expenses is attributable to the inclusion of
Forum as a consolidated property ($2.1 million) and public company costs ($1.2
million), offset in part by the decrease in ground rent relating to the buyout
of various ground leases with the application of the offering proceeds.
Interest expense, excluding non-recurring interest expense, decreased by
$37.5 million, or 23.4%, to $123.0 million for 1994 as compared to $160.5
million for 1993. This decrease is primarily the result of: (i) the application
of net proceeds of the offering and the concurrent financing to reduce
indebtedness ($34.4 million); and (ii) lower interest rates on debt ($12.1
million); offset by (iii) the inclusion of Forum as a consolidated property
($3.7 million), the MSAR Merger ($4.3 million) and an increase in amortization
of deferred financing costs related to the refinancings ($2.5 million).
On December 1, 1994, as part of a debt restructuring and the termination of
the lender's participation in future cash flow for one of the Portfolio
Properties, the Simon Operating Partnership incurred a non-recurring interest
expense charge of $27.2 million. The Simon Operating Partnership has reflected
this item as a separate line in the Consolidated Statements of Operations.
Minority interest in 1994 reflects the purchase of minority partners'
interest in the Predecessor of SPG,LP with the application of the IPO proceeds
and the inclusion of the minority partner's interest in Forum.
Income (loss) from unconsolidated entities improved $2.3 million. The Simon
Operating Partnership's share of the Management Company's results improved from
an allocation of a net loss of $1.4 million for 1993 to a net loss of $1.1
million for 1994. The 1994 amount is after interest and preferred dividend
charges payable to the Simon Operating Partnership of $9.1 million. There were
no similar charges in 1993. The Simon Operating Partnership's share of income
from partnerships and joint ventures improved from a net loss of $1.0 million
for 1993 to net income of $1.0 million for 1994. This increase is attributable
to the consolidation of Forum, the MSAR Merger and land sale activity.
The extraordinary items of $18.0 million in 1994 and $4.3 million in 1993
resulted from costs associated with the early extinguishment or refinancing of
debt.
Net income available to Unitholders increased from $11.3 million for 1993
to net income of $42.3 million for 1994, an increase of $31.0 million, for the
reasons discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Simon Operating Partnership's balance of cash
and cash equivalents was $44.6 million, not including its proportionate share of
cash held by the joint venture properties and the Management Company. In
addition to its cash reserves, the Simon Operating Partnership, as a co-borrower
with SDG, LP, had unused capacity under its unsecured revolving credit facility
totaling $427 million.
In December 1995, a shelf registration statement for $500 million of
non-convertible investment grade debt securities of SPG, LP became effective. As
of September 30, 1996, no securities have been issued from this registration
statement.
On September 6, 1996, Simon DeBartolo Group, L.P. ("SDG, LP") filed a shelf
registration statement with the Securities and Exchange Commission to provide
for the offering from time to time of up to $750 million aggregate principal
amount of unsecured debt securities of SDG, LP. SDG, LP intends to offer,
immediately upon effectiveness, an aggregate of $200 million in unsecured debt
securities. The proceeds of which will be used primarily to retire mortgage
indebtedness and to paydown the unsecured, revolving credit facility. SPG, LP
will guarantee the due and punctual payment of the principal of, premium, if
any, interest on, and any other amounts payable with respect to the unsecured
debt securities.
Acquisitions. On April 11, 1996, the Simon Operating Partnership drew an
additional $115.0 million on its other existing revolving credit facility
primarily to finance the acquisition of the remaining economic ownership
interest in Ross Park Mall ($44 million) and to retire a portion of the
property's debt ($54 million).
Financing and Refinancing. On February 23, 1996, the Simon Operating
Partnership borrowed the initial $100.0 million tranche of a $184.0 million
two-tranche loan facility for The Forum Shops at Caesar's ("Forum") and retired
the existing $89.7 million mortgage debt for Forum. The initial funding bears
interest at LIBOR plus 100 basis points and matures in February 2000. The
remaining proceeds are being used to provide funds for the approximately
250,000-square-foot phase II expansion of this property.
On June 28, 1996, the Simon Operating Partnership obtained an additional
$200 million unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points. Terms for the facility were identical to those of
the Simon Operating Partnership's other $400 million credit facility.
On September 10, 1996, the Simon Operating Partnership loaned $112 million
to SDG, LP to retire the DeBartolo secured line of credit. The DeBartolo line
bore interest at LIBOR plus 175 basis points.
On September 27, 1996, the Company completed a $200 million public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193
million. The Company contributed the proceeds of such offering to SDG, LP in
exchange for preferred units in SDG, LP, which used the net proceeds to repay
$142.8 million of outstanding indebtedness, $12.5 million to purchase an
additional ownership interest in the North East Mall and loaned $34.4 million to
the Simon Operating Partnership which used such amounts to reduce amounts
outstanding under its former unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750 million,
unsecured, three-year credit facility (the "Credit Facility"), which initially
bears interest at LIBOR plus 90 basis points, The Operating Partnership borrowed
$323 million under this facility and loaned the proceeds to the Simon Operating
Partnership to retire the outstanding borrowing under two unsecured credit
facilities, which bore interest at LIBOR plus 132.5 basis points.
During the first nine months of 1996, the Simon Operating Partnership drew
an additional $33.2 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55.6 million was
outstanding on this construction loan.
Development, Expansions and Renovations. The Simon Operating Partnership
is involved in several development, expansion and renovation efforts.
Groundbreaking has occurred on two new retail development projects.
Grapevine Mills, a 1,450,000-square-foot retail development project in Fort
Worth, Texas, broke ground on July 10, 1996, and is
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expected to open in November of 1997. A commitment has been obtained for a
four-year $140 million construction loan with interest at LIBOR plus 165 basis
points. The Simon Operating Partnership will have a $13.9 million equity
commitment on this $188 million development project. The Simon Operating
Partnership owns 37.5% of this joint venture development. Arizona Mills, a
1,225,000-square-foot retail development project in Tempe, Arizona, broke ground
on August 1, 1996. This $183 million development opens in November of 1997. The
Simon Operating Partnership has a $11.2 million equity investment and a 25%
ownership interest in this joint venture development.
The Simon Operating Partnership is completing demolition of the existing
Bakery Centre in South Miami, Florida, in preparation for the $130 million
development of The Shops at Sunset Place. Pre-development efforts continue for
this 75%-owned proposed 500,000-square-foot retail and entertainment center.
Cottonwood Mall opened on July 31, 1996, in Albuquerque, New Mexico. This
one million-square-foot regional mall is wholly-owned by the Simon Operating
Partnership. Cottonwood Mall is anchored by Dillard's, Foley's, JCPenney,
Mervyn's and Montgomery Ward, and a 76,000-square foot United Artists STARPORT
entertainment complex, which is scheduled to open by the end of 1996.
Construction also continues on the following projects:
- A 250,000-square-foot phase II expansion of Forum, in which the Simon
Operating Partnership has a 55% ownership interest, is scheduled to
open in the fall of 1997. The $90 million costs of the Forum project
are being funded with a portion of a $184 million two-tranche
financing facility which closed February 23, 1996.
- Ontario Mills, a 1.4 million-square-foot value-oriented regional mall
in Ontario, California, in which the Simon Operating Partnership has a
25% ownership interest, is scheduled to open in November of 1996. A
$110 million construction loan on this project has been obtained on
this approximately $168 million partnership venture with The Mills
Corporation. The Simon Operating Partnership funded its $15.0 million
equity commitment for this project in July 1996.
- The Source, a 730,000-square-foot retail development project in
Westbury (Long Island), New York, is expected to open in August of
1997. This new $151 million development will adjoin an existing
Fortunoff store. The Simon Operating Partnership has a total equity
requirement of $31.1 million for this project. Construction Financing
of $120 million closed on this property in July of 1996. The loan
carries interest at LIBOR plus 170 basis points and matures on July
16, 1999. The Simon Operating Partnership has made a $21.7 million
equity investment in this 50%-owned joint venture development through
September 30, 1993.
- The Tower Shops in Las Vegas, Nevada, is an approximately $25 million,
89,000-square-foot retail development project in which the Simon
Operating Partnership owns a 50% interest. This retail development is
scheduled to open late in the fall of 1996. The Simon Operating
Partnership contributed its $3.2 million equity commitment in April of
1996.
Management is also considering renovation and expansion projects at various
other properties. It is anticipated that these projects will be financed
principally with external borrowings, existing corporate credit facilities and
cash flows from operations.
Debt. At September 30, 1996, the Simon Operating Partnership had
consolidated debt of $2,136.6 million, of which $1,287.0 million is fixed-rate
debt and $849.6 million is variable-rate debt. As of September 30, 1996 and
1995, the Simon Operating Partnership had interest-rate protection agreements
relating to $488,958 and $551,196 of variable-rate debt, respectively. The
agreements are generally in effect until the related variable-rate debt matures.
The Simon Operating Partnership's ratio of consolidated debt-to-market
capitalization was approximately 46.8% at September 30, 1996.
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Distributions. The Simon Operating Partnership declared a distribution of
$0.4925 per Unit for the first three quarters of 1996. In addition, a special
distribution of $0.1515 per unit was declared on August 9, 1996 to align the
time periods of distributions for the Company and DeBartolo Realty Corporation
under the definitive merger agreement. Future distributions will be determined
based on actual results of operations and cash available for distribution.
Preferred distributions of $0.5078 per Preferred Unit were also declared per
quarter during this period.
Capital Resources. Management anticipates that cash generated from
operating performance will provide the necessary funds on a short- and long-term
basis for its operating expenses, interest expense on outstanding indebtedness,
recurring capital expenditures and distributions to holders of Preferred Units
and Units.
Management continues to actively review and evaluate property acquisition
opportunities. Management believes that funds on hand and amounts available
under the Operating Partnership's unsecured revolving credit facility, together
with the ability to issue shares of common stock of the Company and/or Units,
provide the means to finance certain acquisitions. No assurance can be given
that the Simon Operating Partnership will not be required to, or will not elect
to, even if not required to, obtain funds from outside sources, including
through the sale of debt or equity securities, to finance significant
acquisitions, if any.
Investing and Financing Activities. Cash used in investing activities for
the nine months ended September 30, 1996 was $114.7 million. Cash used in
investing activities included approximately $44 million for the acquisition of
the remaining economic ownership interest in Ross Park Mall, tenant allowances,
capital expenditures and development related costs of $94.0 million including
$31.3 million, $11.7 million and $4.3 million at Cottonwood Mall, Forum, and The
Shops at Sunset Place, respectively; and advances to unconsolidated joint
ventures totaling approximately $51.9 million, including $18.9 million, $15.0
million, $5.7 million and $3.2 million in equity contributions made to The
Source, Ontario Mills, Arizona Mills and The Tower Shops, respectively, to fund
development activity. Cash received from unconsolidated entities of $34.5
million included a $30.9 million return of equity from Smith Haven Mall, a note
repayment was received from M.S. Management Associates, Inc, ($38.6 million).
Cash used in investing activities for the nine months ended September 30, 1995
included $61.5 million for tenant allowances, capital expenditures and
development related costs, a $14.6 million equity investment in Rolling Oaks
Mall and $3.1 million for the acquisition of a joint venture interest in a
parcel of land to be held for development in Little Rock, Arkansas, partially
offset by $2.6 million of net proceeds from the sale of a joint venture interest
in land held for development, distributions from unconsolidated entities ($4.3
million) and cash of $3.4 million included in the acquisition of interest in
White Oaks Mall.
Cash used in financing activities for the nine months ended September 30,
1996 was $13.0 million less than the nine months ended September 30, 1995. The
decrease in cash used in 1996 as compared to 1995 was primarily the result of an
increase in net mortgage borrowings of $109.8 million and an advance from SDG,
LP ($77.2 million), partially offset by an increase of $30.9 million in
distributions to Unitholders (including $5.5 million paid to the holder of the
Preferred Units representing distributions from October 27, 1995 to September
30, 1996) and proceeds from sales of common stock in 1995 of $142.1 million.
EBITDA-EARNINGS FROM OPERATING RESULTS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION
Management believes that there are several important factors that
contribute to the ability of the Simon Operating Partnership to increase rent
and improve profitability of its shopping centers, including aggregate tenant
sales volume, sales per square foot, occupancy levels and tenant costs. Each of
these factors has a significant effect on EBITDA. Management believes that
EBITDA is an effective measure of shopping center operating performance because:
(i) it is industry practice to evaluate real estate properties based on
operating income before interest, taxes, depreciation and amortization, which is
generally equivalent to EBITDA; and (ii) EBITDA is unaffected by the debt and
equity structure of the property owner. EBITDA: (i) does not represent cash flow
from operations as defined by generally accepted accounting principles; (ii)
should not be considered as an alternative to net income as a measure of the
Simon Operating Partnership's operating
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performance; (iii) is not indicative of cash flows from operating, investing and
financing activities; and (iv) is not an alternative to cash flows as a measure
of the Simon Operating Partnership's liquidity.
Total EBITDA for the portfolio properties increased from $315.3 million for
the nine months ended September 30, 1995 to $346.2 million for the same period
in 1996, representing a growth rate of 9.8%. This increase is primarily
attributable to the malls opened or acquired during 1995 and 1996. During this
period, operating profit margin decreased from 63.1% to 61.9%.
FFO-FUNDS FROM OPERATIONS
FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), means the combined net income of the Simon Operating
Partnership and its subsidiaries without giving effect to depreciation and
amortization, gains or losses from extraordinary items, gains or losses on sales
of real estate, gains or losses on investments in marketable securities and any
provision/benefit for income taxes for such period, plus the allocable portion,
based on the Simon Operating Partnership's ownership interest, of funds from
operations of unconsolidated joint ventures, all determined on a consistent
basis in accordance with generally accepted accounting principles. Management
believes that FFO is an important and widely used measure of the operating
performance of REITs which provides a relevant basis for comparison among REITs.
FFO is presented to assist investors in analyzing the performance of the
Operating Partnership. FFO: (i) does not represent cash flow from operations as
defined by generally accepted accounting principles; (ii) should not be
considered as an alternative to net income as a measure of the Simon Operating
Partnership's operating performance or to cash flows from operating, investing
and financing activities; and (iii) is not an alternative to cash flows as a
measure of the Simon Operating Partnership's liquidity. In March, 1995, NAREIT
modified its definition of FFO. The modified definition provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
The modified definition was adopted by the Simon Operating Partnership beginning
in 1996. Additionally, the prior year FFO is being restated to reflect the new
definition in order to make the amounts comparative. Under the previous
definition, FFO for the three months and nine months ended September 30, 1995,
would have been $52.3 million and $145.4 million, respectively.
The following summarizes FFO and reconciles net income to FFO for the
periods presented:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(In thousands)
FFO......................................................... $ 48,977 $ 49,492 $ 148,189 $ 137,287
======== ======== ========= =========
Reconciliation:
Net Income.................................................. $ 19,899 $ 24,310 $ 67,434 $ 69,797
Plus:
Extraordinary items -- Losses on extinguishments of debt.... 2,424 2,636 2,689 2,884
Depreciation and amortization from consolidated
properties.............................................. 26,469 21,894 77,507 64,855
The Simon Operating Partnership's share of depreciation
and amortization from unconsolidated affiliates......... 2,783 1,329 8,733 4,340
Less:
Gain on sale of asset..................................... (88) N/A (88) (2,350)
Minority interest portion of depreciation and
amortization............................................ (478) (677) (1,992) (2,239)
Preferred distributions..................................... (2,032) -- (6,094) --
-------- -------- --------- ---------
FFO......................................................... $ 48,977 $ 49,492 $ 148,189 $ 137,287
======== ======== ========= =========
PORTFOLIO DATA
Aggregate Tenant Sales Volume. For the nine months ended September 30,
1995 compared to the same period in 1996, total reported retail sales for mall
and freestanding stores at the regional malls and all stores at
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the community shopping centers for GLA owned by the Simon Operating Partnership
("Owned GLA") increased 8.2% from $3,010 million to $3,256 million. Retail sales
at Owned GLA affect revenue and profitability levels because they 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.) the
tenants can afford to pay.
Occupancy Levels. Occupancy levels for regional malls increased from 85.2%
at September 30, 1995 to 85.6% at September 30, 1996. Occupancy levels for
community shopping centers decreased from 94.8% at September 30, 1995 to 93.1%
at September 30, 1996. These decreases are the result of store closings by
several retailers which filed bankruptcy in 1995 and the de-leasing efforts at
two malls in anticipation of de-malling these properties. Total GLA has
increased 3.7 million square feet from September 30, 1995 to September 30, 1996,
primarily as a result of the 1995 opening of three new regional malls, the
acquisition of Smith Haven Mall and the opening of Cottonwood Mall.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 6.3%, from $18.51 to
$19.68 as of September 30, 1996 as compared to September 30, 1995. In community
shopping centers, average base rents per square foot of Owned GLA increased
3.3%, from $7.25 to $7.49 during this same period.
INFLATION
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the portfolio properties.
Nonetheless, substantially all of the tenants' leases contain provisions
designed to lessen the impact of inflation. Such provisions include clauses
enabling the Simon Operating Partnership to receive percentage rentals based on
tenants' gross sales, which generally increase as prices rise, and/or escalation
clauses, which generally increase rental rates during the terms of the leases.
In addition, many of the leases are for terms of less than ten years, which may
enable the Simon Operating Partnership to replace existing leases with new
leases at higher base and/or percentage rentals if rents of the existing leases
are below the then-existing market rate. Substantially all of the leases, other
than those for anchors, require the tenants to pay a proportionate share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Simon Operating Partnership's exposure to
increases in costs and operating expenses resulting from inflation.
However, inflation may have a negative impact on some of the Simon
Operating Partnership's other operating items. Interest and general and
administrative expenses may be adversely affected by inflation as these
specified costs could increase at a rate higher than rents. Also, for tenant
leases with stated rent increases, inflation may have a negative effect as the
stated rent increases in these leases could be lower than the increase in
inflation at any given time.
OTHER
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail sales
are typically at their highest levels. In addition, shopping malls achieve most
of their temporary tenant rents during the holiday season. As a result of the
above, earnings are generally highest in the fourth quarter of each year.
Management recognizes the retail industry is cyclical in nature and some
tenants continue to experience difficulties, which is reflected in sales trends
and in the bankruptcies and continued restructuring of several prominent retail
organizations. Continuation of these trends could impact future earnings
performance.
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SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS:
Investment properties, at cost................................... $ 2,392,124 $2,162,161
Less -- accumulated depreciation................................. 212,751 152,817
---------- ----------
2,179,373 2,009,344
Cash and cash equivalents........................................ 44,635 62,721
Tenant receivables and accrued revenue, net...................... 143,095 144,400
Notes receivable and advances due from Management Company........ 63,978 102,522
Investment in partnerships and joint ventures, at equity......... 136,099 113,676
Deferred costs, net.............................................. 75,531 81,398
Other assets..................................................... 40,673 42,375
---------- ----------
Total assets.................................................. $ 2,683,384 $2,556,436
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable................................ $ 2,136,651 $1,980,759
Accounts payable and accrued expenses............................ 117,330 113,131
Advance from affiliate........................................... 77,153 --
Accrued distributions............................................ 2,031 48,594
Cash distributions and losses in partnerships and joint ventures,
at equity..................................................... 16,796 54,120
Investment in Management Company................................. 18,415 20,612
Other liabilities................................................ 41,455 19,582
---------- ----------
Total liabilities............................................. 2,409,831 2,236,798
---------- ----------
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' EQUITY INTEREST, 37,282,628 units outstanding at
redemption value (Note 9)........................................ -- 908,764
PARTNERS' EQUITY:
Preferred units, 4,000,000 authorized, issued and outstanding.... 99,923 99,923
General Partner, 958,429 and 58,360,195 units outstanding,
respectively.................................................. 1,795 135,710
Special Limited Partners' Interest, 94,884,424 units
outstanding................................................... 177,710 --
Adjustment to reflect Limited Partners' equity interest at
redemption value
(Note 9)...................................................... -- (822,072)
Unamortized restricted stock award............................... (5,875) (2,687)
---------- ----------
Total partners' equity (deficit).............................. 273,553 (589,126)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit)................................... $ 2,683,384 $2,556,436
========== ==========
The accompanying notes are an integral part of these statements.
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SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUE:
Minimum rent...................................... $ 83,109 $ 75,242 $243,047 $222,701
Overage rent...................................... 5,169 5,982 15,920 15,877
Tenant reimbursements............................. 49,368 50,536 143,594 140,030
Other income...................................... 8,750 6,282 27,039 19,689
-------- -------- -------- --------
Total revenue.................................. 146,396 138,042 429,600 398,297
-------- -------- -------- --------
EXPENSES:
Property operating................................ 28,406 26,647 79,012 72,623
Depreciation and amortization..................... 26,606 22,015 77,913 65,212
Real estate taxes................................. 14,662 13,321 43,026 39,854
Repairs and maintenance........................... 5,725 5,740 18,265 16,926
Advertising and promotion......................... 4,366 4,093 13,264 12,013
Provision for doubtful accounts................... 845 (200) 2,596 2,203
Other............................................. 2,785 2,235 8,399 8,295
-------- -------- -------- --------
Total operating expenses....................... 83,395 73,851 242,475 217,126
-------- -------- -------- --------
OPERATING INCOME.................................... 63,001 64,191 187,125 181,171
INTEREST EXPENSE.................................... 41,236 36,468 120,370 112,125
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST..................... 21,765 27,723 66,755 69,046
MINORITY INTEREST................................... (709) (605) (1,884) (1,940)
GAIN ON SALE OF ASSET............................... 88 -- 88 2,350
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES............... 21,144 27,118 64,959 69,456
INCOME FROM UNCONSOLIDATED ENTITIES................. 1,284 (172) 5,270 3,225
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS................... 22,428 26,946 70,229 72,681
EXTRAORDINARY ITEMS -- Losses on extinguishments of
debt.............................................. (2,530) (2,636) (2,795) (2,884)
-------- -------- -------- --------
NET INCOME.......................................... 19,898 24,310 67,434 69,797
GENERAL PARTNER PREFERRED UNIT REQUIREMENT.......... (2,032) -- (6,094) --
-------- -------- -------- --------
NET INCOME AVAILABLE TO UNITHOLDERS................. $ 17,866 $ 24,310 $ 61,340 $ 69,797
======== ======== ======== ========
NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE TO:
General Partner................................ $ 4,559 $ 14,774 $ 31,125 $ 41,368
Limited Partners............................... 13,307 9,536 30,215 28,429
-------- -------- -------- --------
$ 17,866 $ 24,310 $ 61,340 $ 69,797
======== ======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items.............. $ 0.23 $ 0.28 $ 0.73 $ 0.79
Extraordinary items............................ (0.02) (0.03) (0.03) (0.03)
-------- -------- -------- --------
Net income..................................... $ 0.21 $ 0.25 $ 0.70 $ 0.76
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30 1996
-----------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 67,434 $ 69,797
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation and amortization...................................... 83,976 71,761
Losses on extinguishments of debt.................................. 265 2,888
Gain on sale of asset.............................................. (88) (2,350)
Straight-line rent................................................. 534 (1,237)
Minority interest.................................................. 1,884 1,940
Equity in income of unconsolidated entities........................ (5,270) (3,225)
Changes in assets and liabilities
Tenant receivables and accrued revenue............................. 4,954 3,727
Deferred costs and other assets.................................... (4,405) (9,420)
Accounts payable, accrued expenses and other liabilities........... (5,198) (4,337)
--------- ---------
Net cash provided by operating activities....................... 144,086 129,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions....................................................... (43,941) (31,155)
Capital expenditures............................................... (94,001) (61,510)
Cash of consolidated joint ventures................................ 1,695 4,346
Proceeds from sale of asset........................................ 399 2,550
Investments in unconsolidated entities............................. (51,907) (19,696)
Distributions from unconsolidated entities......................... 34,493 4,274
Loan repayment from Management Company............................. 38,553 --
--------- ---------
Net cash used in investing activities........................... (114,709) (101,191)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions.......................................... (62) 142,130
Minority interest distributions.................................... (3,610) (2,823)
Partnership distributions.......................................... (161,582) (130,643)
Advances from SDG, L.P............................................. 77,153 --
Proceeds from borrowings, net of transaction costs................. 266,927 359,338
Mortgage, bond and other payments.................................. (226,289) (428,511)
--------- ---------
Net cash used in financing activities........................... (47,463) (60,509)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (18,086) (32,156)
CASH AND CASH EQUIVALENTS, beginning of period....................... 62,721 105,139
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................. $ 44,635 $ 72,983
========= =========
The accompanying notes are an integral part of these statements.
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SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited;
however, they have been prepared in accordance with generally accepted
accounting principles for interim financial information and in conjunction with
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the consolidated condensed financial
statements for these interim periods have been included. The results for the
interim period ended September 30, 1996 are not necessarily indicative of the
results to be obtained for the full fiscal year. These unaudited consolidated
condensed financial statements should be read in conjunction with the December
31, 1995 audited financial statements and notes thereto included in the Simon
Property Group, L.P. Annual Report on Form 10-K/A-1.
The accompanying unaudited consolidated condensed financial statements of
Simon Property Group, L.P. (the "Simon Operating Partnership" or "SPG,LP")
include all the accounts of the Simon Operating Partnership and subsidiaries
entities. Properties which are wholly owned or controlled by the Simon Operating
Partnership have been consolidated. All significant intercompany amounts have
been eliminated.
The Simon Operating Partnership's equity interests in certain partnerships
and joint ventures which represent noncontrolling 14.7% to 50.0% ownership
interests and the investment in M.S. Management Associates, Inc. (together with
its subsidiaries, the "Management Company" -- see Note 7) are accounted for
under the equity method of accounting. These investments are recorded initially
at cost and subsequently adjusted for net equity in income (loss) and cash
contributions and distributions.
Net income is allocated to the partners based on each partner's preferred
unit preference and/or percentage profit interest in the Simon Operating
Partnership during the periods.
NOTE 2 -- MERGER
On August 9, 1996, the merger and other related transactions pursuant to
the agreement and plan of merger among Simon DeBartolo Group, Inc. (the
"Company" or "SDG"), an acquisition subsidiary of the Company and DeBartlolo
Realty Corporation ("DRC") were consummated (the "Merger"). Pursuant to the
Merger, the Company acquired all the outstanding shares of common stock of DRC
(55,712,529 shares) through the acquisition subsidiary, at an exchange ratio of
0.68 share of Company common stock for each share of DRC common stock (the
"Exchange Ratio"). DRC and the acquisition subsidiary merged, with DRC as the
surviving entity and becoming a 99.9% subsidiary of the Company. This portion of
the transaction was valued at approximately $923.4 million, based upon the
number of DRC shares of common stock acquired (55,712,529 shares), the Exchange
Ratio and the last reported sales price per share of the Company's common stock
on August 9, 1996 ($24.375). In connection therewith, the Company changed its
name to SDG.
In connection with the Merger, the general and limited partners of the
Simon Operating Partnership, contributed 49.5% (47,442,212 units) of the total
outstanding units of partnership interest in the Simon Operating Partnership, to
the operating partnership of DRC, DeBartolo Realty Partnership, L.P. ("DRP, LP")
in exchange for 47,442,212 units of partnership interest in DRP, LP, whose name
has since been changed to Simon DeBartolo Group, L.P. ("SDG, LP"). SDG retained
a 50.5% partnership interest (48,400,614 units) in the Simon Operating
Partnership, but assigned its rights to receive distributions of profits on
49.5% (47,442,212 units) of the outstanding units of partnership interest in the
Simon Operating Partnership, to SDG, LP. The limited partners of the Simon
Operating Partnership received a 23.7% partnership interest in SDG, LP
(37,282,628 units) for the contribution of their 38.9% partnership interest in
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SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the Simon Operating Partnership (37,282,628 units) to SDG, LP. The interests
transferred by the partners of the Simon Operating Partnership to DRP, LP have
been appropriately reflected at historical costs.
Upon completion of the Merger, SDG became a general partner of SDG, LP and
remained the sole general partner of the Simon Operating Partnership with 1% of
the outstanding partnership units (958,429 units) and 49.5% interest in the
capital of the Simon Operating Partnership, and SDG, LP became a special limited
partner in the Simon Operating Partnership with 49.5% (47,442,212 units) of the
outstanding partnership units in the Simon Operating Partnership and an
additional 49.5% interest in the profits of the Simon Operating Partnership. As
a result of the Merger, the Simon Operating Partnership became a subsidiary of
SDG, LP, with 99% of the profits allocable to SDG, LP and 1% of the profits
allocable to the Company. Cash flow allocable to the Company's 1% profit
interest in SDG, LP will be absorbed by public company costs and related
expenses incurred by the Company. The accompanying financial statements reflect
the operation of the Simon Operating Partnership on a stand alone basis.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
the Simon Operating Partnership. However, there can be no assurance that such
reorganizational transactions will be so affected.
In connection with the Merger, the Management Company purchased from The
Edward J. DeBartolo Corporation all of the voting stock (665 shares of common
stock) of DeBartolo Properties Management, Inc., a DRC management company, for
$2.5 million in cash. SDG, LP continues to hold substantially all of the
economic interest in DeBartolo Properties Management, Inc. SDG holds
substantially all of the economic interest in M.S. Management Associates, Inc.,
while the voting stock are held by the Simons and their affiliates. The Simon
Operating Partnership accounts for its interest in the Management Company
utilizing the equity method.
NOTE 3 -- RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1996 presentation.
NOTE 4 -- CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the nine months
ended September 30, 1996 was $114,121, as compared to $106,734 for the same
period in 1995. Accrued and unpaid distributions as of September 30, 1996 and
December 31, 1995 were $2,031, and $48,594, respectively, which includes accrued
and unpaid distributions on the units of partnership interest entitled to
preferential distribution of cash ("Preferred Units") of $2,031, and $1,490,
respectively.
NOTE 5 -- PER UNIT DATA
Per unit data is based on the weighted average number of units of
partnership interest ("Units") of the Simon Operating Partnership outstanding
during the period. As used herein, the term Units does not include Preferred
Units. The weighted average number of Units used in the computation for the
three months ended September 30, 1996 and 1995 was 95,842,853 and 95,196,569,
respectively. The weighted average number of Units used in the computation for
the nine months ended September 30, 1996 and 1995 was 95,783,720 and 91,663,449,
respectively. Additionally, Preferred Units may be converted into common stock
of the Company beginning in October of 1997 at an initial conversion ratio equal
to 0.9524. The Preferred Units outstanding have not been included in the
computations of per Unit data, as they do not have a dilutive effect.
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SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- ACQUISITION
Prior to April 11, 1996, the Simon Operating Partnership held a 50% joint
venture interest in Ross Park Mall in Pittsburgh, Pennsylvania. On April 11,
1996, the Simon Operating Partnership acquired the remaining economic ownership
interest. The purchase price included approximately $44,000 cash and the
assumption of the joint venture partner's share of existing debt ($57,000). The
purchase price in excess of the net assets acquired of $49,015 was allocated to
investment properties. Effective April 11, 1996, the property is being accounted
for using the consolidated method of accounting. It was previously accounted for
using the equity method of accounting.
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
Summary financial information of partnerships and joint ventures accounted
for using the equity method of accounting and a summary of the Simon Operating
Partnership's investment in and share of income (loss) from such partnerships
and joint ventures follow:
PARTNERSHIPS AND JOINT
VENTURES
------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
BALANCE SHEETS
ASSETS:
Investment properties at cost, net....................... $ 1,232,388 $1,156,066
Cash and cash equivalents................................ 36,729 52,624
Tenant receivables....................................... 35,978 35,306
Other assets............................................. 31,650 32,626
---------- ----------
Total assets..................................... $ 1,336,745 $1,276,622
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgage and other notes payable......................... $ 540,606 $ 410,652
Accounts payable, accrued expenses and other
liabilities........................................... 97,056 127,322
---------- ----------
Total liabilities..................................... 637,662 537,974
Partners' equity...................................... 699,083 738,648
---------- ----------
Total liabilities and partners' equity........... $ 1,336,745 $1,276,622
========== ==========
THE SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets..................................... $ 304,383 $ 290,802
========== ==========
PARTNERS' EQUITY:
Investment in partnerships and joint ventures, at
equity................................................ 136,099 $ 113,676
Cash distributions and losses in partnerships and joint
ventures, at equity................................... (16,796) (54,120)
---------- ----------
$ 119,303 $ 59,556
========== ==========
66
128
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
PARTNERSHIPS AND JOINT VENTURES
-------------------------------------
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
----------------- -----------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------- ------- ------- -------
REVENUE:
Minimum rent.......................................... $25,742 $19,755 $79,781 $57,606
Overage rent.......................................... 1,064 548 2,753 1,678
Tenant reimbursements................................. 12,569 10,002 40,082 28,651
Other income.......................................... 1,170 1,757 7,328 11,064
------ ------ ------ ------
Total revenue...................................... 40,545 32,062 129,944 98,999
OPERATING EXPENSES:
Operating expenses and other.......................... 15,934 11,019 48,782 32,456
Depreciation and amortization......................... 9,852 5,310 30,438 15,961
------ ------ ------ ------
Total operating expenses........................... 25,786 16,329 79,220 48,417
------ ------ ------ ------
OPERATING INCOME........................................ 14,759 15,733 50,724 50,582
INTEREST EXPENSE........................................ 8,184 6,648 22,318 21,282
INCOME BEFORE EXTRAORDINARY ITEMS....................... 6,575 9,085 28,406 29,300
EXTRAORDINARY ITEMS..................................... -- (9) -- (9)
------ ------ ------ ------
NET INCOME.............................................. 6,575 9,076 28,406 29,291
THIRD PARTY INVESTORS' SHARE OF NET INCOME.............. 6,615 8,254 25,313 26,060
------ ------ ------ ------
SIMON OPERATING PARTNERSHIP'S SHARE OF NET INCOME....... $ (40) $ 822 $ 3,093 $ 3,231
====== ====== ====== ======
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these agreements are not
always consistent with the ownership interest held by each general or limited
partner or joint venturer, primarily due to partner preferences.
67
129
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Summary financial information of the Management Company accounted for using
the equity method of accounting and a summary of the Simon Operating
Partnership's investment in and share of income from the Management Company
follow:
MANAGEMENT COMPANY
----------------------------
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEETS 1996 1995
------------- ------------
ASSETS:
Current assets......................................... $ 62,874 $ 40,964
Undeveloped land and mortgage notes.................... 18,245 45,769
Other assets........................................... 24,889 13,813
-------- --------
Total assets................................... $ 106,008 $100,546
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities.................................... $ 52,584 $ 18,435
Notes payable and advances due to the Simon Operating
Partnership at 11%, due 2008........................ 71,028 102,522
-------- --------
Total liabilities................................... 123,612 120,957
Shareholders' deficit............................... (17,604) (20,411)
-------- --------
Total liabilities and shareholders' deficit.... $ 106,008 $100,546
======== ========
SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets................................... $ 94,639 $ 80,437
======== ========
Shareholders' deficit.......................... $ (17,304) $(20,612)
======== ========
68
130
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
MANAGEMENT COMPANY
-------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------------- ------------- ------------- -------------
REVENUE:
Management fees................... $ 4,952 $ 4,158 $15,122 $15,113
Development and leasing fees...... 6,480 6,747 10,928 13,140
Cost-sharing income and other..... 1,935 1,706 7,237 5,221
------- ------- ------- -------
Total revenue.................. 13,367 12,611 33,287 33,474
EXPENSES:
Operating expenses................ 7,953 10,747 21,744 24,983
Depreciation...................... 693 579 1,947 1,679
Interest.......................... 1,539 1,999 4,690 5,691
------- ------- ------- -------
Total expenses................. 10,185 13,325 28,381 32,353
------- ------- ------- -------
NET INCOME (LOSS)................... 3,182 (714) 4,906 1,121
INTERCOMPANY PROFITS................ (1,232) -- (1,232) --
------- ------- ------- -------
NET INCOME (LOSS) AFTER INTERCOMPANY
ELIMINATION....................... 1,950 (714) 3,674 1,121
PREFERRED DIVIDENDS................. 350 350 1,050 1,015
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE FOR
COMMON SHAREHOLDERS............... $ 2,832 $(1,064) $ 3,856 $ 106
======= ======= ======= =======
SIMON OPERATING PARTNERSHIP'S SHARE
OF NET INCOME (LOSS).............. $ 1,326 $ (994) $ 2,177 $ (6)
======= ======= ======= =======
The management, development and leasing activities related to the
non-wholly owned and other third-party properties are conducted by the
Management Company.
The Simon Operating Partnership's share of allocated common costs were
$7,524 and $5,685, respectively, for the three-month periods and $21,949 and
$17,704, respectively, for the nine-month periods ended September 30, 1996 and
1995.
NOTE 8 -- DEBT
On February 23, 1996, the Simon Operating Partnership borrowed the initial
$100,000 tranche of a $184,000 two-tranche loan facility for the Forum Shops at
Caesar's ("Forum") and retired the existing $89,701 mortgage debt for Forum. The
initial funding bears interest at LIBOR plus 100 basis points and matures in
February 2000. The remaining proceeds of the initial $100,000 tranche are being
used to provide funds for the approximately 250,000-square-foot phase II
expansion of this property.
On April 11, 1996, the Simon Operating Partnership borrowed an additional
$115,000 on its then existing revolving credit facility. The funds were used
primarily to acquire the remaining economic ownership interest in Ross Park Mall
($44,000), and to retire a portion ($54,000) of the existing debt on Ross Park
Mall.
On June 28, 1996, the Simon Operating Partnership obtained an additional
$200,000 unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points. Terms for the facility were identical to those of
the Simon Operating Partnership's former $400,000 facility.
On September 10, 1996, the Simon Operating Partnership loaned $112 million
to SDG, LP to retire the DRC secured line of credit. The DRC line bore interest
at LIBOR plus 175 basis points.
69
131
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On September 27, 1996, the Company completed a $200,000 public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193,000.
The Company contributed the proceeds of such offering to SDG, LP in exchange for
preferred units in the Operating Partnership, SDG, LP, which used the net
proceeds to repay $142.8 million of outstanding mortgage indebtedness $12.5
million to acquire additional ownership interest in North East Mall and loaned
$34.4 million to the Simon Operating Partnership which used the proceeds to
reduce amounts outstanding under its former unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750,000,
unsecured, three-year credit facility (the "Credit Facility"), which will
initially bear interest at LIBOR plus 90 basis points. The Operating Partnership
borrowed $323 million under this Facility and loaned the proceeds to the Simon
Operating Partnership to retire the outstanding borrowings under its two former
unsecured credit facilities, which bore interest at LIBOR plus 132.5 basis
points.
During the first nine months of 1996, the Simon Operating Partnership drew
an additional $33,246 on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55,645 was
outstanding on the loan.
On September 6, 1996, SDG, LP filed a shelf registration statement with the
Securities and Exchange Commission to provide for the offering, from time to
time, of up to $750,000 aggregate principal amount of unsecured debt securities
of the Operating Partnership. The Operating Partnership is currently preparing
to offer an aggregate of $200,000 in unsecured debt securities for sale to the
public. The proceeds of which will be used primarily to retire mortgage
indebtedness and to paydown the unsecured, revolving credit facility. The Simon
Operating Partnership will guarantee the due and punctual payment of the
principal of, premium, if any, interest on, and any other amounts payable with
respect to the unsecured debt securities. In December 1995 a shelf registration
statement for $500,000 of non-convertible investment grade debt securities of
SPG,LP became effective. As of September 30, 1996, no securities have been
issued from this registration statement.
At September 30, 1996, the Simon Operating Partnership had consolidated
debt of $2,136,651, of which $1,286,966 was fixed-rate debt and $849,685 was
variable-rate debt. As of September 30, 1996 and December 31, 1995, the Simon
Operating Partnership had interest-rate protection agreements related to
$488,958 and $551,196 of variable-rate debt, respectively. The agreements are
generally in effect until the related variable-rate debt matures. As a result of
the various interest rate protection agreements, interest savings were $415 and
$693 for the three months ended September 30, 1996 and 1995, respectively, and
$1,227 and $2,617 for the nine months ended September 30, 1996 and 1995,
respectively. The Simon Operating Partnership's pro rata share of indebtedness
of the unconsolidated joint venture properties as of September 30, 1996 and
December 31, 1995 was $186,823 and $167,644, respectively.
NOTE 9 -- PARTNERS' EQUITY
In connection with the Merger, the general and limited partners of the
Simon Operating Partnership, contributed 49.5% (47,442,212 units) of the total
outstanding units of partnership interest in the Simon Operating Partnership, to
the operating partnership of SDG, L.P. -- the Special Limited Partner in
exchange for 47,442,212 units of partnership interest in SDG, LP. The Company
retained a 50.5% partnership interest (48,400,614 units) in the Simon Operating
Partnership, but assigned its rights to receive distributions of profits on
49.5% (47,442,212 units) of the outstanding units of partnership interest in the
Simon Operating Partnership, to SDG, LP.
70
132
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The following table summarizes the change in the Simon Operating
Partnership's partners' equity since December 31, 1995.
SPECIAL LIMITED GENERAL PARTNER
PARTNERS' INTEREST --------------------------------------------- UNAMORTIZED
-------------------- PREFERRED RESTRICTED
UNITS AMOUNTS UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD
---------- ------- --------- ------- ----------- --------- -----------
Balance at
December 31,
1995... -- -- 4,000,000 $99,923 58,360,195 $(686,362) $(2,687)
Stock
Incentive Program... -- -- -- -- 200,030 4,751 (4,751)
Amortization of
stock incentive... -- -- -- -- -- -- 1,563
Adjustment to
eliminate limited
partners' equity
interest at redemption
value.. -- -- -- -- -- 822,072 --
Adjustment to
allocate net equity
of the Operating
Partnership.. 94,884,424 167,304 -- -- (57,601,796) (103,175) --
Other... -- -- -- -- -- (62) --
distributions... -- -- -- (6,094) -- (66,554) --
Net Income... -- 10,406 -- 6,094 -- 31,125 --
--------- ------- ---------- -------- ---------- ------- -------
Balance
at September 30,
1996... 94,884,424 177,710 4,000,000 $99,923 958,429 $ 1,795 $(5,875)
========= ======= ========== ======== ========== ======= =======
LIMITED PARTNERS
----------------------
TOTAL UNITS AMOUNTS
--------- ----------- --------
Balance at
December 31,
1995... $(589,126) 37,282,628 $908,764
Stock
Incentive Program... -- -- --
Amortization of
stock incentive... 1,563 -- --
Adjustment to
eliminate limited
partners' equity
interest at redemption
value.. 822,072 -- (822,072)
Adjustment to
allocate net equity
of the Operating
Partnership.. 64,129 (37,282,628) (64,129)
Other... (62) -- --
distributions... (72,648) -- (42,372)
Net Income... 47,625 -- 19,809
-------- ----------- ---------
Balance
at September 30,
1996... $ 273,553 -- $ --
========= =========== =========
Because the Simon Operating Partnership does not control whether cash will
be used to settle the limited partners' exchange rights, the limited partners'
equity has not been included in partners' equity. The consolidated condensed
balance sheets reflect the limited partners' interest in the Simon Operating
Partnership measured at redemption value. Accordingly, the accompanying
consolidated condensed balance sheet at December 31, 1995 has been retroactively
reclassified to reflect the limited partners' interest in the Simon Operating
Partnership, measured at redemption value. This reclassification results in a
charge to partners' equity of $908,764 as of December 31, 1995.
In connection with the merger of the Company and DRC which was completed
August 9, 1996, the Simon Operating Partnership agreement was amended
eliminating the exchange rights provision. As a result of the elimination of the
exchange right provision in connection with the Merger transaction, effective
August 9, 1996, the limited partners' interest, now special limited partner
interest in the Simon Operating Partnership, in the Simon Operating Partnership
have been reflected as partners' equity.
STOCK INCENTIVE PROGRAM
On March 22, 1995, an aggregate of 1,000,000 shares of restricted stock was
awarded to 50 executives, subject to the performance standards and other terms
of the Stock Incentive Program. On March 22, 1995 and 1996 the board of
directors of the Company approved the issuances of 144,196 and 200,030 shares of
common stock of the Company, respectively, to the eligible executives. The value
of these shares is being amortized pro-rata over the respective four-year
vesting period. Approximately $1,042 and $525 have been amortized for the
nine-month periods ended September 30, 1996 and 1995, respectively.
71
133
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simon Property Group, Inc.:
We have audited the accompanying consolidated balance sheets of SIMON PROPERTY
GROUP, L.P. (a Delaware limited partnership) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, partners'
equity and cash flows for the years ended December 31, 1995 and 1994, and for
the period from inception of operations (December 20, 1993) to December 31, 1993
and the combined statements of operations, owners' deficit and cash flows of
SIMON PROPERTY GROUP (the Predecessor) for the period from January 1, 1993 to
December 19, 1993. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Simon Property
Group, L.P. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1995 and 1994, and for the period from inception of
operations (December 20, 1993) to December 31, 1993, and the combined results of
operations and cash flows of the Predecessor for the period from January 1, 1993
to December 19, 1993, in conformity with generally accepted accounting
principles.
As explained in Note 12 to the financial statements, Simon Property Group, L.P.
has given retroactive effect to reclassify the limited partners' interest in
Simon Property Group, L.P.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
November 13, 1996
72
134
BALANCE SHEETS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------
1995 1994
----------- -----------
ASSETS:
Investment properties, at cost.................................... $2,162,161 $1,900,027
Less -- accumulated depreciation.................................. 152,817 70,916
---------- ----------
2,009,344 1,829,111
Cash and cash equivalents......................................... 62,721 105,139
Tenant receivables and accrued revenue, net....................... 144,400 146,555
Notes receivable and advances due from Management Company......... 102,522 75,405
Investment in partnerships and joint ventures, at equity.......... 117,332 39,632
Deferred costs, net............................................... 81,398 85,878
Other assets...................................................... 30,985 27,174
Minority interest................................................. 7,734 7,966
---------- ----------
Total assets.............................................. $2,556,436 $2,316,860
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgages and other notes payable................................. $1,980,759 $1,938,091
Accounts payable and accrued expenses............................. 113,131 102,750
Accrued distributions............................................. 48,594 40,807
Cash distributions and losses in partnerships and joint ventures,
at equity...................................................... 54,120 96,696
Investment in Management Company.................................. 20,612 16,875
Other liabilities................................................. 19,582 19,948
---------- ----------
Total liabilities.............................................. 2,236,798 2,215,167
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 15 )
LIMITED PARTNERS' EQUITY INTEREST, 37,282,628 and 37,497,150 units
outstanding, respectively, at redemption value (Note 12).......... 908,764 909,306
---------- ----------
PARTNERS' EQUITY:
Preferred units, 4,000,000 authorized, issued and outstanding..... 99,923 --
General Partner, 58,360,195 and 48,412,445 units outstanding,
respectively................................................... 135,710 57,307
Adjustment to reflect Limited Partners' equity interest at
redemption value (Note 12)..................................... (822,072) (864,920)
Unamortized restricted stock award................................ (2,687) --
---------- ----------
Total partners' equity (deficit)............................... (589,126) (807,613)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit).............................. $2,556,436 $2,316,860
========== ==========
The accompanying notes are an integral part of these statements.
73
135
STATEMENTS OF OPERATIONS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
SIMON PROPERTY SIMON
GROUP, L.P. PROPERTY
--------------------------------------- GROUP
-----------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD
ENDED DECEMBER 31, FROM DECEMBER 20, FROM JANUARY 1,
------------------- 1993 TO 1993 TO
1995 1994 DECEMBER 31, 1993 DECEMBER 19, 1993
-------- -------- ----------------- -----------------
REVENUE:
Minimum rent............................................ $307,849 $255,721 $ 9,041 $ 218,492
Overage rent............................................ 23,278 25,463 638 19,442
Tenant reimbursements................................... 191,535 162,706 4,800 145,484
Other income............................................ 30,995 29,786 3,945 22,451
-------- -------- -------- --------
Total revenue......................................... 553,657 473,676 18,424 405,869
-------- -------- -------- --------
EXPENSES:
Property operating...................................... 102,624 91,792 1,781 96,682
Depreciation and amortization........................... 92,739 75,945 2,051 60,243
Real estate taxes....................................... 53,766 44,403 1,335 39,333
Repairs and maintenance................................. 27,633 23,430 447 20,722
Advertising and promotion............................... 13,519 12,633 336 9,868
Provision for credit losses............................. 2,939 4,238 -- 3,741
Other................................................... 9,301 6,937 196 5,455
-------- -------- -------- --------
Total operating expenses.............................. 302,521 259,378 6,146 236,044
-------- -------- -------- --------
OPERATING INCOME.......................................... 251,136 214,298 12,278 169,825
INTEREST EXPENSE.......................................... 150,224 122,980 3,548 156,909
NON-RECURRING INTEREST EXPENSE............................ -- 27,184 -- --
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST........................... 100,912 64,134 8,730 12,916
MINORITY INTEREST......................................... (2,681) (3,759) (58) (3,558)
GAIN ON SALE OF ASSETS, NET............................... 1,871 -- -- --
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES..................... 100,102 60,375 8,672 9,358
INCOME (LOSS) FROM UNCONSOLIDATED ENTITIES................ 1,403 (67) 35 (2,446)
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS......................... 101,505 60,308 8,707 6,912
EXTRAORDINARY ITEMS....................................... (3,285) (17,980) (30,481) 26,189
-------- -------- -------- --------
NET INCOME (LOSS)......................................... 98,220 42,328 (21,774) 33,101
PREFERRED UNIT REQUIREMENT................................ 1,490 -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO UNITHOLDERS................ $ 96,730 $ 42,328 $ (21,774) $ 33,101
======== ======== ======== ========
NET INCOME (LOSS) AVAILABLE TO UNITHOLDERS ATTRIBUTABLE
TO:
General Partner......................................... $ 57,781 $ 23,377 $ (11,366)
Limited Partners........................................ 38,949 18,951 (10,408)
-------- -------- --------
$ 96,730 $ 42,328 $ (21,774)
======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items..................... $ 1.08 $ 0.71 $ 0.11
Extraordinary items................................... (0.04) (0.21) (0.39)
-------- -------- --------
Net income (loss)..................................... $ 1.04 $ 0.50 $ (0.28)
======== ======== ========
The accompanying notes are an integral part of these statements.
74
136
STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND OWNERS' DEFICIT
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS)
SIMON PROPERTY GROUP
Owners' deficit, December 31, 1992........................................................ $ (565,566)
Contributions............................................................................. 13,913
Distributions............................................................................. (170,877)
Net income................................................................................ 33,101
---------
Owners' deficit, December 19, 1993........................................................ $ (689,429)
=========
- --------------------------------------------------------------------------------
PREFERRED UNITS GENERAL PARTNER UNAMORTIZED LIMITED PARTNER
-------------------- ---------------------- RESTRICTED ----------------------
UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD TOTAL UNITS AMOUNTS
---------- ------- ---------- --------- ----------- --------- ---------- ---------
SIMON PROPERTY GROUP, L.P.
Balance at inception........... -- $ -- -- $ -- $ -- $ -- -- $ --
Limited Partners'
contributions................ -- -- -- -- -- -- 37,497,150 (689,429)
General Partner
contributions................ -- -- 40,950,000 767,756 -- 767,756 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (726,869) -- (726,869) -- 726,869
Adjustment to reflect limited
partners' equity interest at
Redemption Value (Note 12)... -- -- -- (821,341) -- (821,341) -- 821,341
Net loss, inception of
operations (December 20,
1993) to December 31, 1993... -- -- -- (11,366) -- (11,366) -- (10,408)
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1993... -- -- 40,950,000 $(791,820) $ -- $(791,820) 37,497,150 $ 848,373
--------- ------- ---------- --------- ------- --------- ---------- ---------
General Partner
contributions................ -- -- 7,462,445 164,334 -- 164,334 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (69,650) -- (69,650) -- 69,650
Adjustment to reflect limited
partners' equity interest at
redemption value (Note 12)... -- -- -- (43,579) -- (43,579) -- 43,579
Distributions.................. -- -- -- (90,275) -- (90,275) -- (71,247)
Net income..................... -- -- -- 23,377 -- 23,377 -- 18,951
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1994... -- $ -- 48,412,445 $(807,613) $ -- $(807,613) 37,497,150 $ 909,306
--------- ------- ---------- --------- ------- --------- ---------- ---------
Preferred unit contributions,
net.......................... 4,000,000 99,923 -- -- -- 99,923 -- --
General Partner
contributions................ -- -- 9,470,977 216,545 -- 216,545 -- --
Limited Partners'
contributions................ -- -- -- -- -- -- 120,000 (16,869)
Acquisition of Limited
Partners' interest and
other........................ -- -- 333,462 5,036 -- 5,036 (334,522) (301)
Stock incentive program........ -- -- 143,311 3,608 (3,605) 3 -- --
Amortization of stock incentive
program...................... -- -- -- -- 918 918 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (94,035) -- (94,035) -- 94,035
Adjustment to reflect limited
partners' equity interest at
redemption value (Note 12)... -- -- -- 42,848 -- 42,848 -- (42,848)
Distributions.................. -- -- -- (110,532) -- 110,532 -- (73,508)
Net income..................... -- -- -- 57,781 -- 57,781 -- 38,949
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1995... 4,000,000 $99,923 58,360,195 $(686,362) $(2,687) $(589,126) 37,282,628 $ 908,764
========= ======= ========== ========= ======= ========= ========== =========
The accompanying notes are an integral part of these statements.
75
137
STATEMENTS OF CASH FLOWS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS)
SIMON PROPERTY
GROUP, L.P. SIMON PROPERTY
------------------------------------------ GROUP
-----------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD
ENDED DECEMBER 31, FROM DECEMBER 20, FROM JANUARY 1,
--------------------- 1993 TO 1993 TO
1995 1994 DECEMBER 31, 1993 DECEMBER 19, 1993
--------- --------- ------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 98,220 $ 42,328 $ (21,774) $ 33,101
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization........................ 101,262 83,196 2,139 64,160
(Gain) loss on extinguishments of debt............... 3,285 17,980 30,481 (26,189)
Gain on sale of assets, net.......................... (1,871) -- -- (8,885)
Straight-line rent................................... (1,126) (4,326) (159) (4,721)
Minority interest.................................... 2,681 3,759 58 3,558
Equity in income of unconsolidated entities.......... (1,403) 67 (35) 2,446
Changes in assets and liabilities --
Tenant receivables and accrued revenue............... 5,502 (3,908) (6,323) 6,187
Deferred costs and other assets...................... (14,290) 1,099 (16,351) (22,096)
Accounts payable, accrued expenses and other
liabilities........................................ 2,076 (12,172) 18,993 9,630
--------- --------- --------- ---------
Net cash provided by operating activities............ 194,336 128,023 7,029 57,191
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions........................................... (32,547) (227,312) (225,894) --
Capital expenditures................................... (98,220) (42,765) -- (46,677)
Cash of consolidated joint ventures.................... 4,346 8,924 -- --
Proceeds from sale of assets........................... 2,550 -- -- 12,218
Investments in unconsolidated entities................. (77,905) (1,056) -- (1,508)
Distributions from unconsolidated entities............. 6,214 5,842 -- 46,119
Investments in and advances to Management Company...... (27,117) (10,405) (3,500) --
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities......................................... (222,679) (266,772) (229,394) 10,152
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority interest contributions........................ -- -- -- 1,937
Minority interest distributions........................ (3,680) (2,148) -- (44,165)
Partnership contributions.............................. 242,377 106,773 767,756 12,406
Partnership distributions.............................. (177,726) (120,711) -- (137,126)
Mortgage and other note proceeds, net of transaction
costs................................................ 456,520 405,430 259,000 148,687
Mortgage and other note principal payments............. (531,566) (256,081) (588,876) (74,943)
Due (to) from affiliates and other repayments.......... -- -- (144,298) 22,587
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities......................................... (14,075) 133,263 293,582 (70,617)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (42,418) (5,486) 71,217 (3,274)
CASH AND CASH EQUIVALENTS, beginning of period........... 105,139 110,625 39,408 42,682
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 62,721 $ 105,139 $ 110,625 $ 39,408
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
76
138
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
1. ORGANIZATION
Simon Property Group, L.P. (the "Simon Operating Partnership") was formed
as a Delaware limited partnership in 1993 in connection with Simon Property
Group, Inc.'s (the "Company") initial public offering (the "IPO"). On December
20, 1993, the Company raised $767,756 in net proceeds through the Company's IPO
and debt of $259,000 was issued in a concurrent private financing transaction.
The proceeds were contributed to the Simon Operating Partnership in exchange for
40,950,000 units of partnership interest ("Units") representing a 52.2%
partnership interest. As the sole general partner of the Simon Operating
Partnership, the Company has full, exclusive and complete responsibility and
discretion in the management and control of the Simon Operating Partnership. The
Simon Operating Partnership was formed prior to consummation of the Company's
IPO and is the successor entity to Simon Property Group (the "Predecessor").
Simultaneously with the offering, Melvin Simon and Herbert Simon and
certain of their affiliates (collectively, the "Simons"), along with certain
third-party investors' interests (collectively, "Simon Property Group"),
exchanged, directly or indirectly, fee and partnership interests in certain
properties and the management, development and leasing activities related to the
properties for limited partnership interests in the Simon Operating Partnership.
The Simon Operating Partnership also acquired certain third-party investors'
interests in Simon Property Group properties for cash (collectively, the
"Business Combination"). Purchase accounting was applied to the acquisition of
all third-party investors' interests for which cash consideration was paid.
Assets and liabilities related to interests acquired from the Simons and all
third-party investors receiving Units were recorded at their predecessor cost.
As used herein, the term Units does not include units of partnership
interests entitled to preferential distribution of cash ("Preferred Units") (See
Note 3).
The Simon Operating Partnership is engaged primarily in the ownership,
operation, management, leasing, acquisition, expansion and development of real
estate properties, primarily regional malls and community shopping centers. As
of December 31, 1995, the Simon Operating Partnership owns or holds an interest
in 122 income-producing properties, which consist of 62 regional malls, 55
community shopping centers, two specialty retail centers and three mixed-use
properties (the "Properties"). The Simon Operating Partnership also owns
interests in two regional malls and one specialty retail center currently under
construction and seven parcels of land held for future development.
The Simon Operating Partnership is subject to risks incident to the
ownership and operation of commercial real estate. These include, among others,
the risks normally associated with changes in the general economic climate,
trends in the retail industry, creditworthiness of tenants, competition for
tenants, changes in tax laws, interest rate levels, the availability of
financing, and potential liability under environmental and other laws. Like most
retail properties, the Simon Operating Partnership's regional malls and
community shopping centers rely heavily upon anchor tenants. As of December 31,
1995, 126 of the approximately 396 anchor stores in the Properties were occupied
by JCPenney, Inc., Sears Roebuck & Co. and Dillard Department Stores, Inc. An
affiliate of JCPenney, Inc. is a limited partner in the Simon Operating
Partnership.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Simon Operating
Partnership include the accounts of all entities owned or controlled by the
Simon Operating Partnership. All significant intercompany amounts have been
eliminated. These financial statements have been prepared in accordance with
generally accepted accounting principles, and accordingly contain certain
estimates by management in determining the Simon Operating Partnership's assets,
liabilities, revenues and expenses.
77
139
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying financial statements of the Predecessor have been
presented on a combined historical cost basis because of the affiliated
ownership and common management and because the related Properties were
contributed to the Simon Operating Partnership as a part of the Business
Combination described above. The Simons have operations which were not
contributed to the Simon Operating Partnership and, therefore, the financial
statements are not intended to represent the financial position and results of
operations of the Simons. In management's opinion, the combined financial
statements include the assets, liabilities, revenues and expenses associated
with the operations of the Properties transferred to the Simon Operating
Partnership. Minority interests were provided in the accompanying combined
financial statements for those partners' interests which were not exchanged for
Units or which were purchased for cash in connection with the Business
Combination.
Properties which are wholly owned ("Wholly Owned Properties") or owned less
than 100% and are controlled by the Simon Operating Partnership ("Minority
Interest Properties") have been consolidated. Control is demonstrated by the
ability of the general partner to manage day-to-day operations, refinance debt
and sell the assets of the partnership without the consent of the limited
partner and the inability of the limited partner to replace the general partner.
Investments in partnerships and joint ventures which represent non-controlling
14.7% to 50.0% ownership interests ("Joint Venture Properties") and the
investment in the Management Company (see Note 8) are accounted for using the
equity method of accounting. These investments are recorded initially at cost
and subsequently adjusted for net equity in income (loss) and cash contributions
and distributions.
Effective April 1, 1994, the Simon Operating Partnership demonstrated its
ability to control the operating activities of The Forum Shops at Caesars
("Forum"). Subsequent to April 1, 1994, Forum is included in the accompanying
financial statements using the consolidated method of accounting. Prior to the
demonstration of control, Forum was reflected in the accompanying financial
statements using the equity method of accounting.
Effective July 1, 1995, the Simon Operating Partnership relinquished its
ability to solely direct certain activities related to the control of North East
Mall. As a result, the Property is no longer being consolidated, and is now
accounted for using the equity method of accounting.
Net operating results of the Simon Operating Partnership are allocated
after the preferred distribution (see Note 3) based on its partners' ownership
interests. The Company's weighted average ownership interest in the Simon
Operating Partnership during 1995 and 1994 was 60.3% and 55.2%, respectively. At
December 31, 1995 and 1994, the Company's ownership interest was 61.0% and
56.4%, respectively.
78
140
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule identifies each Property included in the
accompanying consolidated financial statements and the method of accounting
utilized for each Property as of December 31, 1995:
CONSOLIDATED METHOD:
Regional Malls
Alton Square Greenwood Park Mall North Towne Square
Amigoland Mall Heritage Park Mall Northwoods Mall
Anderson Mall Hutchinson Mall Orange Park Mall
Barton Creek Square Independence Center Prien Lake Mall
Battlefield Mall Ingram Park Mall St. Charles Towne Center
Broadway Square Irving Mall South Park Mall
Century Consumer Mall Jefferson Valley Mall Southgate Mall
Charles Towne Square LaPlaza Mall Southtown Mall
Cielo Vista Mall Lincolnwood Town Center Sunland Park Mall
College Mall Longview Mall Tippecanoe Mall
Crossroads Mall Machesney Park Mall Towne East Square
East Towne Mall Markland Mall Towne West Square
Eastgate Consumer Mall McCain Mall University Mall (Arkansas)
Eastland Mall Memorial Mall University Mall (Florida)
Forest Mall Midland Park Mall Valle Vista Mall
Forest Village Park Mall Miller Hill Mall West Ridge Mall
Fremont Mall Mounds Mall White Oaks Mall
Golden Ring Mall Muncie Mall Wichita Mall
Windsor Park Mall
Community Centers
Arvada Plaza Fox River Plaza Mounds Mall Cinema
Aurora Plaza Greenwood Plus New Castle Plaza
Bloomingdale Court Griffith Park Plaza North Ridge Plaza
Bridgeview Court Hammond Square North Riverside Park Plaza
Brightwood Plaza Ingram Plaza Northland Plaza
Bristol Plaza Lake Plaza Northwood Plaza
Buffalo Grove Towne Center Lake View Plaza Park Plaza
Celina Plaza Lincoln Crossing Regency Plaza
Cohoes Commons Maplewood Square St. Charles Towne Plaza
Cook's Discount Department Store Markland Plaza Teal Plaza
Countryside Plaza Martinsville Plaza Tippecanoe Plaza
East Towne Commons Marwood Plaza Wabash Village
Eastland Plaza Matteson Plaza West Ridge Plaza
Forest Plaza Memorial Plaza White Oaks Plaza
Wood Plaza
Specialty Retail Centers Mixed-Use Properties
The Forum Shops at Caesars O'Hare International Center
Trolley Square Riverway
79
141
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY METHOD:
Regional Malls Community Centers Mixed-Use Property
Circle Centre Cobblestone Court The Fashion Centre at Pentagon City
Lakeline Mall Crystal Court
North East Mall Fairfax Court
Rolling Oaks Mall Gaitway Plaza
Ross Park Mall Ridgewood Court
Seminole Towne Center Royal Eagle Plaza
Smith Haven Mall The Plaza at Buckland Hills
The Yards Plaza
Village Park Plaza
West Town Corners
Westland Park Plaza
Willow Knolls Court
The deficit minority interest balance in the accompanying Consolidated
Balance Sheets represents outside partners' interests in the net equity of
certain investment properties. Deficit minority interests were recorded when a
partnership agreement provided for the settlement of deficit capital accounts
before distributing the proceeds from the sale of partnership assets and/or from
the intent (legal or otherwise) and ability of the partner to fund additional
capital contributions.
3. FORMATION AND SIGNIFICANT OWNERSHIP TRANSACTIONS
On December 20, 1993, the Company completed the Business Combination and
the IPO of 37,750,000 shares of its common stock. The net proceeds of the
offering ($767,756) and a concurrent borrowing of $259,000 were used to acquire
the sole general partner's interest in the Simon Operating Partnership.
Proceeds from the offering and concurrent borrowing were used by the Simon
Operating Partnership as follows:
1. To pay $727,905 of mortgage and other indebtedness of the
Properties, including $144,298 of loans made by the Simons in lieu of
third-party financings.
2. To pay costs related to significant modification of debt terms and
prepayment penalties related to the early extinguishment of debt of
$40,512. An extraordinary loss of $30,481 was generated during the period
from December 20, 1993 to December 31, 1993 relating to the early
extinguishment of debt.
3. To purchase certain interest-rate protection agreements totaling
$4,687.
4. To acquire certain third-party investors' interest in the
Properties for $135,894.
5. To invest $19,500 in the Management Company, of which $16,000 was
used to repay debt. The debt repayment is included in item 1 above.
6. To acquire fee and partnership interests in twelve parcels of
undeveloped land and two mortgage notes related to two parcels of
undeveloped land for $90,000, of which $37,009 was paid to the Simons to
repay loans made by the Simons related to the parcels in lieu of
third-party financing. Certain parcels of undeveloped land and two mortgage
notes were transferred to the Management Company in exchange for a $48,000
note receivable.
7. To pay transfer taxes and other expenses associated with the
transfer of the Properties ($5,200) and the purchase of ground leases
($1,116).
8. To acquire certain property equipment for $2,861 and to pay
organization costs of $1,785.
80
142
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. To establish $13,296 of working capital.
On January 14, 1994, the Company sold an additional 5,662,500 shares of
common stock, generating net proceeds of $118,235 as a result of the
underwriters' exercising the over-allotment option granted to them in connection
with the IPO. The net proceeds were contributed to the Simon Operating
Partnership in exchange for 5,662,500 Units and the Company's ownership of the
Simon Operating Partnership by 3.2% to 55.4%. The majority of the proceeds were
added to operating cash with a portion ($40,900) used to repay debt (including
related costs).
On January 31, 1995, the Company filed a shelf registration with the
Securities and Exchange Commission covering 15,000,000 shares of common stock of
the Company. On April 19, 1995, 6,000,000 of these shares were sold in an
underwritten offering. On May 17, 1995, the underwriters closed on a portion
(241,854 shares) of the over-allotment option granted them in connection with
the above offering. Proceeds from these transactions were contributed to the
Simon Operating Partnership in exchange for 6,241,854 Units and subsequently
used to repay debt. These transactions increased the Company's ownership of the
Simon Operating Partnership 2.8% to 60.5%.
On February 10, 1995, one of the limited partners in the Simon Operating
Partnership exchanged 212,114 Units for 212,114 shares of common stock of the
Company. The issuance of the additional shares increased the Company's ownership
of the Simon Operating Partnership by 0.2% to 56.6%.
On July 31, 1995, the Company filed a shelf registration statement that
became effective October 17, 1995 for 4,205,438 shares of common stock of the
Company. The shares relate to the shares issuable upon conversion of Units held
by existing limited partners of the Simon Operating Partnership (3,005,438
shares) and to the 1,200,000 shares of common stock issued in connection with
the Crossroads Mall transaction.
On October 27, 1995, the Company completed a $100,000 private placement of
4,000,000 shares of Series A preferred stock. Dividends on the preferred stock
are paid quarterly at the greater of 8.125% per annum or the dividend rate
payable under the underlying common stock of the Company. The holders of the
preferred stock have the right to convert the preferred stock into common stock
after two years at an initial conversion ratio equal to 0.9524. The Company may
redeem the preferred stock after five years upon payment of premiums that
decline to $25.00 per share over the following seven years. The holders of the
preferred stock are entitled to vote on all matters submitted to a vote of
holders of common stock of the Company, based on the number of shares of common
stock into which the preferred stock can be converted. The Company contributed
the proceeds of the private placement to the Simon Operating Partnership in
exchange for 4,000,000 Preferred Units. The Simon Operating Partnership will pay
preferred distributions to the Company equal to the dividends paid on the
preferred stock.
On December 21, 1995, one of the limited partners in the Simon Operating
Partnership exchanged 121,348 Units for 121,348 shares of common stock of the
Company. The issuance of the additional shares increased the Company's ownership
of the Simon Operating Partnership by 0.1% to 61.0%.
4. ACQUISITIONS AND REAL ESTATE INVESTMENT ACTIVITY
MSA Realty Corporation ("MSAR")
On September 1, 1994, the Company issued an additional 1,799,945 shares of
common stock in conjunction with the merger of MSAR. Each outstanding share of
MSAR common stock as of August 31, 1994 was converted into 0.31 shares of the
Company's common stock. The acquisition price, including related transaction
costs, was $48,031. The Company's investment in MSAR was contributed to the
Simon Operating Partnership for 1,799,945 Units, which increased the Company's
ownership of the Simon Operating Partnership by 1.0% to 56.4%. As a result of
the acquisition, the Simon Operating Partnership now owns 100% of fourteen
centers in which it previously held a 50% interest and substantially all of the
ownership interest in
81
143
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
one community shopping center in which it held a minority interest. In addition,
the Simon Operating Partnership obtained a non-controlling 50% interest in a
regional mall. The MSAR transaction was accounted for using the purchase method
of accounting. The purchase price in excess of the net assets acquired of
$26,507 was allocated to investment properties. The Simon Operating
Partnership's interest in the assets and liabilities of these centers prior to
this transaction is reflected at predecessor cost. Subsequent to September 1,
1994, each of the Properties involved in this merger was accounted for using the
consolidated method of accounting.
Simultaneous with the merger, a debt restructuring with Metropolitan Life
Insurance Company related to the fourteen centers was completed resulting in the
repayment of approximately $45,000 of loan principal and discharging the
mortgages on four of the centers. In addition, the interest rate was reduced
from 9.98% to 8.75% on the remaining debt of approximately $145,000. A
prepayment penalty of $5,000 was incurred in conjunction with this activity and
has been classified as an extraordinary item in the Consolidated Statements of
Operations.
Independence Center
On December 1, 1994, the Simon Operating Partnership acquired Independence
Center in Independence, Missouri. Included in the purchase are approximately 47
acres of undeveloped land adjacent to the mall. Under the terms of the sale, the
Simon Operating Partnership paid $51,413 including transaction costs, funded
through the use of the Simon Operating Partnership's credit facilities.
Broadway Square, Orange Park Mall and University Mall
On December 29, 1994, the Simon Operating Partnership acquired Broadway
Square in Tyler, Texas; Orange Park Mall in Jacksonville, Florida; and
University Mall in Pensacola, Florida. Under the terms of the sale, the Simon
Operating Partnership paid $153,874, including transaction costs, funded through
the use of the Simon Operating Partnership's credit facilities. Included in the
purchase price were approximately 14 acres and 10 acres of undeveloped land
adjacent to Orange Park Mall and University Mall, respectively.
White Oaks Mall
At the time of the IPO, the Teacher's Retirement System of the State of
Illinois ("TRS") held an option to put its 50% general and limited partnership
interests in White Oaks Mall in Springfield, Illinois, to the Simon Operating
Partnership. TRS exercised this option on January 23, 1995, and the purchase
closed February 23, 1995. The Units which TRS received upon exercise of the
options were exchanged for 2,022,247 shares of common stock of the Company. The
Simon Operating Partnership now owns 77% of White Oaks Mall. The issuance of the
additional shares increased the Company's ownership interest in the Simon
Operating Partnership by 1.0% to 57.6%. The White Oaks Mall transaction, valued
at $45,000, was accounted for using the purchase method of accounting. The
purchase price in excess of the net assets acquired of $10,905 was allocated to
investment properties. The Simon Operating Partnership's interest in the assets
and liabilities of this Property prior to this transaction is reflected at
predecessor cost. Effective February 23, 1995, White Oaks Mall was being
accounted for in the accompanying consolidated financial statements using the
consolidated method of accounting. It was previously accounted for using the
equity method of accounting.
Crossroads Mall
Prior to July 31, 1995, the Simon Operating Partnership held a 50% joint
venture interest in Crossroads Mall in Omaha, Nebraska. On July 31, 1995, the
Simon Operating Partnership acquired the remaining 50% ownership in the Property
from the Simons in exchange for 120,000 Units. The acquisition was reflected at
predecessor cost. Concurrent with the acquisition, a debt restructuring was
completed which included the issuance of 1,200,000 shares of common stock of the
Company to the lender (New York State Teachers'
82
144
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retirement System) in exchange for a $30,000 reduction of the outstanding loan
balance which included accrued interest. In addition, the effective interest
rate on the remaining balance of $41,400 was reduced from 10.5% to 7.75%. As a
result of this transaction, the Simon Operating Partnership issued 1,200,000
Units to the Company. As a result of these transactions, the Company's ownership
interest in the Simon Operating Partnership increased by 0.4% to 60.9%. The loan
matures on July 31, 2002. Effective July 31, 1995, Crossroads Mall was included
in the accompanying consolidated financial statements using the consolidated
method of accounting. It was previously accounted for using the equity method of
accounting.
The Shops at Sunset Place
On August 15, 1995, the Simon Operating Partnership acquired for $11,406, a
controlling 75% joint venture interest in The Shops at Sunset Place in South
Miami, Florida. The joint venture is formulating plans to redevelop the site
into a specialty retail center. The acquisition was financed using borrowings
from the Simon Operating Partnership's unsecured revolving credit facility. This
site is included in the accompanying consolidated financial statements using the
consolidated method of accounting.
East Towne Mall
Prior to September 25, 1995, the Simon Operating Partnership held a 45.0%
joint venture interest in East Towne Mall in Knoxville, Tennessee. On September
25, 1995, the Simon Operating Partnership acquired the remaining interest for
$18,500 and the assumption of 55% of the $75,000 of existing mortgage debt. In
connection with the transaction, the Simon Operating Partnership refinanced the
$75,000 mortgage. These transactions were funded through a new loan of $55,000
and $38,500 in borrowings from the Simon Operating Partnership's unsecured
revolving credit facility. The transaction was accounted for using the purchase
method of accounting. The purchase price in excess of the net assets acquired of
$21,982 was allocated to investment properties. Effective September 25, 1995,
East Towne Mall was included in the accompanying consolidated financial
statements using the consolidated method of accounting. It was previously
accounted for using the equity method of accounting.
The Source
On December 22, 1995, a joint venture, in which the Simon Operating
Partnership has a non-controlling 50% joint venture interest, acquired a
development project located in Westbury (Long Island), New York, for $30,253.
This acquisition was financed using borrowings from the Simon Operating
Partnership's unsecured revolving credit facility. The joint venture will
develop a 730,000-square-foot value-oriented retail center, which commenced
construction in February 1996 and is expected to open in the fall of 1997. This
joint venture is being accounted for using the equity method of accounting.
Smith Haven Mall
On December 28, 1995, a joint venture in which the Simon Operating
Partnership owns a non-controlling 25% interest, purchased Smith Haven Mall, a
1.3 million square-foot regional mall located in Lake Grove (Long Island), New
York, for $221,000. The Simon Operating Partnership's share of the purchase
price ($55,725) was financed using borrowings from the Simon Operating
Partnership's unsecured revolving credit facility. This joint venture is being
accounted for using the equity method of accounting.
Mills Developments
On December 29, 1995, the Simon Operating Partnership entered into
arrangements with The Mills Corporation to develop value-oriented regional malls
in Ontario (Los Angeles), California; Grapevine (Dallas), Texas; and Chandler
(Phoenix), Arizona. The Ontario, California project consists of a 1.4 million
square-foot regional mall under construction and is expected to open in the fall
of 1996. The remaining sites
83
145
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are in the preconstruction stages of development. These projects are being
accounted for using the equity method of accounting.
Arborland Mall
Effective September 30, 1995, the Simon Operating Partnership sold its 1%
ownership in Arborland Mall to its existing partner. Arborland was accounted for
using the equity method of accounting.
Pro Forma
The following unaudited pro forma summary financial information combines
the consolidated results of operations of the Simon Operating Partnership as if
the IPO and Business Combination (excluding the over-allotment option), the
acquisitions of MSAR, Independence Center, Broadway Square, Orange Park Mall,
University Mall, White Oaks Mall, Crossroads Mall, East Towne Mall, and Smith
Haven Mall, the consolidation of Forum, the deconsolidation of North East Mall,
and the add-on offering of common stock had occurred as of January 1, 1995, 1994
and 1993, after giving effect to certain adjustments, including interest and
related expenses associated with debt incurred to finance the acquisitions,
depreciation expense related to the Properties acquired, general and
administrative costs to manage the Properties acquired and the additional
contingent interest paid of $27,184 in connection with the refinancing of one of
the Properties as described in Note 9. Preparation of the pro forma summary
information was based upon assumptions deemed appropriate by the Simon Operating
Partnership. The pro forma summary information is not necessarily indicative of
the results which actually would have occurred if the transactions discussed
above had been consummated at the beginning of the periods presented, nor does
it purport to represent the future financial position and results of operations
for future periods.
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
Total Revenue.......................................... $ 565,706 $ 555,152 $ 531,657
========== ========== ==========
Net income available to Unitholders.................... 102,648 95,488 68,409
========== ========== ==========
Net Income available to Unitholders attributed to:
General Partner........................................ 62,513 57,789 39,746
========== ========== ==========
Limited Partners....................................... 40,135 37,699 28,663
========== ========== ==========
Net income per Unit.................................... $ 1.07 $ 1.00 $ 0.76
========== ========== ==========
Weighted average number of Units outstanding........... 95,609,354 95,272,018 89,831,696
========== ========== ==========
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Properties
Investment operating Properties are recorded at the lower of cost
(Predecessor cost for Properties acquired from promoters in connection with the
Business Combination) or net realizable value. Net realizable value of
investment properties for financial reporting purposes is reviewed for
impairment on a Property-by-Property basis whenever events or changes in
circumstances indicate that the carrying amount of investment properties may not
be recoverable. Impairment of investment properties is recognized when estimated
undiscounted operating income is less than the carrying value of the Property.
To the extent an impairment has occurred, the excess of carrying value of the
Property over its estimated net realizable value will be charged to income. The
Simon Operating Partnership will adopt SFAS No. 121 (Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of) on January 1,
1996, and believes that the adoption will not have a material impact upon its
financial statements. Investment properties include costs of
84
146
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
acquisition, development, construction, tenant improvements, interest and real
estate taxes incurred during construction, certain capitalized improvements and
replacements, and certain allocated overhead.
Depreciation on buildings and improvements is provided utilizing the
straight-line method over an estimated original useful life of 10 to 45 years,
resulting in an average composite life of approximately 30 years. Depreciation
on tenant improvements is provided utilizing the straight-line method over the
life of the related lease.
Certain improvements and replacements are capitalized when they extend the
useful life, increase capacity, or improve the efficiency of the asset. All
other repair and maintenance items are expensed as incurred.
Capitalized Interest
Interest is capitalized on projects during periods of construction.
Interest capitalized by the Simon Operating Partnership for the years ended
December 31, 1995 and 1994 was $1,515 and $1,586 respectively; for the period
from December 20, 1993 to December 31, 1993, capitalized interest was not
significant. Interest capitalized by the Predecessor for the period from January
1, 1993 to December 19, 1993 was $86.
Deferred Costs
Deferred costs consist primarily of financing fees incurred to obtain
long-term financing, costs of interest-rate protection agreements, and internal
and external leasing commissions and related costs. Deferred financing costs,
including interest-rate protection agreements, are amortized on a straight-line
basis over the terms of the respective loans or agreements. Deferred leasing
costs are amortized on a straight-line basis over the terms of the related
leases. At December 31, 1995 and 1994, deferred costs consisted of the
following:
DECEMBER 31,
---------------------
1995 1994
-------- --------
Deferred financing costs....................................... $ 68,042 $ 60,568
Leasing costs and other........................................ 88,094 88,467
-------- --------
156,136 149,035
Less-accumulated amortization.................................. 74,738 63,157
-------- --------
Deferred costs, net.................................. $ 81,398 $ 85,878
======== ========
Included in interest expense in the accompanying Consolidated Statements of
Operations of the Simon Operating Partnership is amortization of deferred
financing costs of $8,523 and $7,251 for the years ended December 31, 1995 and
1994, respectively, and $88 for the period from December 20, 1993 to December
31, 1993. Included in interest expense in the accompanying Combined Statement of
Operations of the Predecessor is amortization of deferred financing costs of
$3,917 for the period from January 1, 1993 to December 19, 1993.
Revenue Recognition
The Simon Operating Partnership, as a lessor, has retained substantially
all of the risks and benefits of ownership of the investment properties and
accounts for its leases as operating leases. Minimum rents are accrued on a
straight-line basis over the terms of their respective leases. Overage rents are
recognized when earned.
Reimbursements from tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenditures are incurred.
85
147
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Credit Losses
A provision for credit losses is recorded based on management's judgment of
tenant creditworthiness. The activity in the allowance for credit losses of the
Simon Operating Partnership for the years ended December 31, 1995 and 1994, and
for the period from December 20, 1993 to December 31, 1993, and for the
Predecessor for the period from January 1, 1993 to December 19, 1993 was as
follows:
BALANCE AT PROVISION ACCOUNTS BALANCE AT
BEGINNING FOR CREDIT WRITTEN END OF
PERIOD ENDED OF PERIOD LOSSES OFF PERIOD
------------------------------------------ ---------- ---------- -------- ----------
December 31, 1995......................... $2,943 $2,939 (1,623) $4,259
====== ====== ======= ======
December 31, 1994......................... $ -- $4,238 (1,295) $2,943
====== ====== ======= ======
December 20, 1993 to December 31, 1993.... $ -- $ -- $ -- $ --
====== ====== ======= ======
January 1, 1993 to December 19, 1993...... $4,318 $3,741 (4,086) $3,973
====== ====== ======= ======
Income Taxes
As a partnership, the allocated share of income or loss for each year is
included in the income tax returns of the partners, accordingly, no accounting
for income taxes is required in the accompanying consolidated financial
statements. State and local taxes are not material.
Prior to the Business Combination, substantially all of the Properties were
owned by partnerships and joint ventures whose partners were required to include
their respective share of profits and losses in their individual tax returns.
Certain of the Properties were held by corporations which were subject to
federal and state income taxes. These corporations were included in the
consolidated tax returns filed by Melvin Simon & Associates, Inc. ("MSA") for
which no federal income taxes were due. Accordingly, no federal income tax
provision (benefit) was reflected in the accompanying Combined Statement of
Operations. State income taxes were not significant.
Taxable income of the Simon Operating Partnership for the year ended
December 31, 1995 is estimated to be $122,127, and was $44,683 for the year
ended December 31, 1994. Reconciling differences between book income and tax
income primarily result from timing differences consisting of (i) depreciation
expense, (ii) prepaid rental income and (iii) straight-line rent. Furthermore,
the Simon Operating Partnership's share of income or loss from the affiliated
Management Company is excluded from the tax return of the Simon Operating
Partnership.
Per Unit Data
The net income (loss) per Unit is based on the weighted average number of
Units outstanding during the period. The weighted average number of Units used
in the computation for 1995, 1994 and 1993 was 92,666,469; 84,509,597; and
78,447,150, respectively. Units held by limited partners in the Simon Operating
Partnership may be exchanged for shares of common stock of the Company on a
one-for-one basis in certain circumstances (see Note 12). The stock options
outstanding under the Stock Option Plans (See Note 11) and the Preferred Units
have not been considered in the computations of per Unit data, as they did not
have a dilutive effect.
86
148
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Simon Operating Partnership declared distributions per Unit of $1.97
and $1.90 in 1995 and 1994, respectively. The following is a summary of
distributions per Unit which represent a return of capital measured using
generally accepted accounting principles:
FOR THE YEAR ENDED DECEMBER
31,
----------------------------
DISTRIBUTIONS PER UNIT 1995 1994
------------------------------------------- ------ ------
From book net income....................... $ 1.04 $ 0.50
Representing return of capital............. .93 1.40
----- -----
Total Distributions........................ $ 1.97 $ 1.90
===== =====
On a federal income tax basis, 25% of the 1995 distributions and 55% of the
1994 distributions represented return of capital.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, all highly liquid investments
purchased with an original maturity of 90 days or less are considered as cash
and cash equivalents. Cash equivalents are carried at cost, which approximates
market. Cash equivalents consist of commercial paper, bankers acceptances,
Eurodollars, repurchase agreements and Dutch auction securities.
Cash paid for interest by the Simon Operating Partnership, net of any
amounts capitalized, for the year ended December 31, 1995 was $142,345. Cash
paid for interest by the Simon Operating Partnership, net of any amounts
capitalized, for the year ended December 31, 1994 was $140,106, including a
$27,184 non-recurring interest charge; and for the period from December 20, 1993
to December 31, 1993, was $3,316. Cash paid for interest by the Predecessor, net
of any amounts capitalized, for the period from January 1, 1993 to December 19,
1993 was $157,387.
Net working capital generated by the Properties as of December 19, 1993 was
retained by the investors in the Properties at that time. The unpaid amount of
working capital was $4,072 as of December 31, 1994, and is included in accounts
payable in the accompanying Consolidated Balance Sheet. At December 31, 1995,
all working capital amounts had been repaid.
Non-Cash Transactions
The following is a summary of significant non-cash transactions.
As described in Note 2, effective April 1, 1994, the Simon Operating
Partnership reflected Forum using the consolidated method of accounting.
As described in Note 4, on September 1, 1994, the Simon Operating
Partnership issued 1,799,945 Units in conjunction with the merger of MSAR. On
February 23, 1995, the Simon Operating Partnership issued 2,022,247 Units in
connection with the acquisition of an additional joint venture interest in White
Oaks Mall. On July 31, 1995, the Simon Operating Partnership issued 120,000
Units in exchange for the Simons' 50% interest in Crossroads Mall. The Simon
Operating Partnership issued 1,200,000 Units of common stock in connection with
the reduction of the outstanding loan and accrued interest at Crossroads Mall.
Accrued and unpaid distributions as of December 31, 1995 and 1994 were
$47,104 and $40,807, respectively. Accrued and unpaid distributions on Preferred
Units as of December 31, 1995 were $1,490. There were no Preferred Units in 1994
and, therefore, no Preferred Unit distributions were declared or outstanding in
1994.
87
149
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to the prior-year financial
statements to conform to the current-year presentation. These reclassifications
have no impact on net operating results previously reported.
6. INVESTMENT PROPERTIES
Investment properties consist of the following:
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
Land........................................................ $ 283,722 $ 267,213
Buildings and improvements.................................. 1,860,203 1,619,909
---------- ----------
Total land, buildings and improvements................. 2,143,925 1,887,122
Furniture, fixtures and equipment........................... 18,236 12,905
---------- ----------
Investment properties at cost.......................... 2,162,161 1,900,027
Less -- accumulated depreciation............................ 152,817 70,916
---------- ----------
Investment properties at cost, net..................... $2,009,344 $1,829,111
========== ==========
Building and improvements include $40,676 and $8,377 of construction in
process at December 31, 1995 and 1994, respectively.
7. INVESTMENT IN PARTNERSHIPS AND JOINT VENTURES
Summary financial information of partnerships and joint ventures accounted
for using the equity method, and a summary of the Simon Operating Partnership's
or Simon Property Group's investment in and share of income (loss) from such
partnerships and joint ventures follows. See Notes 2 and 4 for a discussion of
certain acquisition and real estate investing activities which impact the
financial information of the Joint Venture Properties. This information also
reflects the openings of Circle Centre, Seminole Towne Center and Lakeline Mall
during 1995.
88
150
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
------------------------
BALANCE SHEETS 1995 1994
- -------------------------------------------------------------------- ---------- ---------
ASSETS:
Investment properties at cost, net................................ $1,156,066 $ 741,900
Cash and cash equivalents......................................... 52,624 65,547
Tenant receivables................................................ 35,306 39,332
Other assets...................................................... 32,626 13,161
---------- ----------
Total assets.............................................. $1,276,622 $ 859,940
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable................................. $ 410,652 $ 366,926
Accounts payable, accrued expenses and other liabilities.......... 127,322 76,663
---------- ----------
Total liabilities.............................................. 537,974 443,589
Partners' equity.................................................. 738,648 416,351
---------- ----------
Total liabilities and partners' equity.................... $1,276,622 $ 859,940
========== ==========
SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets.............................................. $ 290,802 $ 152,797
========== ==========
Partners' equity (deficit)................................ $ 63,212 $ (57,064)
========== ==========
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED DECEMBER 20, JANUARY 1,
DECEMBER 31, 1993 TO 1993 TO
--------------------- DECEMBER 31, DECEMBER 19,
STATEMENTS OF OPERATIONS 1995 1994 1993 1993
- ---------------------------------------- -------- ------- ------------ ------------
REVENUE:
Minimum rent.......................... $ 83,905 $92,380 $3,584 $ 96,518
Overage rent.......................... 2,754 3,655 197 5,804
Tenant reimbursements................. 39,500 45,440 1,905 50,378
Other income.......................... 13,980 10,131 87 6,433
-------- ------- ------ --------
Total revenue...................... 140,139 151,606 5,773 159,133
OPERATING EXPENSES:
Operating expenses and other.......... 46,466 55,949 2,218 60,407
Depreciation and amortization......... 26,409 26,409 985 28,918
-------- ------- ------ --------
Total operating expenses........... 72,875 82,358 3,203 89,325
-------- ------- ------ --------
OPERATING INCOME........................ 67,264 69,248 2,570 69,808
INTEREST EXPENSE........................ 28,685 38,124 1,446 44,280
EXTRAORDINARY ITEMS..................... (2,687) -- -- --
-------- ------- ------ --------
NET INCOME.............................. 35,892 31,124 1,124 25,528
THIRD-PARTY INVESTORS' SHARE OF NET
INCOME................................ 30,752 30,090 1,081 26,619
-------- ------- ------ --------
SIMON OPERATING PARTNERSHIP'S OR SIMON
PROPERTY GROUP'S SHARE OF NET INCOME
(LOSS)................................ $ 5,140 $ 1,034 $ 43 $ (1,091)
======== ======= ====== ========
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these
89
151
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements are not always consistent with the ownership interest held by each
general or limited partner or joint venturer, primarily due to partner
preferences.
8. INVESTMENT IN MANAGEMENT COMPANY
M.S. Management Associates (Indiana), Inc., ("M.S. Management"), a wholly
owned subsidiary of MSA, an affiliate of the Simons, provided management,
development and leasing services to the Predecessor and other properties. In
connection with the Business Combination, MSA, indirectly, exchanged the
management, development and leasing contracts related to the Simon Operating
Partnership's Wholly Owned Properties and certain assets for Class B common
stock of the Company. The management, development and leasing activities related
to the non-wholly owned and other third-party properties are now conducted by
M.S. Management Associates, Inc., a Delaware corporation, (the "Management
Company"), which, through a series of transactions in connection with the
Business Combination, became the parent company of M.S. Management.
The Simon Operating Partnership's initial investment in the Management
Company was evidenced by $2,000 in common stock (representing 80% of the
outstanding common stock of the Management Company including 5% of the
outstanding voting common stock), $17,500 of participating 8% preferred stock
and a $22,000 note receivable. The remaining 20% of the outstanding common stock
of the Management Company (representing 95% of the voting common stock) is owned
directly by the Simons. The Simon Operating Partnership also sold to the
Management Company four parcels of undeveloped land and two mortgage notes
related to two parcels of undeveloped land in exchange for a note receivable in
the amount of $48,000. The Simon Operating Partnership was granted options, at
no cost, by the Management Company to reacquire the four parcels of undeveloped
land at a price equal to the actual cost incurred by the Management Company to
acquire and carry such parcels to the exercise date of the respective option.
The option agreements expire in December 2003 and carry rights of first refusal.
The net assets of M.S. Management acquired in the Business Combination are
recorded at predecessor cost, which resulted in a carryover-basis adjustment to
equity of $35,219. Because the Simon Operating Partnership exercises significant
influence over the financial and operating policies of the Management Company,
it is reflected in the accompanying statements using the equity method of
accounting.
During 1994, the Simon Operating Partnership advanced the Management
Company $10,405, which bears interest at 11%. The Management Company repaid
$5,000 by transferring a financial instrument to the Simon Operating
Partnership. During 1995, the Simon Operating Partnership advanced a net of
$27,500 to the Management Company which bears interest at 11%. The proceeds were
used to acquire a $27,500 mortgage note due from The Source, in which the Simon
Operating Partnership has a noncontrolling 50% interest. The mortgage bears
interest at 11% and will be repaid by the partnership's construction financing
scheduled to close in the first quarter of 1996. The Management Company also
liquidated in 1995 its interest in a certain partnership investment which held a
9.8-acre parcel of land in Rosemont, Illinois. The sale of that parcel resulted
in a loss of $958 to the Management Company. Further, an undeveloped two-acre
parcel of land in Washington, D.C., for which the Management Company held a
mortgage, was sold in December 1995. The Management Company recorded a loss in
connection with this transaction of $3,949.
At December 31, 1995 and 1994, total notes receivable and advances due from
the Management Company were $102,522 and $75,405, respectively. Unpaid interest
income receivable from the Management Company at December 31, 1995 and 1994 was
$84 and $2,826, respectively. Unpaid preferred dividends receivable from the
Management Company at December 31, 1995 and 1994 were $0 and $350, respectively.
These interest and preferred dividend receivables are reflected in tenant
receivables and accrued revenue in the accompanying Consolidated Balance Sheets.
90
152
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information of the Management Company accounted for
using the equity method, and a summary of the Simon Operating Partnership's
investment in and share of income (loss) from the Management Company follows:
DECEMBER 31,
---------------------
BALANCE SHEETS 1995 1994
- --------------------------------------------------------------------------------- -------- --------
ASSETS:
Current assets................................................................. $ 40,964 $ 16,841
Undeveloped land and mortgage notes............................................ 45,769 43,000
Other assets................................................................... 13,813 12,577
-------- --------
Total assets............................................................ $100,546 $ 72,418
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities............................................................ $ 18,435 $ 13,103
Notes payable and advances due to the Simon Operating Partnership at 11%, due
2008......................................................................... 102,522 75,405
-------- --------
Total liabilities............................................................ 120,957 88,508
Shareholders' deficit.......................................................... (20,411) (16,090)
-------- --------
Total liabilities and shareholders' deficit............................. $100,546 $ 72,418
======== ========
THE SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets............................................................ $ 80,437 $ 57,934
======== ========
Shareholders' deficit................................................... $(20,612) $(16,875)
======== ========
FOR THE FOR THE
FOR THE YEAR PERIOD FROM PERIOD FROM
ENDED DECEMBER DECEMBER 20, JANUARY 1,
31, 1993 TO 1993 TO
----------------- DECEMBER 31, DECEMBER 19,
STATEMENTS OF OPERATIONS 1995 1994 1993 1993
- -------------------------------------------------------- ------- ------- ------------ ------------
REVENUE:
Management fees....................................... $20,106 $18,587 $ 707 $ 31,747
Development and leasing fees.......................... 15,451 9,683 763 6,874
Cost-sharing income and other......................... 7,561 10,077 214 2,691
-------- -------- ------ -------
Total revenue.................................. 43,118 38,347 1,684 41,312
EXPENSES:
Operating expenses.................................... 31,163 27,944 1,388 40,944
Depreciation.......................................... 2,275 1,406 51 1,723
Interest.............................................. 7,694 8,623 253 --
Total expenses...................................... 41,132 37,973 1,692 42,667
-------- -------- ------ -------
OPERATING INCOME (LOSS)................................. 1,986 374 (8) (1,355)
-------- -------- ------ -------
LOSS ON DISPOSITION OF ASSETS........................... (4,907) -- -- --
NET INCOME (LOSS)....................................... (2,921) 374 (8) (1,355)
-------- -------- ------ -------
PREFERRED DIVIDENDS..................................... 1,400 1,400 -- --
NET LOSS AVAILABLE FOR COMMON SHAREHOLDERS.............. $(4,321) $(1,026) $ (8) $ (1,355)
======== ======== ====== =======
SIMON OPERATING PARTNERSHIP'S SHARE OF NET LOSS......... $(3,737) $(1,101) $ (8)
======== ======== ======
91
153
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Simon Operating Partnership manages all Wholly Owned Properties, and,
accordingly, it reimburses the Administrative Services Partnership ("ASP") for
costs incurred, including management, leasing, development, accounting, legal,
marketing, and management information systems. Substantially all employees
(other than direct field personnel) are employed by ASP which is owned 1% by the
Simon Operating Partnership and 99% by the Management Company. The Management
Company's Statements of Operations report costs net of amounts reimbursed by the
Simon Operating Partnership. The Simon Operating Partnership's share of
allocated common costs was $21,874 and $15,619 for 1995 and 1994, respectively.
Common costs are allocated based on payroll and related costs. In
management's opinion, allocations under the cost-sharing arrangement are
reasonable. The Simon Operating Partnership's share of common costs and
management fees for the twelve days ended December 31, 1993 were not
significant. Allocated property operating expenses related to management,
development, leasing, financing and advisory services totaled $16,379 for the
period from January 1, 1993 to December 19, 1993.
The Management Company provides management, leasing, development,
accounting, legal, marketing and management information systems services to MSA,
Minority Interest Properties, Joint Venture Properties and non-owned managed
properties. Management, development and leasing fees charged to the Simon
Operating Partnership relating to the Minority Interest Properties were $5,353
and $2,352 for the years ended December 31, 1995 and 1994, respectively. Fees
for services provided by the Management Company to MSA were $4,572 and $7,239
for the years ended December 31, 1995 and 1994, respectively, and are included
in cost-sharing income and other in the Management Company's Statements of
Operations.
Amounts payable by the Simon Operating Partnership under the cost-sharing
arrangement and management contracts were $1,175 and $2,499 at December 31, 1995
and 1994, respectively, and are reflected in accounts payable and accrued
expenses in the accompanying Consolidated Balance Sheets.
9. INDEBTEDNESS
Mortgages and other notes payable consists of the following:
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
Unsecured revolving credit facility, with variable interest
rate of 7.18% at December 31, 1995, due August 7, 1998.... $ 196,000 $ --
Term loan, unsecured, with variable interest rate, due
September 21, 1996........................................ -- 75,000
$100,000 Revolving loan, secured by Properties, with
variable interest rate, due March 15, 1997................ -- 87,899
$150,000 Revolving loan, unsecured, with variable interest
rate, due November 30, 1997............................... -- 124,139
Mortgages and other notes payable with fixed interest rates
ranging from 5.81% to 10.00% (weighted average rate of
7.81%) at December 31, 1995, due at various dates through
2026...................................................... 1,232,360 1,189,900
Mortgages and other notes payable with variable interest
rates ranging from 4.67% to 7.19% (weighted average rate
of 6.55%) at December 31, 1995, due at various dates
through 2000.............................................. 530,000 461,153
Construction loan with variable interest rate of 7.79% at
December 31, 1995 due on February 1, 1999................. 22,399 --
---------- ----------
$1,980,759 $1,938,091
========== ==========
92
154
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Credit Facilities
On August 7, 1995, the Simon Operating Partnership closed on a new $400,000
unsecured revolving credit facility which replaced the Simon Operating
Partnership's secured and unsecured lines of credit. The new facility currently
bears interest at London Interbank Offering Rate ("LIBOR") plus 132.5 basis
points, an improvement of 67.5 basis points over the previous unsecured
facility, and an improvement of 17.5 basis points over the previous secured
facility. Further, the new facility removes the first mortgages and negative
pledges on certain of the Simon Operating Partnership's Properties and provides
for different pricing based upon the Simon Operating Partnership's investment
grade rating. This facility contains financial covenants relating to
debt-to-market capitalization, minimum earnings before interest, taxes,
depreciation and amortization ("EBITDA") ratios and a minimum equity value.
Significant borrowings on the line include an initial draw of $144,000 used to
pay off the existing revolving credit facilities and purchase a controlling 75%
interest in The Shops at Sunset Place, a draw of $38,500 for the acquisition of
the remaining ownership interest of East Towne Mall, a draw of $87,000 of which
approximately $55,700 was used to acquire a 25% interest in the joint venture
which purchased Smith Haven Mall, with the remainder used to acquire a 50%
partnership interest in a parcel of land to be used to develop a regional mall
in Westbury (Long Island), New York. A significant pay-down occurred on October
27, 1995, when the Company completed a $100,000 private placement of 4,000,000
shares of convertible preferred stock. In exchange for Preferred Units, the net
proceeds were contributed by the Company to the Simon Operating Partnership and
$99,000 was used to pay down the balance on the unsecured revolving credit
facility. The facility is subject to renewal in August 1998. As of December 31,
1995, $196,000 was outstanding on the line, with $204,000 available.
The term loan which carried interest at LIBOR plus 175 basis points (7.75%
at December 31, 1994) was paid off, resulting in an extraordinary loss of $248.
This payoff was accomplished with proceeds from the Company's 6,000,000 share
add-on offering.
The secured revolving loan which carried interest at LIBOR plus 150 basis
points (7.625% at December 31, 1994) was paid off, resulting in an extraordinary
loss of $733. This payoff was accomplished with proceeds from the new unsecured
revolving credit facility.
The unsecured revolving loan which carried interest at LIBOR plus 200 basis
points (8.217% at December 31, 1994) was paid off, resulting in an extraordinary
loss of $1,332. This payoff was accomplished with the remaining proceeds of the
6,000,000 share add-on offering, the related underwriter's over-allotment option
of 241,845 shares, and the use of the new unsecured revolving credit facility.
Fixed and Variable Mortgages
Fixed-rate and variable-rate mortgages as of December 31, 1995 were
$1,762,360. The following is a summary of significant mortgage debt activity. On
December 1, 1994, the Simon Operating Partnership refinanced two mortgages
totaling $49,816. These loans would have matured May 28, 2020, and carried
interest at 11.0% and 13.5%. Under the terms of the debt agreements, the lender
was entitled to additional contingent interest to be determined by 50% of the
appreciated value of the Property, which totaled $27,184 as of the refinancing
date. The prepayment totaling $77,000 was accomplished using a $50,000 bridge
loan and $27,000 in cash. The bridge loan carried interest at a variable rate
and had a maturity date of December 1, 1995. The $27,184 contingent interest
payment relating to this transaction is considered unusual because none of the
debt agreements relating to the other Properties have similar equity
participation features. Therefore, the additional contingent interest paid has
been reflected as a separate line in the Consolidated Statements of Operations.
On February 6, 1995, a $50,000 secured financing was obtained and the bridge
loan was repaid. This financing, secured by one of the Properties, bears
interest at a variable rate and matures January 12, 2000. An interest rate cap
was purchased which caps LIBOR at 8.70% and expires January 12, 2000. The cost
of the interest-rate protection agreement of $1,050 will be amortized over the
life of the agreement. Refinancing and
93
155
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other activities related to East Towne Mall, Crossroads Mall and White Oaks Mall
which impact mortgage debt are described in Notes 2 and 4.
Many of the investment properties are pledged as collateral to secure the
related mortgage notes. The mortgage notes are non-recourse but have a partial
guarantee by the Simons and other limited partners of approximately $426,777.
The mortgages and other notes payable are generally due in monthly installments
of principal and interest or interest only and mature at various dates through
January 1, 2026.
Certain of the mortgage indebtedness contain cross-default and
cross-collateralization features pertaining to certain groups of Properties.
Under the cross-default provisions, a default under any mortgage included in the
cross-defaulted package constitutes a default under all such mortgages and can
lead to acceleration of the indebtedness due on each Property within the
collateral package. Pursuant to the cross-collateralization feature, the excess
of the value of a Property over the mortgage indebtedness specific to that
Property serves as additional collateral for indebtedness against each other
Property within that particular financing package.
With respect to certain loans, the lender participates in a percentage of
gross revenues above a specified base or after deduction of debt service and
various expenses. Contingent interest incurred under these arrangements was
$1,929 and $1,527 for the years ended December 31, 1995 and 1994, respectively,
$94 for the period from December 20, 1993 to December 31, 1993, and $2,800 for
the period from January 1, 1993 to December 19, 1993.
Construction Loan
On February 22, 1995, the Simon Operating Partnership closed a $60,000
construction loan for Cottonwood Mall in Albuquerque, New Mexico. This loan
bears interest at the lower of the prime rate plus 25 basis points or LIBOR plus
200 basis points and matures February 1, 1999. The loan contains an option
provision to extend the maturity one year. As of December 31, 1995, $22,399 was
outstanding.
Debt Maturity and Other
As of December 31, 1995, scheduled principal repayments on indebtedness
were as follows:
1996............................................................. $ 159,982
1997............................................................. 119,023
1998............................................................. 431,984
1999............................................................. 250,013
2000............................................................. 240,225
Thereafter....................................................... 779,532
----------
$1,980,759
==========
Certain mortgages and notes payable may be prepaid but are generally
subject to payment of a yield maintenance premium.
The unconsolidated partnerships and joint ventures have $410,652 of
mortgage and other notes payable at December 31, 1995. The Simon Operating
Partnership's share of this debt was $167,644 at December 31, 1995. This debt
becomes due in installments over various terms extending to January 1, 2017,
with interest rates ranging from 6.13% to 10.07% (weighted average rate of 7.40%
at December 31, 1995). The debt matures $5,219 in 1996, $241 in 1997, $60,267 in
1998, $98,786 in 1999, $21,758 in 2000 and $224,381 thereafter.
Net extraordinary gains (losses) of $(3,285) and $(17,980) for the years
ended December 31, 1995 and 1994, respectively, and $(30,481) for the period
from December 20, 1993 to December 31, 1993, and $26,189
94
156
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the period from January 1, 1993 to December 19, 1993 were incurred,
resulting from the early extinguishment or refinancing of debt.
Interest-rate Protection Agreements
The Simon Operating Partnership has entered into certain interest-rate
protection agreements, in the form of "cap" or "swap" arrangements, with respect
to the majority of its variable-rate mortgage and other notes payable. Cap
arrangements, which effectively limit the amount by which variable interest
rates may rise, have been entered into for $395,879 principal amount of debt.
Swap arrangements, which effectively fix the Simon Operating Partnership's
interest rate on the respective borrowings, have been entered into for $155,688
principal amount of debt. Costs of the caps ($8,499) are amortized over the life
of the agreements. The unamortized balance of the cap arrangements was $5,916 as
of December 31, 1995. Each cap and swap arrangement, with the exception of two,
has a maturity which coincides with the related debt maturity. The Simon
Operating Partnership's hedging activity as a result of interest swaps and caps
resulted in interest savings of $3,528 and $863 for the years ended December 31,
1995 and 1994, respectively. This did not materially impact the Simon Operating
Partnership's weighted average borrowing rate. Following is a summary of the cap
and swap arrangements outstanding as of December 31, 1995:
INTEREST-RATE PROTECTION NOTIONAL
AGREEMENT AMOUNT INTEREST RATE CAP/SWAP MATURITY
----------------------------- -------- ------------------ -----------------
Caps:........................ $100,000 (1) March 13, 1997
95,676 LIBOR up to 5.00% December 31, 1998(2)
35,774 LIBOR up to 5.00% December 31, 1998(2)
89,000 (3) December 23, 1996
25,429 LIBOR up to 5.00% December 31, 1998
50,000 LIBOR up to 8.70% January 12, 2000
--------
Total Caps.............. 395,879
Swaps:....................... 30,000 LIBOR up to 5.15% February 28, 1997
63,450 LIBOR up to 4.81% December 27, 1996
62,238 LIBOR up to 5.12% January 3, 1997 (4)
--------
Total Swaps............. 155,688
--------
Total Caps and Swaps.... $551,567
========
- ---------------
(1) LIBOR is initially capped at 7.5% through maturity; however, if LIBOR should
equal or exceed 8.75% between monthly reset dates, then LIBOR will be
capped at 8.5% for that period only.
(2) The principal amounts of the two-tranche debt facility being capped are
$85,571 and $45,879.
(3) LIBOR cap rate may fluctuate, initially capped at 7.00% through December 23,
1996. If LIBOR increases more than 60 basis points between monthly reset
dates, the cap will be increased by 0.25% but shall not exceed 8.25%.
Payment for any reference period is limited to 9.00% less the
then-applicable cap. The principal amount of the debt is $89,701.
(4) The counterparty has the option to extend the swap up to the debt maturity
of December 31, 1997. The principal amount of the debt is $77,200.
$500,000 Shelf Registration
On December 15, 1995, a shelf registration for $500,000 of non-convertible
investment grade debt securities of the Simon Operating Partnership became
effective. The securities may be offered from time to time as needed, at prices
and terms to be stated at the time of such offerings.
95
157
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RENTALS UNDER OPERATING LEASES
The Simon Operating Partnership receives rental income from the leasing of
retail and mixed-use space under operating leases. Future minimum rentals to be
received under non-cancelable operating leases for each of the next five years
and thereafter, excluding tenant reimbursements of operating expenses and
percentage rent based on tenant sales volume, as of December 31, 1995, are as
follows:
1996............................................................. $ 286,460
1997............................................................. 266,589
1998............................................................. 249,073
1999............................................................. 222,135
2000............................................................. 191,628
Thereafter....................................................... 698,559
----------
$1,914,444
==========
Approximately 2.8% of future minimum rents to be received are attributable
to leases with JCPenney, Inc., an affiliate of a limited partner in the Simon
Operating Partnership.
11. STOCK OPTION PLANS
The Company and the Simon Operating Partnership adopted an Employee Stock
Plan (the "Employee Plan"). The Company also adopted a Director Stock Option
Plan (the "Director Plan" and, together with the Employee Plan, the "Stock
Option Plans") for the purpose of attracting and retaining eligible officers,
directors and employees. The Company has reserved for issuance 4,595,000 shares
of common stock under the Employee Plan and 100,000 shares of common stock under
the Director Plan. If stock options granted in connection with the Stock Option
Plans are exercised at any time or from time to time, the partnership agreement
requires the Company to sell to the Simon Operating Partnership, at fair market
value, shares of the Company's common stock sufficient to satisfy the exercised
stock options. The Company also is obligated to purchase Units for cash in an
amount equal to the fair market value of such shares.
Employee Plan
The Employee Plan is currently administered by the Company's Compensation
Committee (the "Committee"). During the ten-year period following the adoption
of the Employee Plan, the Committee may, subject to the terms of the Employee
Plan and in certain instances subject to board approval, grant to key employees
(including officers and directors who are employees) of the Simon Operating
Partnership or its "affiliates" (as defined in the Employee Plan) the following
types of awards: stock options (including options with a reload feature), stock
appreciation rights, performance units and shares of restricted or unrestricted
common stock. Awards granted under the Employee Plan become exercisable over the
period determined by the Committee. The exercise price of an option may not be
less than the fair market value of the shares of the common stock on the date of
grant. The options vest 40% on the first anniversary of the date of grant, an
additional 30% on the second anniversary of the grant date and become fully
vested three years after the grant date. The options expire ten years from the
date of grant.
Director Plan
Directors of the Company who are not also employees of the Company or its
"affiliates" (as defined in the Director Plan) participate in the Director Plan.
Under the Director Plan, each eligible director is automatically granted options
("Director Options") to purchase 5,000 shares of common stock upon the
director's initial election to the Board of Directors and 3,000 shares of common
stock upon each reelection of
96
158
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the director to the Board of Directors. The exercise price of the options is
equal to 100% of the fair market value of the Company's common stock on the date
of grant. Director Options become exercisable on the first anniversary of the
date of grant or at such earlier time as a "change in control" of the Company
occurs and will remain exercisable through the tenth anniversary of the date of
grant (the "Expiration Date"). Prior to their Expiration Dates, Director Options
will terminate 30 days after the optionee ceases to be a member of the Board of
Directors.
Information relating to the Stock Option Plans from inception through
December 31, 1995 is as follows:
DIRECTOR PLAN EMPLOYEE PLAN
-------------------------- -----------------------------
OPTION PRICE OPTION PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
------- -------------- ---------- --------------
SHARES UNDER OPTION AT DECEMBER 20,
1993................................. -- $ -- -- $ --
Granted................................ 25,000 22.25 735,000 22.25
------ -------------- --------- --------------
SHARES UNDER OPTION AT JANUARY 1,
1994................................. 25,000 22.25 735,000 22.25
Granted................................ 15,000 27.00 1,363,272 23.44 - 25.25
Exercised.............................. -- -- -- --
Forfeited.............................. -- -- (28,125) 23.44
------ -------------- --------- --------------
SHARES UNDER OPTION AT DECEMBER 31,
1994................................. 40,000 22.25 - 27.00 2,070,147 22.25 - 25.25
Granted................................ 15,000 24.94 -- --
Exercised.............................. -- -- (6,876) 23.44
Forfeited.............................. -- -- (49,137) 23.44 - 25.25
------ -------------- --------- --------------
SHARES UNDER OPTION AT DECEMBER 31,
1995................................. 55,000 $22.25 - 27.00 2,014,134 $22.25 - 25.25
====== ============== ========= ==============
Options exercisable at December 31,
1995................................. 40,000 $22.25 - 27.00 1,027,464 $22.25 - 25.25
====== ============== ========= ==============
SHARES AVAILABLE FOR GRANT AT DECEMBER
31, 1995............................. 45,000 1,580,866
====== =========
Stock Incentive Program
In October 1994, under the Employee Plan of the Company and the Simon
Operating Partnership, the Company's Compensation Committee approved a five-year
Stock Incentive Program, under which restricted stock award shares have been
granted to certain employees at no cost. The outstanding restricted stock award
shares vest in four installments of 25% each on January 1 of each year following
the year in which the restricted shares are awarded. The cost of restricted
stock awards, based on the stock's fair market value at the determination dates,
is charged to shareholders' equity and subsequently amortized against earnings
of the Simon Operating Partnership over the vesting period.
On March 22, 1995, an aggregate of 1,000,000 shares of restricted stock was
awarded to 50 executives, subject to the performance standards and other terms
of the Stock Incentive Program, described above. During 1995, 144,196 shares of
common stock were granted under the Stock Incentive Program and subsequently,
885 of these shares were forfeited, leaving 143,311 shares of common stock
outstanding under restricted stock awards at December 31, 1995. Forfeited shares
under the Stock Incentive Program are available for reissuance under the
Employee Plan. Approximately $918 was amortized in 1995 relating to this
program.
97
159
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. PARTNERSHIP AGREEMENT AND EXCHANGE RIGHTS
In December 1995, Unitholders approved the amendment and restatement of the
Simon Operating Partnership's partnership agreement to allow for the issuance of
Preferred Units, and certain other changes to the agreement.
Pursuant to the Simon Operating Partnership Agreement, limited partners in
the Simon Operating Partnership have the right at any time after December 1994
to exchange all or any portion of their Units for shares of common stock of the
Company on a one-for-one basis or cash, as selected by the Company's Board of
Directors. If the Company selects to use cash, the Company can cause the Simon
Operating Partnership to redeem the units. The amount of cash to be paid if the
exchange right is exercised and the cash option is selected will be based on the
trading price of the Company's common stock at that time. The Company has
reserved 37,282,628 shares of common stock for possible issuance upon the
exchange of Units.
Such limited partners' exchange rights are not to be included in partners'
equity. Accordingly, the accompanying consolidated balance sheets have been
retroactively reclassified to reflect the limited partners' interest in the
Simon Operating Partnership, measured at redemption value. This reclassification
results in a reduction of partners' equity of $822,072 and $864,920 as of
December 31, 1995 and 1994, respectively.
In connection with the merger of the Company and DeBartolo which was
completed August 9, 1996, the Simon Operating Partnership agreement was amended
eliminating the exchange right provision. However, the limited partners' in the
Simon Operating Partnership exchanged their interest for limited partnership
units of Simon DeBartolo Group L.P.(SDG LP). SDG LP became the primary operating
partnership of the Company following the merger. Further SDG LP extended
exchange rights to its limited partners' similar to the rights previously held
by the limited partners of the Simon Operating Partnership. On November 13,
1996, an agreement was reached between the Company and SDG, LP which restricts
the Company's ability to cause SDG, LP to redeem for cash the limited partners'
units without contributing cash to SDG, LP as partners' equity sufficient to
effect the redemption. If sufficient cash is not contributed, the Company will
be deemed to have elected to acquire the limited partners' units for shares of
the Company's common stock. Accordingly, prospectively the limited partners'
interest in the Simon Operating Partnership and SDG, LP will be reflected in the
partnerships consolidated balance sheets as partners' equity at historical
carrying value. Previous transfers of limited partners' equity interest will be
reversed. This reversal occurred in the separate financial statements of the
Simon Operating Partnership, effective August 9, 1996.
13. EMPLOYEE BENEFIT PLAN
401(k) Plan
The Simon Operating Partnership and affiliated entities maintain a
tax-qualified retirement savings plan for eligible employees which contains a
cash or deferred arrangement permitting participants to defer up to a maximum of
12% of their compensation, subject to certain limitations. Participants' salary
deferrals will be matched at specified percentages and annual contributions of
3% of eligible employees' compensation will be made. The Simon Operating
Partnership contributed $1,716, $1,628 and $39 to the plan in 1995, 1994 and for
the period from December 20, 1993 to December 31, 1993, respectively.
Except for the 401(k) plan, Simon Operating Partnership offers no other
postretirement or postemployment benefits to its employees.
MSA had two defined contribution plans (the "Plans") for the benefit of
eligible employees. Both Plans covered the Properties' employees as well as
other employees of MSA. MSA made a required contribution to the Retirement Plan
and a discretionary contribution to the Matching Savings Plan pursuant to the
terms of both Plans. Under the Matching Savings Plan, employees could elect to
defer a portion of their salary, for which MSA made a matching contribution. MSA
could also make additional discretionary contributions. The
98
160
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Predecessor's share of amounts contributed by MSA to the Plans totaled
approximately $1,587 for the period from January 1, 1993 to December 19, 1993.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments. The carrying values of cash and
cash equivalents, accounts and notes receivable, accounts payable and accrued
expenses are reasonable estimates of their fair values because of the short
maturity of these financial instruments. The carrying value of variable-rate
mortgages and other loans and interest-rate protection agreements represents
their fair values. The fair value of fixed-rate mortgages and other notes
payable approximates their carrying value at December 31, 1994. The fair value
and carrying value of fixed-rate mortgages and other notes payable at December
31, 1995 was approximately $1,375,000 and $1,232,000, respectively. At December
31, 1995 and 1994, the estimated discount rates were 7.00% and 7.63%,
respectively. The fair value of the interest-rate protection arrangements at
December 31, 1995 was $3,900.
15. COMMITMENTS AND CONTINGENCIES
Litigation
The Simon Operating Partnership currently is not subject to any material
litigation other than routine litigation and administrative proceedings arising
in the ordinary course of business. On the basis of consultation with counsel,
management believes that these items will not have a material adverse impact on
Simon Operating Partnership's financial position or results of operations.
Financing Commitments
On February 13, 1996, the Simon Operating Partnership acquired a 50% joint
venture interest in The Tower Shops at Stratosphere, a 122,000-square-foot
entertainment and retail development project currently under development in Las
Vegas, Nevada. The entity has a 15% equity commitment of approximately $6,350 to
construction costs, before the remaining construction costs totaling
approximately $36,000 will be advanced by the lender.
The Simon Operating Partnership has agreed to funding commitments of up to
$15,000 relating to the construction of the Ontario Mills project.
Lease Commitments
As of December 31, 1995, a total of 27 of the Properties are subject to
ground leases. The termination dates of these ground leases range from 1998 to
2085. These ground leases generally require payments by the Simon Operating
Partnership of a fixed annual rent, or a fixed annual rent plus a participating
percentage over a base rate. Ground lease expense incurred by the Simon
Operating Partnership for the years ended December 31, 1995 and 1994 was $6,700
and $5,808, respectively, and was $102 for the period from December 20, 1993 to
December 31, 1993. Ground lease expense incurred by the Predecessor for the
period from January 1, 1993 to December 19, 1993 was $4,168.
99
161
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments due under such ground leases for each of the
next five years ending December 31 and thereafter are as follows:
1996............................................................ $ 3,581
1997............................................................ 3,806
1998............................................................ 3,799
1999............................................................ 3,805
2000............................................................ 3,815
Thereafter...................................................... 145,206
--------
$164,012
========
Environmental Matters
Substantially all of the Properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on Simon Operating Partnership's financial position or results of
operations. Management is unaware of any instances in which it would incur
significant environmental costs if any or all Properties were sold, disposed of
or abandoned.
Other
The Simon Operating Partnership's partner in Rolling Oaks Mall has the
right to transfer its ownership interest to the Simon Operating Partnership in
exchange for Units based on the fair market value of the ownership interest at
the time of the exchange. This right expires on January 1, 2002. Rolling Oaks
Mall is a Joint Venture Property accounted for using the equity method of
accounting.
16. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires entities to measure compensation costs related to
awards of stock-based compensation using either the fair value method or the
intrinsic value method. Under the fair value method, compensation expense is
measured at the grant date based on the fair value of the award. Under the
intrinsic value method, compensation expense is equal to the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. Entities electing to measure
compensation costs using the intrinsic value method must make pro forma
disclosures, beginning after the effective date of January 1, 1996, of net
income and earnings per Unit as if the fair value method has been applied. The
Simon Operating Partnership has elected to account for stock-based compensation
programs using the intrinsic value method consistent with existing accounting
policies and, therefore, the standard will not have an effect on the
consolidated financial statements.
100
162
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly 1995 and 1994 data is as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
1995
Total revenue $129,490 $130,765 $138,042 $155,360 $553,657
Operating income............................ 58,865 58,115 64,191 69,965 251,136
Income before extraordinary items........... 22,207 23,528 26,946 28,824 101,505
Net income available to Unitholders......... 22,207 23,280 24,310 26,933 96,730
Net income before extraordinary items per 0.26 0.25 0.28 0.29 1.08
Unit......................................
Net income per Unit......................... $ 0.26 $ 0.25 $ 0.25 $ 0.28 $ 1.04
1994
Total revenue............................... $104,987 $111,809 $120,528 $136,352 $473,676
Operating income............................ 45,540 49,473 51,485 67,800 214,298
Income before extraordinary items........... 17,809 19,053 21,694 1,752 60,308
Net income (loss) available to 15,528 12,179 15,577 (956) 42,328
Unitholders...............................
Net income before extraordinary items per 0.21 0.23 0.26 0.02 0.72
Unit......................................
Net income (loss) per Unit.................. $ 0.19 $ 0.14 $ 0.18 $ (0.01) $ 0.50
Due to the cyclical nature of earnings available to Unitholders and the
issuance of additional Units, the sum of the quarterly earnings per Unit in 1994
varies from the annual earnings per Unit. Income before extraordinary items in
the fourth quarter of 1994 included $27,184 of a non-recurring interest payment.
18. SUBSEQUENT EVENTS
The Forum Shops at Caesars
On February 23, 1996, the Simon Operating Partnership borrowed the initial
$100,000 tranche from a $184,000 two tranche loan facility for Forum and retired
the existing $89,701 mortgage debt for Forum. The initial funding bears interest
at LIBOR plus 100 basis points and matures in February 2000. The remaining
proceeds will be used to provide funds for the approximately 250,000-square-foot
expansion of this Property.
Smith Haven Mall
On March 8, 1996, the joint venture which owns Smith Haven Mall entered
into an agreement to finance $115,000 of the purchase price of Smith Haven Mall
with a 10-year interest-only mortgage which carries interest at 113 basis points
over 10-year treasury bills. Proceeds from the loan will be used to repay a
portion of the partners' equity contributions made at the time of the Property
acquisition.
Definitive Agreement to a Merger with DeBartolo Realty Corporation
On March 26, 1996, the Company and DeBartolo Realty Corporation
("DeBartolo") announced that they have reached an agreement in principle,
approved by their respective boards of directors, to merge the two companies.
Under the terms of the agreement, DeBartolo shareholders will receive 0.68
shares of the Company's common stock for each share of DeBartolo common stock
owned. The transaction is subject to the approval of the shareholders of both
companies and customary regulatory and other conditions. A definitive agreement
was signed on March 28, 1996.
Distributions Declared
On March 22, 1996, the Board of Directors of the Company approved a $0.4925
distribution on each Unit payable on April 26, 1996 to Unitholders of record on
April 12, 1996.
101
163
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE III
To Simon Property Group, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of SIMON PROPERTY GROUP, L.P. included in
this Form 10-K, and have issued our report thereon dated February 14, 1996. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule is the responsibility of Simon
Property Group, L.P.'s management and is presented for purposes of complying
with the Securities and Exchange Commissions rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
November 13, 1996
102
164
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT
COST CAPITALIZED CLOSE
SUBSEQUENT TO OF
INITIAL COST ACQUISITION PERIOD
---------------------- --------------------- -------
BUILDINGS BUILDINGS
AND AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- -------------------------------------------- ------------- ------- ------------ ------ ------------ -------
REGIONAL MALLS
Alton Square, Alton, IL..................... $ 0 $ 154 $ 7,641 $ 0 $ 559 $ 154
Amigoland Mall, Brownsville, TX............. 0 1,045 4,518 0 198 1,045
Anderson Mall, Anderson, SC................. 19,000 1,838 18,122 1,363 1,816 3,201
Barton Creek Square, Austin, TX............. 64,293 4,413 20,699 771 13,172 5,184
Battlefield Mall, Springfield, MO........... 51,721 4,040 29,783 3,225 26,199 7,265
Broadway Square, Tyler, TX.................. 0 11,470 32,450 0 466 11,470
Century Consumer Mall, Merrillville, IN..... 0 2,190 9,589 0 402 2,190
Charles Town Square, Charleston, SC......... 0 593 2,825 500 334 1,093
Cielo Vista Mall, El Paso, TX............... 59,296 1,307 18,512 608 12,063 1,915
College Mall, Bloomington, IN............... 43,973 1,012 16,245 722 13,039 1,734
Crossroads Mall, Omaha, NE.................. 41,440 884 37,293 409 20,237 1,293
East Towne Mall, Knoxville, TN.............. 55,000 5,269 22,965 3,699 18,827 8,968
Eastgate Consumer Mall, Indianapolis, IN.... 25,429 425 4,722 187 2,657 612
Eastland Mall, Tulsa, OK.................... 30,000 3,124 24,035 518 5,508 3,642
Forest Mall, Fond Du Lac, WI................ 12,800 757 4,498 0 572 757
Forest Village Park, Forestville, MD........ 20,600 1,212 4,625 757 3,179 1,969
Fremont Mall, Fremont, NE................... 0 26 1,280 265 621 291
Golden Ring Mall, Baltimore, MD............. 29,750 1,130 8,955 572 5,921 1,702
Greenwood Park Mall, Greenwood, IN.......... 36,829 2,606 23,500 5,275 49,760 7,881
Heritage Park, Midwest City, OK............. 0 620 6,213 0 584 620
Hutchinson Mall, Hutchison, KS.............. 11,523 1,777 18,427 0 2,154 1,777
Independence Center, Independence, MO....... 0 5,591 45,822 0 995 5,591
Ingram Park Mall, San Antonio, TX........... 56,681 820 17,182 169 9,661 989
Irving Mall, Irving, TX..................... 43,734 11,490 17,479 2,533 4,820 14,023
Jefferson Valley Mall, Yorktown, NY......... 50,000 4,869 30,304 0 2,226 4,869
La Plaza, McAllen, TX....................... 51,015 2,194 9,828 0 1,117 2,194
Lincolnwood Town Center, Lincolnwood, IL.... 63,079 11,197 64,540 28 616 11,225
Longview Mall, Longview, TX................. 22,100 278 3,602 124 1,971 402
Machesney Park Mall, Rockford, IL........... 0 613 7,460 120 1,894 733
Markland Mall, Kokomo, IN................... 10,000 0 7,568 0 566 0
Mc Cain Mall, N. Little Rock, AK............ 26,522 0 9,515 0 5,330 0
Memorial Mall, Sheboygan, WI................ 0 175 4,881 0 242 175
Midland Park Mall, Midland, TX.............. 22,500 704 9,613 0 1,100 704
Miller Hill Mall, Duluth, MN................ 34,500 2,537 18,114 0 669 2,537
Mounds Mall, Anderson, IN................... 0 0 2,689 0 699 0
Muncie Mall, Muncie, IN..................... 24,000 210 5,964 0 858 210
North Towne Square, Toledo, OH.............. 23,500 579 8,382 0 918 579
Northwoods Mall, Peoria, IL................. 0 1,202 12,779 1,449 16,555 2,651
Orange Park Mall, Orange Park, FL........... 0 13,345 65,173 0 566 13,345
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT
CLOSE
OF
PERIOD
------------
BUILDINGS
AND AMORTIZED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- -------------------------------------------- ------------ ------- ------------ ------------
REGIONAL MALLS
Alton Square, Alton, IL..................... $ 8,200 $ 8,354 $ 798 1993(Note 3)
Amigoland Mall, Brownsville, TX............. 4,716 5,761 702 1974
Anderson Mall, Anderson, SC................. 19,938 23,139 1,758 1972
Barton Creek Square, Austin, TX............. 33,871 39,055 2,770 1981
Battlefield Mall, Springfield, MO........... 55,982 63,247 4,011 1976
Broadway Square, Tyler, TX.................. 32,916 44,386 986 1994(Note 3)
Century Consumer Mall, Merrillville, IN..... 9,991 12,181 1,364 1992(Note 3)
Charles Town Square, Charleston, SC......... 3,159 4,252 377 1976
Cielo Vista Mall, El Paso, TX............... 30,575 32,490 3,482 1974
College Mall, Bloomington, IN............... 29,284 31,018 3,173 1965
Crossroads Mall, Omaha, NE.................. 57,530 58,823 780 1994(Note 3)
East Towne Mall, Knoxville, TN.............. 41,792 50,760 586 1984
Eastgate Consumer Mall, Indianapolis, IN.... 7,379 7,991 1,926 1991(Note 3)
Eastland Mall, Tulsa, OK.................... 29,543 33,185 2,519 1986
Forest Mall, Fond Du Lac, WI................ 5,070 5,827 683 1973
Forest Village Park, Forestville, MD........ 7,804 9,773 786 1980
Fremont Mall, Fremont, NE................... 1,901 2,192 128 1983
Golden Ring Mall, Baltimore, MD............. 14,876 16,578 1,622 1974(Note 3)
Greenwood Park Mall, Greenwood, IN.......... 73,260 81,141 5,743 1977
Heritage Park, Midwest City, OK............. 6,797 7,417 812 1978
Hutchinson Mall, Hutchison, KS.............. 20,581 22,358 1,784 1985
Independence Center, Independence, MO....... 46,817 52,408 1,444 1994(Note 3)
Ingram Park Mall, San Antonio, TX........... 26,843 27,832 2,701 1979
Irving Mall, Irving, TX..................... 22,299 36,322 3,373 1971
Jefferson Valley Mall, Yorktown, NY......... 32,530 37,399 2,846 1983
La Plaza, McAllen, TX....................... 10,945 13,139 1,033 1976
Lincolnwood Town Center, Lincolnwood, IL.... 65,156 76,381 5,201 1990
Longview Mall, Longview, TX................. 5,573 5,975 763 1978
Machesney Park Mall, Rockford, IL........... 9,354 10,087 1,091 1979
Markland Mall, Kokomo, IN................... 8,134 8,134 532 1983
Mc Cain Mall, N. Little Rock, AK............ 14,845 14,845 1,930 1973
Memorial Mall, Sheboygan, WI................ 5,123 5,298 499 1980
Midland Park Mall, Midland, TX.............. 10,713 11,417 1,117 1980
Miller Hill Mall, Duluth, MN................ 18,783 21,320 1,700 1973
Mounds Mall, Anderson, IN................... 3,388 3,388 374 1964
Muncie Mall, Muncie, IN..................... 6,822 7,032 990 1975
North Towne Square, Toledo, OH.............. 9,300 9,879 1,447 1980
Northwoods Mall, Peoria, IL................. 29,334 31,985 2,981 1983(Note 3)
Orange Park Mall, Orange Park, FL........... 65,739 79,084 1,929 1994(Note 3)
103
165
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
GROSS
AMOUNTS
AT
WHICH
CARRIED
COST CAPITALIZED AT CLOSE
SUBSEQUENT TO OF
INITIAL COST ACQUISITION PERIOD
------------------------ ----------------------- --------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------ -------- ------------- ------- ------------- --------
Prien Lake Mall, Lake Charles, LA....... 0 1,926 2,829 725 2,049 2,651
South Park Mall, Shreveport, LA......... 24,748 855 13,691 74 1,788 929
Southgate Mall, Yuma, AZ................ 0 1,817 7,974 0 2,937 1,817
Southtown Mall, Ft. Wayne, IN........... 0 2,059 13,288 0 828 2,059
St Charles Towne Center Waldorf, MD..... 77,200 9,328 52,974 1,180 8,484 10,508
Sunland Park Mall, El Paso, TX.......... 40,469 2,896 28,900 0 1,580 2,896
Tippecanoe Mall, Lafayette, IN.......... 48,205 4,771 8,474 5,354 29,529 10,125
Towne East Square, Wichita, KS.......... 58,138 9,495 18,479 2,042 6,479 11,537
Towne West Square, Wichita, KS.......... 40,250 988 21,203 76 2,948 1,064
University Mall, Little Rock, AK........ 0 123 17,411 0 286 123
University Mall, Pensacola, FL.......... 0 4,741 26,657 0 303 4,741
Valle Vista Mall, Harlingen, TX......... 35,126 1,398 17,266 372 6,637 1,770
West Ridge Mall, Topeka, KS............. 50,552 5,837 34,132 197 2,220 6,034
White Oaks Mall, Springfield, IL........ 16,500 3,024 35,692 1,153 12,816 4,177
Wichita Mall, Wichita, KS............... 0 0 4,535 0 285 0
Windsor Park Mall, San Antonio, TX...... 15,123 1,194 16,940 130 2,654 1,324
COMMUNITY SHOPPING CENTERS
Arvada Plaza, Arvada, CO................ 0 70 342 0 1,724 70
Aurora Plaza, Aurora, CO................ 0 35 5,754 0 186 35
Bloomingdale Court, Bloomingdale, IL.... 29,009 9,735 26,184 0 481 9,735
Bridgeview Court, Bridgeview, IL........ 0 308 3,676 0 0 308
Brightwood Plaza, Indianapolis, IN...... 0 65 128 0 136 65
Bristol Plaza, Bristol, VA.............. 0 61 325 0 1 61
Grove Towne Center, Buffalo Grove, IL... 0 2,044 6,602 0 779 2,044
Celina Plaza, El Paso, TX............... 0 138 815 0 13 138
Cohoes Commons, Rochester, NY........... 0 1,698 8,426 0 51 1,698
Cook's Discount, Ardmore, OK............ 0 80 280 0 1 80
Countryside Plaza, Countryside, IL...... 0 1,243 8,507 0 433 1,243
East Towne Commons, Knoxville, TN....... 0 3,921 5,345 0 1,599 3,921
Eastland Plaza, Tulsa, OK............... 0 908 3,709 0 5 908
Forest Plaza, Rockford, IL.............. 17,354 4,353 16,818 0 162 4,353
Fox River Plaza, Elgin, IL.............. 12,654 2,907 9,453 0 48 2,907
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT CLOSE
OF
PERIOD
-------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------------------- ------------- ---------- ------------ ------------
Prien Lake Mall, Lake Charles, LA....... 4,878 7,529 528 1972
South Park Mall, Shreveport, LA......... 15,479 16,408 1,799 1975
Southgate Mall, Yuma, AZ................ 10,911 12,728 870 1988(Note 3)
Southtown Mall, Ft. Wayne, IN........... 14,116 16,175 1,582 1969
St Charles Towne Center Waldorf, MD..... 61,458 71,966 5,629 1990
Sunland Park Mall, El Paso, TX.......... 30,480 33,376 3,428 1988
Tippecanoe Mall, Lafayette, IN.......... 38,003 48,128 2,341 1973
Towne East Square, Wichita, KS.......... 24,958 36,495 2,858 1975
Towne West Square, Wichita, KS.......... 24,151 25,215 2,858 1980
University Mall, Little Rock, AK........ 17,697 17,820 1,894 1967
University Mall, Pensacola, FL.......... 26,960 31,701 802 1994(Note 3)
Valle Vista Mall, Harlingen, TX......... 23,903 25,673 2,195 1983
West Ridge Mall, Topeka, KS............. 36,352 42,386 3,197 1988
White Oaks Mall, Springfield, IL........ 48,508 52,685 1,533 1977
Wichita Mall, Wichita, KS............... 4,820 4,820 582 1981
Windsor Park Mall, San Antonio, TX...... 19,594 20,918 1,974 1976
COMMUNITY SHOPPING CENTERS
Arvada Plaza, Arvada, CO................ 2,066 2,136 169 1966
Aurora Plaza, Aurora, CO................ 5,940 5,975 661 1966
Bloomingdale Court, Bloomingdale, IL.... 26,665 36,400 1,228 1987
Bridgeview Court, Bridgeview, IL........ 3,676 3,984 255 1988
Brightwood Plaza, Indianapolis, IN...... 264 329 36 1965
Bristol Plaza, Bristol, VA.............. 326 387 64 1966
Grove Towne Center, Buffalo Grove, IL... 7,381 9,425 396 1988
Celina Plaza, El Paso, TX............... 828 966 72 1977
Cohoes Commons, Rochester, NY........... 8,477 10,175 823 1984
Cook's Discount, Ardmore, OK............ 281 361 54 1969
Countryside Plaza, Countryside, IL...... 8,940 10,183 982 1977
East Towne Commons, Knoxville, TN....... 6,944 10,865 394 1990
Eastland Plaza, Tulsa, OK............... 3,714 4,622 299 1987
Forest Plaza, Rockford, IL.............. 16,980 21,333 704 1985
Fox River Plaza, Elgin, IL.............. 9,501 12,408 397 1985
104
166
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- CONTINUED
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
GROSS
AMOUNTS
AT
WHICH
CARRIED
COST CAPITALIZED AT CLOSE
SUBSEQUENT TO OF
INITIAL COST ACQUISITION PERIOD
------------------------ ----------------------- --------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------ -------- ------------- ------- ------------- --------
Greenwood Plus, Greenwood, IN........... 0 1,350 1,792 0 259 1,350
Griffith Park Plaza, Griffith, IN....... 0 0 2,412 0 68 0
Hammond Square, Sandy Springs, GA....... 0 0 27 0 1 0
Ingram Plaza, San Antonio, TX........... 0 421 1,802 4 22 425
Lake Plaza, Waukegan, IL................ 0 2,868 6,420 0 152 2,868
Lake View Plaza, Orland Park, IL........ 22,169 4,775 17,586 0 198 4,775
Lincoln Crossing, O'Fallon, IL.......... 997 1,079 2,692 0 0 1,079
Maplewood Square, Omaha, NE............. 0 466 1,249 0 17 466
Markland Plaza, Kokomo, IN.............. 0 210 1,258 0 188 210
Martinsville Plaza, Martinsville, VA.... 0 0 584 0 45 0
Marwood Plaza, Indianapolis, IN......... 0 52 3,597 0 31 52
Matteson Plaza, Matteson, IL............ 11,159 1,830 9,737 0 49 1,830
Memorial Plaza, Sheyboygan, WI.......... 0 250 436 0 129 250
Mounds Mall Cinema, Anderson, IN........ 0 88 158 0 1 88
New Castle Plaza, New Castle, IN........ 0 130 1,621 0 318 130
North Ridge Plaza, Joliet, IL........... 0 2,831 7,699 0 36 2,831
North Riverside Park Plaza,
N. Riverside, IL...................... 7,908 1,062 2,490 0 136 1,062
Northland Plaza, Columbus, OH........... 0 4,490 8,893 0 18 4,490
Northwood Plaza, Fort Wayne, IN......... 0 304 2,922 0 202 304
Park Plaza, Hopkinsville, KY............ 0 300 1,572 0 19 300
Regency Plaza, St. Charles, MO.......... 1,878 616 4,963 0 123 616
St. Charles Towne Plaza, Waldorf, MD.... 30,887 8,835 19,008 0 64 8,835
Teal Plaza, Lafayette, IN............... 0 99 878 0 8 99
Tippecanoe Plaza, Lafayette, IN......... 0 265 440 305 576 570
Wabash Village, West Lafayette, IN...... 0 0 976 0 22 0
West Ridge Plaza, Topeka, KS............ 4,612 1,491 4,620 0 12 1,491
White Oaks Plaza, Springfield, IL....... 12,345 3,265 14,267 0 83 3,265
Wood Plaza, Fort Dodge, IA.............. 0 45 380 0 655 45
SPECIALITY RETAIL CENTER
The Forum Shops at Caesars,
Las Vegas, NV......................... 89,701 0 72,866 0 5,307 0
Trolley Square, Salt Lake City, UT...... 27,141 4,899 27,539 263 2,024 5,162
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT CLOSE
OF
PERIOD
-------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------------------- ------------- ---------- ------------ ------------
Greenwood Plus, Greenwood, IN........... 2,051 3,401 319 1979(Note 3)
Griffith Park Plaza, Griffith, IN....... 2,480 2,480 264 1979
Hammond Square, Sandy Springs, GA....... 28 28 2 1974
Ingram Plaza, San Antonio, TX........... 1,824 2,249 227 1980
Lake Plaza, Waukegan, IL................ 6,572 9,440 263 1986
Lake View Plaza, Orland Park, IL........ 17,784 22,559 717 1986
Lincoln Crossing, O'Fallon, IL.......... 2,692 3,771 118 1990
Maplewood Square, Omaha, NE............. 1,266 1,732 147 1987
Markland Plaza, Kokomo, IN.............. 1,446 1,656 189 1975
Martinsville Plaza, Martinsville, VA.... 629 629 133 1980
Marwood Plaza, Indianapolis, IN......... 3,628 3,680 242 1962
Matteson Plaza, Matteson, IL............ 9,786 11,616 528 1988
Memorial Plaza, Sheyboygan, WI.......... 565 815 97 1966
Mounds Mall Cinema, Anderson, IN........ 159 247 20 1975
New Castle Plaza, New Castle, IN........ 1,939 2,069 219 1966
North Ridge Plaza, Joliet, IL........... 7,735 10,566 414 1985
North Riverside Park Plaza,
N. Riverside, IL...................... 2,626 3,688 311 1977
Northland Plaza, Columbus, OH........... 8,911 13,401 369 1988
Northwood Plaza, Fort Wayne, IN......... 3,124 3,428 324 1977
Park Plaza, Hopkinsville, KY............ 1,591 1,891 149 1968
Regency Plaza, St. Charles, MO.......... 5,086 5,702 197 1988
St. Charles Towne Plaza, Waldorf, MD.... 19,072 27,907 846 1987
Teal Plaza, Lafayette, IN............... 886 985 64 1986
Tippecanoe Plaza, Lafayette, IN......... 1,016 1,586 219 1962
Wabash Village, West Lafayette, IN...... 998 998 119 1976
West Ridge Plaza, Topeka, KS............ 4,632 6,123 226 1988
White Oaks Plaza, Springfield, IL....... 14,350 17,615 572 1986
Wood Plaza, Fort Dodge, IA.............. 1,035 1,080 101 1967
SPECIALITY RETAIL CENTER
The Forum Shops at Caesars,
Las Vegas, NV......................... 78,173 78,173 6,775 1992
Trolley Square, Salt Lake City, UT...... 29,563 34,725 2,869 1986(Note 3)
105
167
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- CONTINUED
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
GROSS
AMOUNTS
AT
WHICH
CARRIED
COST CAPITALIZED AT CLOSE
SUBSEQUENT TO OF
INITIAL COST ACQUISITION PERIOD
------------------------ ----------------------- --------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------ -------- ------------- ------- ------------- --------
MIXED-USE PROPERTIES
O Hare International Center,
Rosemont, IL.......................... 27,500 172 60,287 1 3,601 173
Riverway, Rosement, IL.................. 131,450 8,738 129,175 16 4,262 8,754
LAND HELD FOR DEVELOPMENT
Cottonwood Mall, Albuquerque, NM........ 22,399 0 0 5,993 36,233 5,993
The Shops at Sunset Place,
South Miami, FL....................... 0 11,898 3,884 0 0 11,898
---------- -------- ---------- ------- -------- --------
$1,784,759 $242,543 $ 1,488,831 $41,179 $ 371,372 $283,722
========== ======== ========== ======= ======== ========
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT CLOSE
OF
PERIOD
-------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------------------- ------------- ---------- ------------ ------------
MIXED-USE PROPERTIES
O Hare International Center,
Rosemont, IL.......................... 63,888 64,061 7,238 1986
Riverway, Rosement, IL.................. 133,437 142,191 13,718 1988
LAND HELD FOR DEVELOPMENT
Cottonwood Mall, Albuquerque, NM........ 36,233 42,226 0 1993
The Shops at Sunset Place,
South Miami, FL....................... 3,884 15,782 0 1995
---------- ---------- --------
$ 1,860,203 $2,143,925 $147,341
========== ========== ========
106
168
SIMON PROPERTY GROUP, L.P.
NOTES TO SCHEDULE III AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) RECONCILIATION OF REAL ESTATE PROPERTIES:
The changes in real estate assets for the years ended December 31, 1995 and
1994 are as follows:
1995 1994
---------- ----------
Balance, beginning of year.................................. $1,887,122 $1,346,142
Net book value of real estate exchanged................... -- --
Acquisitions.............................................. 32,547 205,249
Improvements.............................................. 73,097 52,429
Disposals................................................. (12,722) (1,733)
Consolidation............................................. 163,881 285,035
---------- ----------
Balance, close of year...................................... $2,143,925 $1,887,122
========== ==========
The aggregate net book value for federal income tax purposes as of December
31, 1995 was $1,826,759.
(2) RECONCILIATION OF ACCUMULATED DEPRECIATION:
The changes in accumulated depreciation and amortization for the years
ended December 31, 1995 and 1994 are as follows:
1995 1994
---------- ----------
Balance, beginning of year.................................. $ 68,222 $ 1,830
Depreciation expense........................................ 79,126 66,440
Disposals................................................... (7) (48)
-------- -------
Balance, close of year...................................... $ 147,341 $ 68,222
======== =======
Depreciation of the Simon Operating Partnership's investment in buildings
and improvements reflected in the statements of operations is calculated over
the estimated original lives of the assets as follows:
Buildings -- typically 35 years
Improvements -- shorter of lease term or useful life
(3) NOT DEVELOPED/CONSTRUCTED BY THE SIMONS. THE DATE OF CONSTRUCTION REPRESENTS
ACQUISITION DATE.
107
169
CERTAIN INFORMATION WITH RESPECT
TO DEBARTOLO REALTY PARTNERSHIP, L.P.
PAGE NO.
--------
DeBartolo Realty Partnership, L.P. Consolidated Balance Sheet as of December 31,
1995............................................................................. 109
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
period from January 1, 1996 to August 9, 1996 and for the nine months ended
September 30, 1995............................................................... 110
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
period from July 1, 1996 to August 9, 1996 and for the three months ended
September 30, 1995............................................................... 111
DeBartolo Realty Partnership, L.P. Consolidated Statements of Cash Flows for the
period from January 1, 1996 to August 9, 1996 and for the nine months ended
September 30, 1995............................................................... 112
Notes to Financial Statements...................................................... 113
Report of Independent Auditors..................................................... 117
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... 118
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
year ended December 31, 1995 and for the period from inception (April 21, 1994)
through December 31, 1994 and DeBartolo Retail Group (the predecessor to
DeBartolo Realty Partnership, L.P.) Combined Statements of Operations for the
period January 1, 1994 through April 20, 1994 and for the year ended December 31,
1993............................................................................. 119
DeBartolo Realty Partnership, L.P. Consolidated Statements of Partnership Equity
for the year ended December 31, 1995 and for the period from inception (April 21,
1994) through December 31, 1994 and DeBartolo Retail Group Combined Statements of
Owners' Equity for the period January 1, 1994 through April 20, 1994 and for the
year ended December 31, 1993..................................................... 120
DeBartolo Realty Partnership, L.P. Consolidated Statements of Cash Flows for the
year ended December 31, 1995 and the period from inception (April 21, 1994)
through December 31, 1994 and DeBartolo Retail Group Combined Statements of Cash
Flows for the period January 1, 1994 through April 20, 1994 and for the year
ended December 31, 1993.......................................................... 121
Notes to Financial Statements...................................................... 122
Report of Independent Auditors..................................................... 142
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. and Uncombined
Joint Ventures of DeBartolo Retail Group Combined Balance Sheets as of December
31, 1995 and 1994................................................................ 143
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Operations for the year ended December 31, 1995 and the period from
inception (April 21, 1994) to December 31, 1994 and Uncombined Joint Ventures of
DeBartolo Retail Group Combined Statements of Operations for the period January
1, 1994 to April 20, 1994 and for the year ended December 31, 1993............... 144
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Accumulated Deficit for the year ended December 31, 1995 and the
period from inception (April 21, 1994) to December 31, 1994 and Uncombined Joint
Ventures of DeBartolo Retail Group Combined Statements of Accumulated Deficit for
the period January 1, 1994 to April 20, 1994 and for the year ended December 31,
1993............................................................................. 145
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Cash Flow for the year ended December 31, 1995 and the period from
inception (April 21, 1994) to December 31, 1994 and Uncombined Joint Venture of
DeBartolo Retail Group Combined Statements of Cash Flow for the period January 1,
1994 to April 20, 1994 and for the year ended December 31, 1993.................. 146
Notes to Financial Statements...................................................... 147
108
170
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
AS OF
DECEMBER 31,
1995
--------------------
(DOLLARS IN
THOUSANDS EXCEPT
UNIT DATA)
Investment properties (Note 4)........................................... $1,793,663
Less accumulated depreciation............................................ 574,338
----------
1,219,325
Cash and cash equivalents................................................ 25,851
Restricted cash (Note 3)................................................. 13,910
Short term investments................................................... 14,057
Accounts receivable, net................................................. 39,103
Investments in and advances to nonconsolidated joint ventures (Notes 4
and 5)................................................................. 116,725
Minority interest in capital deficits of consolidated joint ventures..... 25,496
Deferred charges and prepaid expenses.................................... 77,103
----------
$1,531,570
==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgages and notes payable (Note 4)..................................... $1,348,573
Accounts payable and accrued expenses.................................... 38,810
Distributions payable.................................................... 28,225
Deficits in nonconsolidated joint ventures (Notes 4 and 5)............... 71,147
----------
1,486,755
----------
Commitments and contingencies............................................ --
Partners' Equity (Deficit):
Preferred Units, 10,000,000 units authorized, none issued and
outstanding............................................................ --
General Partner, 55,329,162 units outstanding............................ 27,673
Limited Partners, 34,272,532 units outstanding........................... 17,142
----------
Total Partners' Equity................................................... 44,815
----------
$1,531,570
==========
See accompanying notes.
109
171
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE PERIOD
FROM JANUARY 1, FOR THE NINE
1996 TO MONTHS ENDED
AUGUST 9, SEPTEMBER 30,
1996 1995
---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER
UNIT DATA)
Revenues:
Minimum rents............................................. $136,594 $153,472
Tenant recoveries......................................... 52,398 60,828
Percentage rents.......................................... 6,188 8,423
Other..................................................... 11,455 21,828
-------- --------
Total revenues............................................ 206,635 244,551
-------- --------
Expenses:
Shopping Center Expenses:
Property operating........................................ 23,783 25,811
Repairs and maintenance................................... 18,275 20,092
Real estate taxes......................................... 22,350 24,952
Advertising & promotion................................... 4,572 4,691
Management expenses....................................... 5,494 4,218
Provision for doubtful accounts........................... 5,085 2,058
Ground leases............................................. 1,815 1,811
Other..................................................... 4,679 3,672
-------- --------
Total shopping center expenses............................ 86,053 87,305
Deferred stock compensation expense....................... 130 158
Interest expense.......................................... 74,714 91,102
Depreciation and amortization............................. 38,706 42,726
Write off of minority partners' interests................. 13,854 --
Merger expenses (Note 4).................................. 13,512 --
-------- --------
226,969 221,291
Gain on sale of assets.................................... -- 3,944
Income from nonconsolidated joint ventures (Notes 4 and
5)..................................................... 8,422 6,312
Minority partners' interest in consolidated joint
ventures............................................... (528) 1,392
-------- --------
Income (loss) before extraordinary item................... (12,440) 34,908
Extraordinary item (Note 4)............................... 9,191 (5,629)
-------- --------
Net income (loss)................................. $ (3,249) $ 29,279
======== ========
Net Income (loss) Available to Unitholders Attributable to:
General Partner........................................... $ (2,031) $ 17,331
Limited Partners.......................................... (1,218) 11,948
-------- --------
Net income (loss) available to unitholders................ $ (3,249) $ 29,279
======== ========
EARNINGS PER UNIT (Note 6):
Income (loss) before extraordinary item................... $ (0.14) $ 0.41
Extraordinary item........................................ 0.13 (0.07)
-------- --------
Net income (loss)......................................... $ 0.01 $ 0.34
======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's).................. 89,781 84,456
======== ========
See accompanying notes.
110
172
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE
FOR THE PERIOD MONTHS ENDED
FROM JULY 1, 1996 TO SEPTEMBER 30,
AUGUST 9, 1996 1995
--------------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
Revenues:
Minimum rents........................................ $ 22,508 $51,088
Tenant recoveries.................................... 6,942 20,984
Percentage rents..................................... 553 2,791
Other................................................ -- 9,236
---------- ----------
Total revenues....................................... 30,003 84,099
Expenses:
Shopping Center Expenses:
Property operating................................ 4,088 8,849
Repairs and maintenance........................... 3,145 7,301
Real estate taxes................................. 4,012 8,146
Advertising & promotion........................... 794 1,930
Management expenses............................... 1,351 1,421
Provision for doubtful accounts................... 3,583 565
Ground leases..................................... 365 604
Other............................................. 2,336 896
---------- ----------
Total shopping center expenses....................... 19,674 29,712
Deferred stock compensation expense.................. 25 53
Interest expense..................................... 13,955 29,764
Depreciation and amortization........................ 6,274 14,378
Write off of minority partners' interests............ 13,854 --
Merger expenses (Note 4)............................. 3,312 --
---------- ----------
57,094 73,907
---------- ----------
Gain on sale of assets............................... -- 165
Income from nonconsolidated joint ventures (Notes 4
and 5)............................................ 186 2,130
Minority partners' interest in consolidated joint
ventures.......................................... (203) 856
---------- ----------
Income (loss) before extraordinary item.............. (27,108) 13,343
Extraordinary item (note 4).......................... -- (5,629)
---------- ----------
Net income (loss)............................ (27,108) 7,714
========== ==========
Net Income (loss) Available to Unitholders Attributable
to:
General Partner................................... $ (16,793) $ 4,657
Limited Partners.................................. (10,315) 3,057
---------- ----------
Net income (loss) available to unitholders........ $ (27,108) $ 7,714
========== ==========
EARNINGS PER UNIT (Note 6):
Income (loss) before extraordinary item........... $ (0.30) $ 0.15
Extraordinary item................................ -- (0.07)
---------- ----------
Net income (loss)................................. $ (0.30) 0.08
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's)........... 89,827 89,602
========== ==========
See accompanying notes
111
173
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE
PERIOD FOR THE
FROM NINE
JANUARY 1, MONTHS
1996 TO ENDED
AUGUST 9, SEPTEMBER 30,
1996 1995
----------- -------------
(DOLLARS IN THOUSANDS)
Cash Flow From Operating Activities:
Net income (loss).......................................................... $ (3,249) $ 29,279
Adjustments to reconcile net income to net cash provided by Operating
Activities:
Gain on sale of assets................................................... -- (3,944)
Depreciation and amortization............................................ 44,797 54,232
Extraordinary item....................................................... (9,191) 5,629
Deferred stock compensation expense...................................... 3,434 158
Minority partners' interests in consolidated joint ventures.............. 528 (1,392)
Write off of minority partners' interests................................ 13,854 --
Income from nonconsolidated joint ventures............................... (8,422) (6,312)
Decrease in restricted cash.............................................. 5,556 19,041
Decrease (increase) in short term investments............................ 14,057 (7,736)
Decrease in accounts receivable.......................................... 2,343 1,779
(Decrease) increase in prepaid expenses and other........................ 3,051 (4,347)
Increase in accounts payable and accrued expenses........................ 37,695 7,316
--------- ---------
Net Cash Provided By Operating Activities................................ 104,453 93,703
--------- ---------
Cash Flows From Investing Activities:
Additions to investment properties....................................... (49,050) (36,476)
Purchase of partnership interests........................................ (5,375) --
Additions to deferred charges for lease costs and other.................. (4,678) (2,472)
Distributions from nonconsolidated joint ventures........................ 37,032 14,640
Advances to and investments in nonconsolidated joint ventures............ (12,055) (1,486)
Net proceeds from sale of assets......................................... 307 4,083
--------- ---------
Net Cash Used In Investing Activities.................................... (33,119) (21,711)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of debt........................................... 93,108 60,783
Principal payments on mortgages.......................................... (44,852) (89,602)
Loan costs paid.......................................................... (294) (736)
Prepayment penalties on early extinguishment of debt..................... -- (1,990)
Minority partner distributions........................................... (1,751) (387)
Capital contributions.................................................... -- 80,370
Distributions paid....................................................... (88,235) (78,309)
Decrease in affiliate receivables........................................ 1,527 (2,918)
--------- ---------
Net Cash Used in Financing Activities.................................... (40,498) (32,789)
--------- ---------
Net (Decrease) Increase in Cash.......................................... 30,836 39,203
Cash and Cash Equivalents:
Beginning of period...................................................... 25,851 38,899
--------- ---------
End of period............................................................ $ 56,687 $ 78,102
========= =========
Supplemental Information:
Interest Paid............................................................ $ 71,803 $ 60,915
========= =========
Supplemental schedule of non-cash and financing activities:
Step-up in connection with acquisition of additional interest in joint
venture................................................................ $ 7,296 --
========= =========
Historical cost basis of net investment properties consolidated as a
result of acquisitions of additional interests in joint ventures....... $ 121,245 --
========= =========
Mortgages on those properties consolidated as a result of acquisitions of
additional interests in joint ventures................................. $ 136,009 --
========= =========
Historical cost basis of net investment property disposed................ $ (4,040) --
========= =========
Mortgage extinguishment relating to property disposition................. $ (13,372) --
========= =========
See accompanying notes
112
174
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND OWNERSHIP
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been included.
The results for the interim period ended August 9, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year. These
financial statements should be read in conjunction with the DeBartolo Realty
Partnership, L.P. December 31, 1995 audited consolidated financial statements
and notes thereto included herein.
DeBartolo Realty Partnership, L.P., a Delaware Limited Partnership (the
"Operating Partnership") and an affiliate, DeBartolo Capital Partnership, a
Delaware general partnership, are engaged in the ownership, development,
management, leasing, acquisition and expansion of super-regional and regional
malls and community shopping centers. The Operating Partnership's sole general
partner is DeBartolo Realty Corporation (the "Company"), an Ohio corporation
which operates as a self-administered and self-managed real estate investment
trust ("REIT"), which at August 9, 1996 holds a 61.9% interest in the Operating
Partnership.
The Operating Partnership was formed to continue and expand the shopping
mall ownership, management and development business of The Edward J. DeBartolo
Corporation ("EJDC") in a portfolio which, as of August 9, 1996, consisted of 50
super-regional and regional malls (the "DeBartolo Malls"), 11 community centers
and land held for future development (collectively, the "DeBartolo Properties").
As of August 9, 1996, EJDC and certain affiliates (collectively, the "DeBartolo
Group") and certain current and former employees of EJDC, along with JCP Realty,
Inc. ("JCP"), own the remaining 38.1% interest in the Operating Partnership.
In addition, the Operating Partnership owns 100% of the non-voting
preferred stock and a non-controlling common stock Interest (5%) in DeBartolo
Properties Management, Inc. (the "Property Manager") which provides certain
architectural, design, construction and other services to substantially all of
the DeBartolo Properties, as well as, certain other regional malls and community
shopping centers owned by third parties.
NOTE 2 -- BASIS OF PRESENTATION
The financial statements of the Operating Partnership are presented on a
consolidated basis. Properties which are controlled through majority ownership
have been consolidated and all significant intercompany transactions and
accounts have been eliminated. Properties where the Operating Partnership owns
less than a majority interest have been accounted for under the equity method.
One property, which is owned 2% by the Operating Partnership, is accounted for
under the cost method.
The Operating Partnership owns 5% of the voting common stock and all of the
nonvoting preferred stock of the Property Manager. The Operating Partnership
accounts for the investment in the Property Manager under the equity method.
NOTE 3 -- RESTRICTED CASH
Cash is restricted primarily for renovations and redevelopment of the 17
DeBartolo Properties in connection with a securitized commercial pass-through
certificate issuance simultaneously with the IPO.
113
175
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 4 -- MERGERS, ACQUISITIONS AND DISPOSITIONS
The parent company of the Operating Partnership entered into an Agreement
and Plan of Merger, dated as of March 26, 1996 (the "Agreement"), among Simon
Property Group, Inc., a Maryland corporation ("SPG"), its merger subsidiary and
the Company, pursuant to which the Company agreed to merge with the merger
subsidiary. The Agreement provides for the exchange of all outstanding Company
common stock for SPG common stock, $0.0001 par value (the "SPG Common Stock"),
at an exchange ratio of 0.68 shares of SPG Common Stock for each share of
Company common stock. The merger and other related transactions closed on August
9, 1996. Shareholders of the Company received approximately 37.9 million shares
of SPG common stock valued at $24.375 per share. During the period ended August
9, 1996, the Company incurred $10,200 of underwriting, legal, accounting and
other expenses associated with the merger. These costs were charged to expense.
During January, 1996, the Property Manager acquired partnership interests
of 33 1/3% and 25% in two joint ventures, respectively, from an unrelated joint
venture partner. As a result, the Operating Partnership effectively owns 65% and
74% of these joint ventures and includes the financial position and results of
operations and cash flows of these joint ventures in its consolidated financial
statements. Effective March 31, 1996, the Operating Partnership acquired an
additional 10% partnership interest in Miami International Mall. As a result,
the Operating Partnership owns 60% of this joint venture and includes the
financial position and results of operations and cash flows in its consolidated
financial statements effective April 1, 1996.
The Operating Partnership transferred ownership of one property to its
lender, as of March 1, 1996, fully satisfying the property's mortgage note
payable. This property no longer met the Operating Partnership's criteria for
its ongoing strategic plan. The Operating Partnership has recognized an
extraordinary gain on this transaction of $9.2 million. The Operating
Partnership's share of this property's net income (loss) for 1993, 1994 and 1995
was $9, ($760) and ($513), respectively. The Operating Partnership's share of
this property's cash generated before debt payments and capital expenditures
("FFO") for 1993, 1994 and 1995 was $512, ($237) and $48, respectively.
Effective January 1, 1996, the Operating Partnership acquired the
management, leasing and certain other operating divisions of the Property
Manager. The operating results of these divisions are included in the Operating
Partnership's consolidated financial statements net of eliminated intercompany
transactions. The Property Manager continues to provide architectural,
engineering and construction services for the Operating Partnership.
114
176
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 5 -- INVESTMENT IN NONCONSOLIDATED JOINT VENTURES
As a result of the above-discussed acquisitions, the combined Balance Sheet
of the nonconsolidated joint ventures includes the financial position of twelve
joint ventures at December 31, 1995.
DECEMBER 31,
1995
------------
Balance Sheets
Investment properties (net)................................................ $599,234
Other assets............................................................... 43,094
--------
Total assets....................................................... 642,328
--------
Mortgages and notes payable................................................ 584,495
Other liabilities.......................................................... 90,549
--------
Total liabilities.................................................. 675,044
--------
Accumulated equity (deficit)............................................... (32,716)
Less: Outside partners' equity............................................. 180
Advances to nonconsolidated joint ventures................................. 78,474
--------
Net surplus in nonconsolidated joint ventures.............................. $ 45,578
========
Net surplus (deficits) in nonconsolidated joint ventures is presented in
the accompanying consolidated balance sheets as follows:
Investments in nonconsolidated joint ventures.............................. $ 38,251
Advances to nonconsolidated joint ventures................................. 78,474
--------
Total investments in and advances to nonconsolidated joint ventures.......... 116,725
Deficits in nonconsolidated joint ventures................................. (71,147)
--------
$ 45,578
========
The combined statements of operations for the nonconsolidated joint
ventures include the operating results of ten joint ventures for the three month
period ended March 31, 1996, nine joint ventures for the period ended August 9,
1996 and twelve joint ventures in 1995. The operating results of two joint
ventures, in which the Operating Partnership acquired additional partnership
interest in January 1996, are included in the Operating Partnership's
consolidated operating statement. The operating results of one joint venture, in
which
115
177
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
the Operating Partnership acquired additional partnership interest effective
March 31, 1996, are included in the Operating Partnership's consolidated
operating statement effective April 1, 1996.
FOR THE PERIOD ENDED
---------------------------
AUGUST 9, SEPTEMBER 30,
1996 1995
--------- -------------
Statements of Operations Revenues:
Minimum rents...................................... $46,847 $66,794
Tenant recoveries.................................. 25,287 33,055
Percentage rents................................... 2,745 4,055
Other.............................................. 6,317 8,417
------- -------
Total revenues..................................... 81,196 112,321
------- -------
Expenses:
Shopping Center Expenses:
Property operating.............................. 7,471 10,619
Repairs and maintenance......................... 6,093 8,862
Real estate taxes............................... 9,985 13,958
Advertising and promotion....................... 2,157 3,272
Management fees to affiliate.................... 2,819 3,699
Provision for doubtful accounts................. 1,899 766
Ground leases................................... 5 90
Other........................................... 594 991
------- -------
31,023 42,257
Interest expense................................... 25,016 43,050
Depreciation and amortization...................... 12,849 17,771
------- -------
68,888 103,078
------- -------
Gain (loss) on sale of assets...................... -- 167
------- -------
Net income...................................... $12,308 $ 9,410
======= =======
DeBartolo Realty Partnership, L.P.'s share of:
Revenues less shopping center expenses............. $23,902 $20,275
Interest expense................................... 9,234 9,866
Depreciation, amortization and other............... 6,246 6,227
------- -------
Net income................................. $ 8,422 $ 4,182
======= =======
NOTE 6 -- EARNINGS PER UNIT
Earnings per Unit is based on the weighted average number of units of
partnership interest ("units") outstanding for the period ended August 9, 1996.
Common stock awarded but not yet issued under the deferred stock plan (42,400
shares) and the Company and the Operating Partnership's long-term incentive plan
(80,400 shares) have been included in the computations of per unit data for the
period months ended August 9, 1996.
NOTE 7 -- DISTRIBUTIONS
The Operating Partnership paid a distribution of $0.315 per unit on July
22, 1996 for the period of April 1, 1996 through June 28, 1996. On August 9,
1996, the Operating Partnership paid a prorated distribution of $0.1454 per unit
for the period June 29, 1996 through August 9, 1996 (the closing date of the
merger with SPG).
116
178
REPORT OF INDEPENDENT AUDITORS
To the Partners of
DeBartolo Realty Partnership, L.P.
We have audited the accompanying consolidated balance sheets of DeBartolo
Realty Partnership, L.P. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, partners' equity and cash flows for the
year ended December 31, 1995 and for the period April 21, 1994 (Commencement of
Operations) to December 31, 1994, and the combined statements of operations,
accumulated deficit and cash flows of DeBartolo Retail Group (Predecessor), as
described in Note 2, for the period January 1, 1994 to April 20, 1994 and the
year ended December 31, 1993. These financial statements are the responsibility
of DeBartolo Realty Partnership, L.P.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DeBartolo Realty Partnership, L.P., at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1995 and for the period April 21, 1994 to December 31, 1994, and
the combined results of operations and cash flows of DeBartolo Retail Group
(Predecessor) for the period January 1, 1994 to April 20, 1994 and the year
ended December 31, 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 14, 1996, except for Note 16,
first paragraph, as to which the date is
March 1, 1996
117
179
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
AS OF DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT UNIT DATA)
Investment properties (Notes 4 and 8)............................. $1,793,663 $1,737,592
Less accumulated depreciation.................................. 574,338 519,754
---------- ----------
1,219,325 1,217,838
Cash and cash equivalents......................................... 25,851 38,899
Restricted cash (Note 3).......................................... 13,910 35,751
Short term investments............................................ 14,057 4,339
Accounts receivable, less allowance............................... 39,103 40,083
for doubtful accounts of $10,070 and $9,462 in 1995 and 1994
Affiliate receivables (Note 11).............................. 3,007 356
Investments in and advances to nonconsolidated joint ventures
(Note 5)....................................................... 116,725 110,845
Minority interest in capital deficits of consolidated joint
ventures....................................................... 25,920 27,249
Deferred charges and prepaid expenses (Note 7).................... 74,096 97,610
---------- ----------
$1,531,994 $1,572,970
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgages and notes payable (Note 8)........................... $1,348,573 $1,409,827
Accounts payable and accrued expenses.......................... 38,810 39,325
Distributions payable.......................................... 28,225 26,093
Deficits in nonconsolidated joint ventures (Note 5)............ 71,147 69,842
Minority interest in consolidated joint ventures............... 424 604
---------- ----------
1,487,179 1,545,691
========== ==========
Commitments and contingencies (Notes 3, 8, 9, 10 and 15).......... -- --
Partners' Equity (Note 12):
Preferred Units, 10,000,000 authorized, none issued and
outstanding.................................................... -- --
General Partner, 55,329,162 and 48,666,153 units outstanding,
respectively................................................... 27,673 16,026
Limited Partners, 34,272,532 and 34,168,347 units outstanding,
respectively................................................... 17,142 11,253
---------- ----------
Total Partners' Equity......................................... 44,815 27,279
---------- ----------
$1,531,994 $1,572,970
========== ==========
See accompanying notes
118
180
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF OPERATIONS
DEBARTOLO REALTY DEBARTOLO RETAIL
PARTNERSHIP, L.P. GROUP
--------------------------- ---------------------------
1995 1994 1994 1993
------------ ------------ ------------ ------------
JANUARY 1 APRIL 21 JANUARY 1 JANUARY 1
THROUGH THROUGH THROUGH THROUGH
DECEMBER 31 DECEMBER 31 APRIL 20 DECEMBER 31
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Revenues (Note 11):
Minimum rents............................... $205,056 $140,909 $ 61,898 $194,643
Tenant recoveries........................... 82,147 56,720 24,361 81,967
Percentage rents............................ 12,924 9,122 3,653 14,060
Other....................................... 32,530 22,192 5,360 18,285
-------- -------- ------- --------
Total revenues...................... 332,657 228,943 95,272 308,955
-------- -------- ------- --------
Expenses:
Shopping Center Expenses:
Property operating....................... 34,707 23,575 10,272 33,966
Repairs and maintenance.................. 28,060 20,469 8,710 29,602
Real estate taxes........................ 33,223 23,371 9,807 33,015
Advertising and promotion................ 7,403 5,499 1,348 6,400
Management fees to affiliate (Note 11)... 5,674 3,274 2,246 7,167
Provision for doubtful accounts.......... 2,671 910 1,535 3,747
Ground leases (Note 10).................. 2,413 1,499 754 2,232
Other.................................... 4,137 2,038 976 3,399
-------- -------- ------- --------
Total shopping center expenses...... 118,288 80,635 35,648 119,528
Deferred stock compensation expense (Note
12)...................................... 210 4,058 -- --
Interest expense............................ 124,567 87,040 44,119 152,683
Depreciation and amortization............... 58,603 39,578 16,616 54,227
-------- -------- ------- --------
301,668 211,311 96,383 326,438
-------- -------- ------- --------
Gain on sale of assets (Note 13)............ 5,460 1,952 3,286 4,960
Income (loss) from nonconsolidated joint
ventures (Note 5)........................ 8,865 7,554 842 (304)
Minority partners' interest in consolidated
joint ventures........................... 1,029 530 888 3,065
-------- -------- ------- --------
Income (loss) before extraordinary
items.................................. 46,343 27,668 3,905 (9,762)
Extraordinary item -- loss on early
extinguishment of debt (Note 14)....... (11,267) (8,932) -- --
-------- -------- ------- --------
Net income (loss) available to
Unitholders............................ $ 35,076 $ 18,736 $ 3,905 $ (9,762)
======== ======== ======= ========
Net Income (loss) available to Unitholders
attributable to:
General Partner.......................... $ 20,911 $ 11,008 $ 3,905 $ (9,762)
Limited Partners......................... 14,165 7,728 -- --
-------- -------- ------- --------
35,076 18,736 3,905 (9,762)
======== ======== ======= ========
EARNINGS PER UNIT:
Income before extraordinary items........... $ 0.53 $ 0.34
Extraordinary items......................... (0.13) (0.11)
-------- --------
$ 0.40 $ 0.23
======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's).... 85,722 82,540
======== ========
See accompanying notes
119
181
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
AND DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF OWNERS' EQUITY
DEBARTOLO REALTY PREDECESSOR EQUITY
CORPORATION UNITS LIMITED PARTNERS UNITS TOTAL UNITS (DEFICIT)
---------------- --------- ---------------- -------- ---------- --------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT DATA)
Balance at January 31,
1993................. $ (79,524)
Contributions.......... 8,198
Distributions.......... (33,614)
Net loss............... (9,762)
---------
Balance at December 31,
1993................. (114,702)
Contributions.......... 8,818
Distributions.......... (14,095)
Net income for the
period January 1,
1994 to April 20,
1994................. 3,905
Affiliated receivables
not contributed to
the Operating
Partnership.......... (201,014)
Distribution of net
affiliated
receivables and
payables............. (23,464)
Distributions to
predecessor's
parent............... (130,400)
Minority partners'
interest exchanges
for Operating
Partners............. (11,923)
Other cash and non-cash
contributions to
equity............... 3,740
---------
Accumulated Deficit at
commencement of
operations........... - - - - - - $ (479,135)
Contributions of
proceeds from Initial
Public Offering, net
of transaction
costs................ 41,336,900 545,670 - - 41,336,900 545,670 -
Exchange of debt for
partnership
interest............. 982,237 14,488 - - 982,237 14,488 -
Transfer of predecessor
accumulated
deficit.............. - (479,135) - - - (479,135) 479,135
Establishment of in the
Operating
Partnership.......... - (33,422) 40,515,363 33,422 40,515,363 - -
Transfer of limited
partners' interest to
DeBartolo Realty
Corporation.......... 6,347,016 - (6,347,016) - - - -
Distributions from
April 21, 1994 to
December 31, 1994.... - (42,583) - (29,897) - (72,480) -
Net income from April
21, 1994 to December
31, 1994............. - 11,008 - 7,728 - 18,736 -
---------- --------- ---------- -------- ---------- --------- ---------
Balance at December 31,
1994................. 48,666,153 16,026 34,168,347 11,253 82,834,500 27,279 -
Contributions relating
to incentive plans... 96,006 785 - 535 96,006 1,320 -
Contributions relating
to second stock
offering............. 6,000,000 49,417 - 30,953 6,000,000 80,370 -
Contributions relating
to purchase of
minority partners'
interest in five
properties........... - 5,514 671,188 3,921 671,188 9,435 -
Transfer of limited
partners' interest
DeBartolo Realty
Corporation.......... 567,003 567 (567,003) (567) - - -
Distributions.......... - (65,547) - (43,118) - (108,665) -
Net income............. - 20,911 - 14,165 - 35,076 -
---------- --------- ---------- -------- ---------- --------- ---------
Balance at December 31,
1995................. 55,329,162 $ 27,673 34,272,532 $ 17,142 89,601,694 $ 44,815 $ -
========== ========= ========== ======== ========== ========= =========
120
182
DEBARTOLO REALTY PARTNERSHIP, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
AND DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
DEBARTOLO REALTY DEBARTOLO RETAIL
PARTNERSHIP, L.P. GROUP
------------------------- -------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
JANUARY 1 APRIL 21 JANUARY 1 JANUARY 1
THROUGH THROUGH THROUGH THROUGH
DECEMBER 31 DECEMBER 31 APRIL 20 DECEMBER 31
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Cash Flow From Operating Activities:
Net Income (loss)....................................................... $ 35,076 $ 18,736 $ 3,905 $ (9,762)
Adjustments to reconcile net income to net cash provided by Operating
Activities:
Amortization of formation and loan costs included in interest
expense............................................................. 11,616 10,528 1,354 4,390
Amortization and write-off of interest rate protection agreements..... 7,307 2,112 -- --
Extraordinary loss on early extinguishment of debt.................... 11,267 8,932 -- --
Gain on sale of assets................................................ (5,460) (1,952) (3,286) (4,960)
Depreciation and amortization......................................... 58,603 39,578 16,616 54,227
Deferred stock compensation expense................................... 210 4,058 -- --
Minority partners' interests in consolidated joint ventures........... (1,029) (530) (888) (3,065)
(Income) loss from nonconsolidated joint ventures..................... (8,865) (7,554) (842) 304
Decease (increase) in restricted cash................................. -- 7,143 (2,829) (344)
Decrease (increase) in accounts receivable............................ 980 (642) 172 1,286
Decrease (increase) in prepaid expenses and other..................... (984) 5,219 (5,995) (429)
Increase (decrease) in accounts payable and accrued expenses.......... 179 (12,228) 7,938 (4,832)
---------- ---------- ---------- ----------
Net Cash Provided By Operating Activities......................... 108,900 73,400 16,145 36,815
Cash Flows From Investing Activities:
Additions to investment properties...................................... (51,339) (24,089) (3,018) (28,981)
Acquisition of development land......................................... -- (21,000) -- --
Purchase of properties and partnership interests........................ -- (1,818) -- --
Additions to deferred charges for lease costs and other................. (3,625) (1,927) (501) (3,436)
Distributions from nonconsolidated joint ventures....................... 19,379 7,132 5,777 15,498
Advances to and investments in nonconsolidated joint ventures........... (8,521) (53,585) (258) (1,784)
Net proceeds from sale of assets........................................ 6,282 3,035 4,547 8,206
Purchase of short term investments...................................... (9,718) (4,339) -- --
---------- ---------- ---------- ----------
Net Cash Provided By (Used In) Investing Activities................... (47,542) (96,591) 6,547 (10,497)
Cash Flows From Financing Activities:
Proceeds from issuance of debt.......................................... 116,828 481,736 4,173 29,611
Partnership contributions............................................... 80,370 543,852 8,818 8,198
Scheduled principal payments on mortgages............................... (6,647) (4,587) (3,657) (7,797)
Other payments on debt.................................................. (171,436) (681,435) (626) (5,919)
Loan costs and interest rate buydowns................................... (1,941) (70,822) (87) (3,205)
Distribution to predecessor parent...................................... -- (130,400) -- --
Prepayment penalties on early extinguishment of mortgage notes
payable............................................................... (3,390) (4,478) -- --
Partnership distributions............................................. (106,533) (46,387) (14,095) (20,936)
Minority partner distributions.......................................... (847) (574) (144) (1,500)
(Increase) decrease in restricted cash.................................. 21,841 (39,000) -- --
Decrease (increase) in affiliate receivables (net of affiliated
payables)............................................................. (2,651) 1,901 (14,672) (23,776)
---------- ---------- ---------- ----------
Net Cash Provided by (Used In) Financing Activities............... (74,406) 49,806 (20,290) (25,324)
---------- ---------- ---------- ----------
Net Increase (Decrease) In Cash................................... (13,048) 26,615 2,402 994
Cash and Cash Equivalents:
Beginning of Period..................................................... 38,899 12,284 9,882 8,888
---------- ---------- ---------- ----------
End of period........................................................... $ 25,851 $ 38,899 $ 12,284 $ 9,882
========== ========== ========== ==========
Supplemental Information:
Interest Paid........................................................... $ 105,501 $ 81,306 $ 41,434 $ 147,646
========== ========== ========== ==========
Supplemental Schedule of Non-Cash and Financing Activities:
Distribution of affiliate receivables and payables...................... $ -- $ -- $ 23,464 $ 12,678
Exchange of debt for Operating Partnership interest..................... $ -- $ 14,488 $ -- $ --
Minority partners' interest exchanged for Operating Partnership
interest.............................................................. $ 9,435 $ 11,923 $ -- $ --
Affiliate receivables not contributed to Operating Partnership........ $ -- $ -- $ 201,014 $ --
Distribution of affiliate payables to minority partners............... $ -- $ -- $ -- $ (1,264)
Limited Partners' interest exchanged for General Partner Units.......... $ 567 $ -- $ -- $ --
See accompanying notes
121
183
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND FORMATION
DeBartolo Realty Partnership, L.P. (the "Operating Partnership" or "OP")
was formed as a Delaware limited partnership in 1993 in connection with
DeBartolo Realty Corporation's ( the "Company") initial public offering (the
"IPO"). On April 21, 1994, the Company raised 498 million in net proceeds
through the Company's IPO.
The proceeds of the IPO were used to acquire general partnership interests
in the OP, and indirectly, interest in DeBartolo Capital Partnership, a Delaware
general partnership ("FP"). The Company acquired a 47.8% general partner
interest in the OP in exchange for its contribution of these net proceeds to the
OP. The OP, and consequently the FP, were formed to continue and expand the
shopping mall ownership, management and development business of The Edward J.
DeBartolo Corporation ("EJDC") in a portfolio which, as of December 31, 1995,
consists of 51 super-regional and regional malls (the "DeBartolo Malls"), 11
community centers and land held for future development (collectively, the
"DeBartolo Properties"). As the sole general partner of the OP, the Company has
full, exclusive and complete responsibility and discretion in the management and
control of the OP. The OP was formed prior to the consummation of the Company's
IPO and is the successor entity to the DeBartolo Retail Group. During 1995,
certain property management and development activities are carried out for the
OP and FP through an affiliate, DeBartolo Properties Management, Inc. (the
"Property Manager").
Concurrently with the completion of the IPO, the FP completed a 455 million
principal amount securitized debt financing (the "Securitized Debt Financing").
Simultaneously with the IPO, EJDC and certain affiliates (collectively, the
"DeBartolo Group") and certain current and former employees of EJDC, along with
JCP Realty, Inc. ("JCP"), contributed to the OP interests in the DeBartolo
Properties (and certain other assets) for limited partnership interests in the
OP. Pursuant to an Exchange Rights Agreement, in April 1995 the Company filed a
registration statement for the issuance of 34,168,347 shares of common stock.
The Exchange Rights Agreement provides for the conversion of the limited partner
interests to shares of common stock. The Exchange Rights Agreement is subject to
certain restrictions relating to the initial exercise period, minimum value of
interest exchanged, and ownership limitations.
In connection with the IPO, the OP received options to acquire the
interests of the estate of Edward J. DeBartolo and other members of his family
and affiliates in four DeBartolo Malls and one community center. On July 1,
1995, the Company exercised these options and acquired a 12.8% interest in Miami
International Mall, 10.1% interests in University Park Mall and University
Center and 0.1% interests in Coral Square and Lakeland Square. The exercise
price of approximately 9.4 million was payable in limited partnership interests
in the OP. As a result of these acquisitions, the Company's percentage ownership
in the OP decreased from 58.8% to 58.3%.
On August 1, 1995, the Company completed a public offering of 6,000,000
shares of common stock at an offering price of 14 1/4 per share raising net
proceeds of approximately 80.4 million. The Company contributed the net proceeds
to the OP, which has used the net proceeds to retire mortgage debt (including
any related prepayment penalties). As a result of the contribution by the
Company to the OP of the net proceeds of the offering, the Company's percentage
ownership in the OP increased from 58.3% to 61.1%.
During August 1995, EJDC exchanged limited partnership interests in the OP
to retire certain EJDC corporate debt. The lender immediately exchanged the
limited partnership interests in the OP for common stock of the Company. As a
result of this transaction, the Company's percentage ownership in the OP
increased from 61.1% to 61.8%.
122
184
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1995, ownership in the OP is as follows:
TOTAL PERCENT
UNITS OWNED
---------- -------
GENERAL PARTNER
DeBartolo Realty Corporation.......................... 55,329,162 61.8%
LIMITED PARTNERS
DeBartolo Group....................................... 32,714,135 36.5
JCP Realty, Inc....................................... 1,016,156 1.1
DeBartolo Employees (current and former).............. 542,241 0.6
---------- ----
TOTAL......................................... 34,272,532 38.2
---------- ----
TOTAL UNITS................................... 89,601,694 100%
========== ====
NOTE 2 -- BASIS OF PRESENTATION
The financial statements of the OP are presented on a consolidated basis.
Properties which are controlled through majority ownership have been
consolidated and all significant intercompany transactions and accounts have
been eliminated. Properties where the OP owns less than a majority interest have
been accounted for under the equity method. One property, 2% of which is owned
by the OP, is accounted for under the cost method.
The OP owns 5% of the voting common stock and all of the nonvoting
preferred stock of the Property Manager. The OP's pro rata share is 95% of the
Property Manager's operating results. The OP accounted for its investment in the
Property Manager under the cost method through September 30, 1995. During 1995,
in accordance with Emerging Issues Task Force Issue No. 95-6, Accounting by a
Real Estate Investment Trust for an Investment in a Service Corporation, the OP
changed its method of accounting for its investment in the Property Manager to
the equity method. The OP has applied the new accounting method retroactively to
April 21, 1994, in accordance with Accounting Principles Board Opinion 20,
Accounting Changes. The change had no significant impact to previously issued
financial results for 1994 and 1995.
The accompanying combined financial statements of DeBartolo Retail Group
represent DeBartolo Properties previously owned by EJDC and certain of its
affiliates. The historical financial statements of DeBartolo Retail Group are
presented on a combined basis because EJDC and certain of its affiliates were
the subject of the business combination discussed above. The business
combination has been accounted for as a reorganization of entities under common
control, which is similar to the accounting used for a pooling of interests.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
123
185
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Investment Properties:
Investment properties are stated at cost less accumulated depreciation,
which in the opinion of management is not in excess of net realizable value.
Costs incurred for the acquisition, development, construction and improvement of
properties, including significant renovations, are capitalized. Interest costs
and real estate taxes incurred with respect to qualified expenditures relating
to the construction of assets are capitalized during the development period.
Depreciation and Amortization:
The cost of buildings, improvements and equipment are depreciated on the
straight-line method over estimated useful lives, as follows:
Buildings -- 30 to 40 years
Improvements -- shorter of lease term or useful life
Equipment -- 3 to 10 years
Tenant allowances paid to tenants for construction are capitalized and
amortized over the terms of each specific lease. Maintenance and repairs are
charged to expense when incurred.
Deferred Charges:
Deferred charges consist principally of financing costs and leasing
commissions which are amortized over the terms of the respective agreements.
Capitalized Interest:
Interest is capitalized on projects during the construction period.
Interest capitalized was $1,614 in 1995; $686 from inception to December 31,
1994; $13 for the period January 1, 1994 to April 20, 1994, and $219 in 1993.
Cash and Cash Equivalents:
Highly liquid investments with maturities of three months or less are
considered cash equivalents.
Restricted Cash:
Cash is restricted primarily for renovations and redevelopment of certain
DeBartolo Properties in connection with the Securitized Debt Financing.
Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of financial instruments:
- The fair value of cash and cash equivalents, restricted cash and
short-term investments approximate carrying value due to the short-term
nature of these instruments.
- The fair value of the OP's fixed rate mortgages and notes payable is
based on current rates available to the OP for debt of similar terms.
Fair value of variable rate debt is considered to be the carrying amount.
- The fair value of the interest rate caps and interest rate swaps are
based on available market data.
124
186
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Minority Interests:
Minority interests in consolidated joint ventures represent the amounts of
net assets of consolidated ventures attributable to the interests of outside
parties. Minority interests in capital deficits of joint ventures are carried as
assets to the extent considered recoverable.
Revenue Recognition:
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method over the terms of
leases. Percentage rents are recognized on an accrual basis as earned. Real
estate tax and operating expense recoveries are recognized in the period the
applicable costs are incurred.
Ground Leases:
Certain properties, as lessees, lease land under operating leases. Rent
expense is recorded on the straight-line method over the term of these leases.
Income Taxes:
The allocable share of the taxable income or loss of the OP is includable
in the income tax returns of the partners; accordingly, income taxes are not
reflected in the consolidated financial statements.
Earnings Per Unit:
Earnings per unit is based on the weighted average number of units
outstanding for the year ending December 31, 1995 and for the period of April
21, 1994 through December 31, 1994. Units of common stock awarded during 1994
under a deferred stock plan (70,696 units) and units of common stock awarded
under a long-term incentive plan (245,200 units) have been considered
outstanding units. In April 1995, the OP issued 96,006 units of common stock
under both plans. Both plans are a part of the 1994 DeBartolo Realty Corporation
Stock Incentive Plan. For purposes of determining fully dilutive earnings per
unit, the remaining 2,427,100 units of common stock under the long-term
incentive deferred stock plan are anti-dilutive after adjusting earnings to give
effect to the increase in earnings necessary for the units of common stock to be
awarded under the plan.
Impact of Recently Issued Accounting Standards:
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The OP will adopt Statement 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material. The OP continually analyzes its mall
properties based on investment related criteria and, as a result, the OP may
determine to dispose of certain properties. Current circumstances based on the
OP's intention to hold the properties for long-term appreciation, do not
indicate that any of the OP's properties are impaired. However, if a decision is
made to dispose of certain properties, it is reasonably possible that
significant write-downs may be required.
125
187
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 4 -- INVESTMENT PROPERTIES
Investment properties consist of shopping center properties, including
peripheral land and properties under development and an office tower adjacent to
one of the shopping centers. Investment properties are summarized as follows:
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
Land................................................ $ 193,365 $ 192,781
Shopping center buildings, improvements and
equipment......................................... 1,537,725 1,486,819
Office tower building, improvements and
equipment...................................... 40,522 40,225
Properties under
construction/expansion/renovation................. 13,351 7,962
Peripheral land parcels............................. 8,700 9,805
---------- ----------
1,793,663 1,737,592
Accumulated depreciation............................ 574,338 519,754
---------- ----------
Total investment properties............... $1,219,325 $1,217,838
========== ==========
Peripheral land parcels primarily consist of undeveloped land parcels
adjacent to certain shopping centers.
Depreciation expense totaled $55,315 in 1995; $37,298 from April 21, 1994
to December 31, 1994; $15,792 for the period January 1, 1994 to April 20, 1994;
and $51,431 for 1993.
The DeBartolo Group has granted the OP options to purchase their interests
in two shopping center development sites at an agreed upon purchase price. These
options are subject to the rights and approvals of existing lenders, third
parties and governmental authorities. The OP has options and rights of first
refusal to purchase the DeBartolo Group's interest in two regional malls. The
option prices are fair market value at any time until December 31, 1998.
As of December 31, 1995, the OP had options to acquire the interests of
three outside partners in five DeBartolo Properties. These options are subject
to the rights of partners and lenders and to the satisfaction of certain
conditions. In January 1996, the Property Manager acquired the interests of one
outside partner in two properties, see Note 16.
126
188
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- INVESTMENTS IN NONCONSOLIDATED JOINT VENTURES
The OP's investments in the joint ventures, which have been accounted for
under the equity method, are as follows:
OP'S PERCENTAGE
OWNERSHIP AS OF
VENTURE PROPERTY DECEMBER 31, 1995
- -------------------------------------- ------------------------- -----------------
Aventura Mall Aventura Mall 33.3%
Jacksonville Avenues Limited
Partnership The Avenues 25.0%
Biltmore Square Associates Biltmore Square 33.3%
Century III Associates Century III Mall 50.0%
Chesapeake-JCP Associates, Ltd. Chesapeake Square 50.0%
Coral-CS/LTD Associates Coral Square 50.0%
Florida Mall Associates The Florida Mall 50.0%
HD Lakeland Mall Joint Venture Lakeland Square 50.0%
West Dade County Associates Miami International Mall 50.0%
Northfield Center Limited Partnership Northfield Square 31.6%
Palm Beach Mall (a tenancy in common) Palm Beach Mall 50.0%
Philadelphia Center Associates Great Northeast Plaza 50.0%
These investments are recorded initially at cost and subsequently adjusted
for net equity in income (loss) and cash contributions and distributions. The OP
receives substantially all of the economic benefit of Biltmore Square,
Chesapeake Square and Northfield Square as the result of advances made to those
joint ventures. For one joint venture, the outside partner receives
substantially all of the economic benefit.
Summary financial information and summary of OP's investment in and share
of income (loss) from the above joint ventures follows:
DECEMBER 31,
---------------------
1995 1994
-------- --------
BALANCE SHEETS
Investment properties (net).......................................... $599,234 $604,506
Other assets......................................................... 43,094 47,007
-------- --------
Total assets................................................. 642,328 651,513
-------- --------
Mortgages and notes payable.......................................... 584,495 592,990
Other liabilities.................................................... 90,549 85,182
-------- --------
Total liabilities............................................ 675,044 678,172
-------- --------
Accumulated deficit............................................... (32,716) (26,659)
Less: Outside partners' equity....................................... 180 3,753
Advances to nonconsolidated joint ventures........................... 78,474 71,415
-------- --------
Net surplus in nonconsolidated joint ventures........................ $ 45,578 $ 41,003
======== ========
Net surplus (deficits) in nonconsolidated joint ventures is presented
in the accompanying consolidated balance sheets as follows:
Investments in nonconsolidated joint ventures........................ $ 38,251 $ 39,430
Advances to nonconsolidated joint ventures........................... 78,474 71,415
-------- --------
Total investments in and advances to nonconsolidated joint
ventures.......................................................... 116,725 110,845
Deficits in nonconsolidated joint ventures........................... (71,147) (69,842)
-------- --------
$ 45,578 $ 41,003
======== ========
127
189
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
PERIOD FROM PERIOD FROM
APRIL 21, JANUARY 1,
1994 TO 1994 TO DECEMBER
DECEMBER 31, DECEMBER 31, APRIL 20, 31,
1995 1994 1994 1993
------------ ------------ -------------- -----------
STATEMENTS OF OPERATIONS
Revenues:
Minimum rents............................... $ 89,727 $ 60,978 $ 26,101 $ 80,971
Tenant recoveries........................... 44,293 30,967 12,709 40,589
Percentage rents............................ 6,058 4,833 1,406 7,932
Other....................................... 12,853 9,252 2,420 8,233
-------- -------- ------- --------
Total revenues...................... 152,931 106,030 42,636 137,725
-------- -------- ------- --------
Expenses:
Shopping Center expenses.................... 57,368 39,778 16,092 52,400
Interest expense............................ 57,561 37,038 15,942 58,615
Depreciation and amortization............... 24,078 16,351 6,885 22,307
-------- -------- ------- --------
139,007 93,167 38,919 133,322
-------- -------- ------- --------
Gain (loss) on sale of assets............... 166 1,196 (1) 1,380
-------- -------- ------- --------
Income before extraordinary item......... 14,090 14,059 3,716 5,783
Extraordinary item -- loss on early
extinguishment of debt................... (425) (388) -- --
-------- -------- ------- --------
Net income............................... $ 13,665 $ 13,671 $ 3,716 $ 5,783
======== ======== ======= ========
DeBartolo Realty Partnership, L.P.'s share of:
Revenues less shopping center expenses...... $ 41,987 $ 28,706 $ 12,541 $ 40,302
Interest expense............................ 20,035 12,902 8,206 29,801
Depreciation, amortization and other........ 12,826 8,318 3,493 11,319
Gain on land sales.......................... 164 445 -- 514
-------- -------- ------- --------
Income (loss) before extraordinary
item................................... 9,290 7,931 842 (304)
Extraordinary item -- loss on early
extinguishment of debt................... (425) (377) -- --
-------- -------- ------- --------
Net income (loss)........................ $ 8,865 $ 7,554 $ 842 $ (304)
======== ======== ======= ========
128
190
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- PROPERTY MANAGER
Summary financial information for the Property Manager is as follows:
DECEMBER 31,
-------------------
1995 1994
------- -------
BALANCE SHEETS
Cash and cash equivalents.............................. $ 2,018 $ 2,816
Accounts receivable, substantially all due from related
parties............................................. 13,516 10,531
Other assets........................................... 8,003 2,692
------- -------
$23,537 $16,039
======= =======
Accounts payable and accrued liabilities............... $14,691 $11,421
Note payable to OP..................................... 4,018 --
Other long-term liabilities............................ 4,082 3,977
------- -------
Total Liabilities................................... 22,791 15,398
Shareholders' equity................................... 746 641
------- -------
$23,537 $16,039
======= =======
OP's share of Shareholders' equity..................... $ 709 $ 609
======= =======
Outside Shareholders' equity........................... $ 37 $ 32
======= =======
PERIOD FROM
APRIL 21,
YEAR ENDED 1994 TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
STATEMENTS OF OPERATIONS
Revenues:
Construction and development........................... $ 6,087 $ 4,541
Management and leasing................................. 16,768 12,194
Other.................................................. 3,223 1,507
------- -------
Total revenues......................................... 26,078 18,242
Expenses:
Salaries and employee benefits......................... 20,018 12,361
Other operating expenses............................... 5,784 2,485
Other expenses......................................... 171 2,162
------- -------
Total expenses...................................... 25,973 17,008
------- -------
Net income............................................. 105 1,234
======= =======
OP's share of net income............................... $ 100 $ 1,172
======= =======
129
191
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- DEFERRED CHARGES AND PREPAID EXPENSES
Deferred charges and prepaid expenses are summarized as follows:
DECEMBER 31,
-------------------
1995 1994
------- -------
Lease costs, net of accumulated amortization of $15,566
and $14,541 in 1995 and 1994, respectively............. $17,402 $17,077
Securitized Debt Financing costs, net of accumulated
amortization of $2,992 and $1,226 in 1995 and 1994,
respectively........................................... 9,374 11,135
Loan costs, net of accumulated amortization of $11,382
and $11,910 in 1995 and 1994, respectively............. 8,743 11,189
Interest rate protection agreements, net of accumulated
amortization of $2,249 and $2,103 in 1995 and 1994,
respectively........................................... 704 8,011
Interest rate buydowns, net of accumulated amortization
of $11,222 and $7,426 in 1995 and 1994, respectively... 30,993 44,256
Investment in West Town Mall Joint Venture............... 2,699 2,405
Prepaid expenses and other............................... 4,181 3,537
------- -------
$74,096 $97,610
======= =======
Lease cost amortization totaled $3,288 in 1995; $2,280 from April 21, 1994
to December 31, 1994; $824 for the period January 1, 1994 to April 20, 1994; and
$2,796 in 1993.
Amortization of loan costs, interest rate protection agreements and
interest rate buydowns totaled $14,729 in 1995; $12,640 from April 21, 1994 to
December 31, 1994; $1,354 for the period January 1, 1994 to April 20, 1994; and
$4,390 in 1993.
On December 27, 1995, the OP assigned certain interest protection
agreements to an unrelated third party and replaced such agreements with
interest rate swap agreements. Accordingly, interest rate protection agreements
have been written-off with a charge to interest expense. Fair value of the
remaining interest rate protection agreement and the interest rate swap was $704
and $1,130, respectively, at December 31, 1995. Fair value of the interest rate
protection agreements at December 31, 1994 were $13,659.
130
192
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- MORTGAGES AND NOTES PAYABLE
Mortgage debt, which is collateralized by substantially all investment
properties, is summarized as follows:
DECEMBER 31,
------------------------
1995 1994
---------- ----------
Commercial Mortgage pass-through certificates -- fixed
interest rate ranging from 7.59% to 9.24% (average
of 8.13% at December 31, 1995), due April, 2001..... $ 367,244 $ 367,800
Commercial Mortgage pass-through
certificates -- interest at LIBOR, subject to an
interest rate swap agreement, plus 56 basis points
(5.31% at December 31, 1995), due April, 2001....... 87,200 87,200
Revolving line of credit with interest at LIBOR plus
175 basis points (7.5% at December 31, 1995) due
December 1998....................................... 55,000 --
Primarily first mortgages with fixed interest rates
ranging from 6.79% to 9.92% (average of 7.9% at
December 31, 1995), due at various dates through
2012................................................ 692,162 804,362
First mortgages with variable interest rates at LIBOR,
subject to an interest rate swap agreement, plus 100
basis points (5.75% at December 31, 1995) due at
various dates through 2002.......................... 74,864 78,362
Bond payable collateralized by a mortgage to an
affiliate of EJDC on one property at an effective
rate of 8.0% due September 1996..................... 72,103 72,103
-------- --------
Total Mortgages and Notes Payable........... $1,348,573 $1,409,827
======== ========
During December 1995, the OP entered into an interest rate swap agreement
to pay LIBOR at (i) 4.75% on approximately $218 million of debt through April
1997 and (ii) 5.71% on $87.2 million of debt from May 1997 through April 2001.
As part of this arrangement, the OP assigned the following interest rate
protection agreements (i) 4.75% through April 1996 and 5.25% from May 1996
through April 1997 on approximately $131 million of debt and (ii) 4.75% through
April 1996 on $87.2 million of debt. The OP has an interest rate protection
agreement which limits interest on $87.2 million of debt to no more than LIBOR
of 8.44% for the period May 1996 through March 2001.
The OP's proportionate share of the mortgages and notes payable are as
follows as of December 31:
1995 1994
---------- ----------
DeBartolo Realty Partnership, L.P................... $1,305,564 $1,363,042
Outside partners.................................... 43,009 46,785
---------- ----------
$1,348,573 $1,409,827
========== ==========
131
193
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Annual principal payments and maturities as of December 31, 1995 are as
follows:
TOTAL OP'S SHARE
----------- -----------
1996..................................... $ 157,221 $ 157,139
1997..................................... 7,588 7,491
1998..................................... 63,253 63,149
1999..................................... 69,103 68,991
2000..................................... 8,661 8,540
Thereafter............................... 1,042,747 1,000,254
---------- ----------
$ 1,348,573 $ 1,305,564
========== ==========
During 1995, the OP paid off mortgages of $117,227 at three properties and
obtained the release of mortgage liens at two properties. Additionally, the OP
refinanced three loans at one property totaling $44,098 with a $59,500 mortgage
note payable (of which $46,528 is currently outstanding), providing additional
borrowing capacity of up to $13,000 to be drawn upon over the subsequent twelve
months for expansion and renovation of that property. The OP refinanced $9,518
of construction loans at three community centers with permanent financing
totaling $15,000.
In December 1995, the OP amended and expanded its revolving line of credit
from $50,000 to $120,000, subject to certain conditions being met. As of
December 31, 1995, total current availability under this working line is
$94,500, of which $55,000 is outstanding. The facility is secured by the
mortgages of two properties and a negative pledge of a third property and is
recourse to the OP. The OP anticipates the facility to be increased to $150,000
and the availability will be increased to $144,500 during the first quarter of
1996 once certain conditions are met including additional collateral of a
mortgage on the negative pledged property. Interest is provided at the lesser of
LIBOR plus 175 basis points or the Base Rate, as defined. The facility matures
in December 1998, however, the OP has a one-year extension option. The facility
requires the OP to maintain a minimum net worth as defined, limits the OP's
indebtedness and provides for other restrictive covenants.
The OP restructured a $54,906 mortgage note payable having an interest rate
of 8 7/8% maturing January, 1998. The new mortgage matures January, 2005 and
bears interest at 7.42%. In connection with this transaction, the OP made a
partial paydown of $5,491 on a mortgage note of a nonconsolidated joint venture.
Commercial mortgage pass-through certificate covenants require the OP to
fund into escrow reserves for renovations, repairs and maintenance and tenant
improvements and requires the FP to maintain Minimum Debt Service coverage
ratios (as defined) and provides for other restrictive covenants.
Annual reserve funding requirements are as follows:
1996 $ 7,600
1997....................................................... 10,400
1998....................................................... 6,933
1999....................................................... 5,200
2000....................................................... 5,200
Thereafter................................................. 1,734
-------
$37,067
=======
DeBartolo Realty Partnership, L.P. has guaranteed $29,946 of the mortgages
and notes payable relating to three consolidated properties and three
nonconsolidated joint ventures. An affiliate of EJDC continues to
132
194
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
provide a guarantee of 33 1/3% of the debt service obligation on a $100,000
floating rate mortgage at one nonconsolidated joint venture. The OP has agreed
to indemnify the EJDC affiliate for any loss or costs incurred or associated
with this guaranty.
DeBartolo, Inc., parent of EJDC, and certain of its affiliates have
guaranteed $100,000 of the OP's mortgages and notes payable.
Fair Value of Debt Related Financial Instruments:
The estimated fair value of debt related financial instruments are as
follows:
DECEMBER, 1995 DECEMBER, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
Securitized Debt Financing...... $ 454,444 $ 477,083 $ 455,000 $ 446,936
Fixed rate mortgages and notes
payable....................... 764,265 796,231 876,465 805,553
Variable rate mortgages and
notes payable................. 74,864 74,864 78,362 78,362
Revolving loan.................. 55,000 55,000 -- --
---------- ---------- ---------- ----------
$1,348,573 $1,403,178 $1,409,827 $1,330,851
========== ========== ========== ==========
The debt on the nonconsolidated joint ventures (see Note 5) was $584,495 at
December 31, 1995. The OP's pro rata share of that debt was $249,535 at December
31, 1995. The OP's proportionate share of mortgage notes and other notes payable
on both its consolidated and nonconsolidated properties was $1,555,099 at
December 31, 1995.
NOTE 9 -- RENTALS UNDER OPERATING LEASES
The properties receive rental income from the leasing of retail shopping
center space and an office tower under operating leases that expire at various
dates through 2026. Substantially all investment property is leased out under
operating leases. The minimum future rentals based on operating leases held are
as follows as of December 31, 1995:
LEASES WITH
RELATED
ALL LEASES PARTIES (1)
---------- -----------
1996......................................... $ 181,438 $ 7,315
1997......................................... 165,984 6,975
1998......................................... 150,090 5,771
1999......................................... 130,068 5,419
2000......................................... 111,839 4,695
Thereafter................................... 486,197 23,905
---------- -------
$1,225,616 $54,080
========== =======
- ---------------
(1) Represents stores whose parent company also owns units of the OP or stores
whose chief executive officers are on the Board of Directors of the Company.
133
195
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Minimum future rentals do not include amounts which may be received under
the terms of certain leases based upon a percentage of the tenants' sales or as
reimbursement of shopping center expenses.
No single tenant or group of affiliated tenants collectively accounts for
more than 10% of the consolidated properties total revenues which include
minimum rents, tenant recoveries, percentage rents and other revenue. The tenant
base includes national and regional retail chains and local retailers and
consequently the consolidated properties credit risk is concentrated in the
retail industry. The DeBartolo Malls are located in 16 states, with 17 malls
located in Florida and 8 malls located in Ohio.
The revenues of the OP may be adversely affected by the inability to
collect rent due to bankruptcy or insolvency of tenants or otherwise. Two
department store companies operating six department stores or other large retail
stores in excess of 60,000 square feet ("Anchor") at the consolidated DeBartolo
Properties are operating under the protection of the United States Bankruptcy
Code. At December 31, 1995, leases (excluding rejected leases) of Anchor tenants
open and operating in bankruptcy comprise approximately 1% of total gross
leasable area ("GLA"). Annual rentals paid by these Anchor tenants comprised
2.5% of minimum rents paid by Anchor tenants. At December 31, 1995, leases
(excluding rejected leases) of mall store tenants at consolidated DeBartolo
Properties open and operating in bankruptcy comprise approximately 6.4% of mall
GLA. Annual rentals paid by these mall store tenants comprised 6.1% of minimum
rents paid by mall store tenants. Substantially all of these tenants are
currently meeting their contractual obligations. At the time a tenant files for
bankruptcy protection it is difficult to determine to what extent these tenants
will reject their leases or seek other concessions as a condition to continued
occupancy. The OP expects certain of these tenants to reject their leases. Based
on past experience, the OP has been able to offset, over a reasonable period of
time, the impact on minimum rents caused by a tenant in bankruptcy.
NOTE 10 -- GROUND LEASES
Certain properties, as lessees, have ground leases expiring at various
dates through 2087. Following is a schedule of future minimum rental payments
required under these ground leases as of:
DECEMBER 31,
1995
------------
1996............................................ $ 2,267
1997............................................ 2,347
1998............................................ 2,347
1999............................................ 2,347
2000............................................ 2,347
Thereafter...................................... 225,607
--------
$237,262
========
134
196
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- TRANSACTIONS WITH AFFILIATES
Management and Other Fees: The Property Manager has contracted to provide
management, leasing, development and construction management services to the OP.
Amounts included in the consolidated financial statements related to agreements
with the Property Manager are as follows:
PERIOD FROM PERIOD FROM
APRIL 21, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
------ ------------ ----------- ------
Management fees.................. $5,369 $3,044 $ 2,179 $7,167
Leasing fees..................... 3,261 1,872 552 3,319
Development and construction..... 4,872 1,844 717 3,013
Other reimbursements............. 835 254 180 664
During 1995, the Property Manager earned development and construction
revenues of $893 from affiliates of a partner in the OP.
Insurance: The OP has first dollar commercial general liability coverage
and special cause of loss property insurance with a $5 deductible. Prior to 1995
the OP's insurance carrier reinsured certain coverages with an affiliate of
EJDC. Charges to the OP for the reinsured amounts totaled $3,462 from April 21,
1994 to December 31, 1994. Prior to April 21, 1994, the DeBartolo Retail Group
had first dollar commercial general liability insurance of which an affiliated
insurance company reinsured the first $250 per occurrence. Additionally, the
DeBartolo Retail Group had "All Risk" Property insurance. The insurance company
reinsured the first $95 per occurrence with an affiliate of EJDC. Charges for
the reinsured amounts totaled $1,374 for the period January 1, 1994 to April 20,
1994 and $4,355 for 1993.
Affiliate Leases: On November 6, 1995, Fun-N-Games, an affiliate of EJDC
which operated amusement centers in DeBartolo Properties, was sold to an
independent third party operator which continues to operate these stores. These
properties have recorded total revenues and operating expense reimbursements of
$1,771 from January 1, 1995 through November 6, 1995, $1,571 from April 21, 1994
to December 31, 1994, $776 for the period from January 1, 1994 to April 20, 1994
and $2,287 for 1993.
Affiliates of certain Anchor tenants and small shops in various properties
are partners in various properties or are partners in the OP. As of December 31,
1995, these tenants own or lease space in 29 consolidated properties. These
properties recorded rental income and operating expense reimbursements of
$10,933 in 1995; $8,926 from April 21, 1994 to December 31, 1994; $3,314 for the
period January 1, 1994 to April 20, 1994; and $12,674 for 1993.
Affiliated Receivables (Payables): At December 31, 1995, the affiliated
receivable represents a $4,018 revolving loan receivable from the Property
Manager bearing interest at prime plus 200 basis points offset by amounts due to
the Property Manager for normal operating costs. Interest earned by the OP on
this revolver totaled $258 in 1995. At December 31, 1994, affiliated receivables
represent amounts due to the Property Manager for normal monthly operating costs
offset by dividends receivable from the Property Manager of $809. At December
31, 1993, net affiliated receivables (which are primarily non-interest bearing)
are due from EJDC. Concurrent with the offering, these affiliated receivables
were distributed to EJDC. Interest expense includes interest charged to
properties by EJDC on net amounts due to EJDC totaling $760 for the period
January 1, 1994 to April 20, 1994 and $2,754 in 1993.
135
197
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Property Manager leases office space from EJDC under an operating
lease. Rent charged under the lease totaled $1,092 in 1995 and $755 in 1994.
The Property Manager performs legal, tax and other services for EJDC under
a corporate service agreement. Fees for these services totaled $570 in 1995 and
$425 in 1994.
NOTE 12 -- STOCK INCENTIVE PLAN
The Company and the OP adopted the DeBartolo Realty Corporation 1994 Stock
Incentive Plan (the "Stock Incentive Plan") to provide incentives to attract and
retain officers, directors and key employees.
The Stock Incentive Plan provides for the grants of nonqualified and
incentive stock options to purchase a specified number of shares of Common Stock
("Options") or rights to future grants of Common Stock ("Deferred Stock"). Under
the Stock Incentive Plan, 3,100,000 shares of Common Stock are available for
grant.
The Compensation Committee of the Company's Board of Directors has approved
the grant of approximately 2,743,000 shares in the form of Deferred Stock in
connection with a two-part, long-term incentive compensation program.
Deferred Stock Awards upon Completion of the Offering. Upon completion of
the IPO, approximately 71,000 shares of Deferred Stock were granted to certain
employees of the Company and the Property Manager, and will vest ratably over a
five-year period. The vesting of this initial Deferred Stock award is based only
on service and will not depend on the Company's financial performance.
Long-Term Incentive Deferred Stock Awards. The second and more significant
component of the Company and the OP's long-term compensation proposal is a
Deferred Stock grant for which vesting is tied to the attainment of annual and
cumulative targets for growth in the Company's funds from operations ("FFO") per
share (which is substantially equivalent to cash generated before debt
repayments and capital expenditures, including peripheral land sales) after
adjusting for a reserve (not to exceed a specified amount) set annually to cover
tenant allowances and the use of floating rate debt through 1998. This long-term
incentive Deferred Stock grant includes senior management and approximately 130
key employees of the Property Manager. Any Deferred Stock award earned upon
attainment of an annual and cumulative growth target will be distributed over
the three-year period subsequent to the period that the award was earned,
provided the employee remains in the employ of the Company or the Property
Manager. Deferred Stock awarded to employees over the three-year period will be
unrestricted.
The awards eligible to be earned in any given year will be earned only if
the annual and cumulative adjusted FFO per share growth target for such year is
reached. As defined, the adjusted FFO per share growth target from the current
adjusted FFO base was $1.54 in 1995 and increases 7% for each year ending
December 31, 1996 through 1998. The percentage of the total Deferred Stock award
eligible to be earned upon attainment of these targets is 10% for 1994, 15% for
1995, 20% for 1996, 25% for 1997 and 30% for 1998. The following table provides
the adjusted FFO target for award of the Common Stock reserved for issuance
under the Stock Incentive Plan.
136
198
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
LONG-TERM INCENTIVE DEFERRED STOCK AWARD TARGETS
ANNUAL
YEAR ENDED GROWTH CUMULATIVE GROWTH TARGET FFO PER SHARE
DECEMBER 31, TARGET FROM PLAN INCEPTION GROWTH TARGET
------------------------ ------ ------------------------ -------------
1996................. 7.0% 16.8% $1.65
1997................. 7.0% 25.0% $1.77
1998................. 7.0% 33.7% $1.89
If the annual target is not met, the percentage of the award attributable
to that annual target may be earned in a subsequent year if the cumulative
growth target is met including the shortfall in the prior year(s). The
Compensation Committee of the Company's Board of Directors has the right to make
partial awards if targets are not met.
At December 31, 1995, approximately 2,672,300 shares of the total 3,100,000
shares of Common Stock reserved for issuance under the Stock Incentive Plan were
allocated among senior management and approximately 130 key employees in
connection with the long-term incentive award. The remaining shares have been
held for future allocations under the stock incentive plan to both current and
future employees. The Compensation Committee has discretion to waive the
additional three-year employment requirement upon certain terminations of
employment (e.g., retirement, death, disability or termination without cause).
The awards vest over a period of eight years, with the majority vesting in the
fourth through eighth years after the IPO.
The OP did not meet the FFO growth target in 1995; accordingly, the
financial statement reflects expense of $210 relating to the vested portion of
the 70,696 shares under the Deferred Stock plan. The OP achieved its 1994 FFO
target and accordingly expensed $3,848 relating to 245,200 shares awarded under
the long-term incentive deferred stock plan and $210 relating to the 1994 vested
portion of the Deferred Stock award.
Stock Option Plan:
The Company and the OP has a stock option plan in place covering each
Director of the Company who is not otherwise an employee of the Company or any
of its subsidiaries or affiliates. Each such Director, upon joining the
Company's Board of Directors, received an initial grant of Options to purchase
1,000 shares of Common Stock having an exercise price equal to 100% of the fair
market value of the Common Stock as of such date. Commencing on December 31,
1994, and on each December 31st thereafter, each Director also will
automatically receive an annual grant of options to purchase 500 shares of
Common Stock having an exercise price equal to 100% of the fair market value of
the Common Stock at the date of grant of such Option. The options can be
exercised any time during the ten years after grant.
NOTE 13 -- GAIN ON SALE OF ASSETS
During 1995, the OP has recognized a $3,750 gain from the sale of a
partnership interest in an undeveloped mall site located in Strongsville, Ohio,
which was acquired in 1994 from the DeBartolo Group through the exercise of an
option for $6,250 and immediately sold. The remaining gains primarily represent
the sale of land adjacent to three properties.
NOTE 14 -- EXTRAORDINARY ITEM
The extraordinary charge in 1995 resulted from prepayment penalties of
$3,390 and the write-off of unamortized deferred financing costs of $7,877
related to the early retirement of mortgage notes payable. The
137
199
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
extraordinary item in 1994 resulted from prepayment penalties and the write-off
of unamortized deferred financing costs related to the satisfaction of mortgage
notes payable in connection with the OP's reorganization.
NOTE 15 -- CONTINGENT LIABILITIES
Certain of the properties are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the properties believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the
consolidated financial statements.
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the OP's financial position or results of operations.
Management is unaware of any instances in which it would incur significant
environmental costs if any or all properties were sold, disposed of or
abandoned.
NOTE 16 -- SUBSEQUENT EVENTS
The OP transferred ownership of one property to its lender, as of March 1,
1996, fully satisfying the property's mortgage note payable. This property no
longer met the OP's criteria for its ongoing strategic plan. The OP will
recognize an extraordinary gain on this transaction of approximately $8.0
million in the first quarter of 1996.
On January 31, 1996, the Property Manager was assigned a 33% partnership
interest in one of the nonconsolidated joint ventures and a 25% partnership
interest in another nonconsolidated joint venture from an unrelated joint
venture partner. As a result, the OP effectively owns 65% and 74% of these joint
ventures.
NOTE 16.1 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S
REPORT
The Company entered into an Agreement and Plan of Merger, dated as of March
26, 1996 (the "Agreement"), among Simon Property Group, Inc., a Maryland
corporation ("SPG"), its merger subsidiary and the Company, pursuant to which
the Company agreed to merge with the merger subsidiary. The Agreement provides
for the exchange of all outstanding Company common stock for SPG common stock,
$0.0001 par value (the "SPG Common Stock"), at an exchange ratio of 0.68 shares
of SPG Common Stock for each share of Company common stock. The merger is
subject to the approval of shareholders of both SPG and the Company and other
conditions. The new entity will be renamed Simon DeBartolo Group, Inc.
138
200
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 17 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1995
DEBARTOLO REALTY PARTNERSHIP, L.P.
------------------------------------------------
JANUARY 1 APRIL 1 JULY 1 OCTOBER 1
TO TO TO TO
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- ------- ------------ -----------
Operating Data:
Total revenues.................... $79,229 $81,223 $ 84,099 $88,106
Income before extraordinary
items.......................... 11,739 9,826 13,343 11,435
Extraordinary items............... -- -- (5,629) (5,638)
------- ------- ------- -------
Net income........................ $11,739 $ 9,826 $ 7,714 $ 5,797
======= ======= ======= =======
Earning Per Unit Data:
Income before extraordinary
items.......................... $ 0.14 $ 0.12 $ 0.15 $ 0.12
Extraordinary items............... -- -- (0.07) (0.06)
------- ------- ------- -------
Net income........................ $ 0.14 $ 0.12 $ 0.08 $ 0.06
======= ======= ======= =======
Cash Dividends Per Unit............. $ 0.315 $ 0.315 $ 0.315 $ 0.315
======= ======= ======= =======
Weighted Average Units
Outstanding....................... 83,150 83,150 84,567 89,150
======= ======= ======= =======
1994
DEBARTOLO REALTY PARTNERSHIP, L.P.
-------------------------------------
APRIL 21 JULY 1 OCTOBER 1
TO TO TO
JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------------ -----------
Operating Data:
Total revenues............................. $ 61,227 $ 80,412 $87,304
Income before extraordinary items.......... 5,123 10,519 12,026
Extraordinary items........................ (8,932) -- --
------- ------- -------
Net income......................... $ (3,809) $ 6,180 $12,026
======= ======= =======
Earning Per Unit Data:
Income before extraordinary items.......... $ 0.06 $ 0.13 $ 0.15
Extraordinary items........................ (0.11) -- --
------- ------- -------
Net income (loss).................. $ (0.05) $ 0.13 $ 0.15
======= ======= =======
Cash Dividends Per Unit...................... $ 0.245 $ 0.315 $ 0.315
Weighted Average Units Outstanding........... 81,590 82,906 82,908
NOTE 18 -- UNAUDITED PRO FORMA FINANCIAL INFORMATION
As a result of the IPO and the related transactions entered into in
connection with the formation of the Company and the OP, 1994 historical results
of operations and earnings per unit may not be indicative of future results of
operations and earnings per share. This unaudited Pro Forma Condensed
Consolidated Statement of Operations assumed that the Company qualifies as a
real estate investment trust for federal income tax purposes and also assumed
(i) completion of the asset contributions in the formation of the Company; (ii)
the completion of the IPO, including the exercise of the underwriters
over-allotment option and the Securitized Debt Financing; (iii) the completion
of debt exchange transactions with BJS Capital
139
201
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Partners, L.P. and MS Youngstown General Partnership; (iv) the contribution by
JCP Realty, Inc. and the EJDC employees of their interests in certain DeBartolo
Properties; and (v) the completion of certain refinancings of mortgage
indebtedness of the DeBartolo Properties (collectively defined as the "REIT
Formation") as of the beginning of 1994. In management's opinion, all necessary
adjustments to reflect the effects of these transactions have been made as of
January 1, 1994.
The unaudited Pro Forma Condensed Statement of Operations is not
necessarily indicative of what actual results of operations of the OP would have
been assuming such transactions had been completed at January 1, 1994, nor does
it purport to represent the results of operations of future periods.
The following is the DeBartolo Realty Partnership, L.P. Pro Forma Condensed
Consolidated Statement of Operations for the twelve months ended December 31,
1994:
DEBARTOLO
DEBARTOLO REALTY
DEBARTOLO DEBARTOLO REALTY PARTNERSHIP, L.P.
RETAIL GROUP RETAIL GROUP PARTNERSHIP, L.P. FOR THE TWELVE
JANUARY 1, 1994 TO PRO FORMA APRIL 21, 1994 TO MONTHS ENDED
APRIL 20, 1994(A) ADJUSTMENTS DECEMBER 31, 1994 DECEMBER 31, 1994
-------------------- ------------ ----------------- -----------------
(DOLLARS IN THOUSANDS, UNAUDITED)
Revenues(B)....................... $ 95,272 $ 1,125 $ 228,943 $ 325,340
Shopping center expenses(C)....... 35,648 500 80,635 116,783
Deferred stock compensation
expense......................... -- -- 4,058 4,058
Interest expense(D)............... 44,119 (7,316) 87,040 123,843
Depreciation and amortization..... 16,616 -- 39,578 56,194
------- ------- -------- --------
96,383 (6,816) 211,311 300,878
------- ------- -------- --------
Gain on sale of assets (primarily
land)........................... 3,286 -- 1,952 5,238
Income from nonconsolidated joint
ventures(E)..................... 842 2,033 7,554 10,429
Minority partners' interest in
consolidated joint
ventures(F)..................... 888 (977) 530 441
------- ------- -------- --------
Income before extraordinary
items........................ 3,905 8,997 27,668 40,570
Extraordinary item -- loss on
early extinguishment of debt.... -- -- (8,932) (8,932)
------- ------- -------- --------
Net income.............. $ 3,905 $ 8,997 $ 18,736 $ 31,638
======= ======= ======== ========
Pro forma earnings per unit (based
upon pro forma weighted average
units outstanding)
Income before extraordinary
items........................... $ 0.49
Extraordinary loss on early
extinguishment of debt.......... (0.11)
--------
Net Income.............. $ 0.38
========
140
202
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
- ---------------
(A) The pro forma adjustments reflect the historical combined operations of the
Predecessor to the OP (the "DeBartolo Retail Group") for the period from
January 1, 1994 through April 20, 1994.
(B) Represents pro forma impact of the Property Manager. The OP accounts for
its investment in the Property Manager on the equity basis of accounting.
Pro forma adjustments also include interest income on $60,000 of cash from
the REIT Formation from January 1, 1994 through April 20, 1994.
(C) The pro forma adjustment reflects the elimination of certain taxes
associated with the change of ownership structure from a corporation to a
partnership. The pro forma adjustments also reflect the Company's prorated
share of estimated annual cost of $2,000 associated with operating as a
public company.
(D) Reflects the reduction of interest expense associated with the reduction of
debt and restructuring resulting from the IPO and related transactions.
(E) The pro forma adjustment reflects the changes in ownership interest,
structure, and refinancing of debt in the nonconsolidated joint ventures
which are recorded on the equity method.
(F) Increase reflects the minority partners' share of the net effect of the
REIT Formation.
141
203
REPORT OF INDEPENDENT AUDITORS
To the Partners of
DeBartolo Realty Partnership, L.P.
We have audited the accompanying combined balance sheets of the
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. as of
December 31, 1995 and 1994 and the related combined statements of operations,
accumulated deficit and cash flows for the year ended December 31, 1995 and for
the period from April 21, 1994 to December 31, 1994 and the combined statements
of operations, accumulated deficit and cash flows of the Uncombined Joint
Ventures of DeBartolo Retail Group as described in Note 1 for the period January
1, 1994 to April 20, 1994 and for the year ended December 31, 1993. These
financial statements are the responsibility of DeBartolo Realty Partnership,
L.P.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 best 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. at December
31,1995 and 1994 and the combined results of their operations and their cash
flows for the year ended December 31, 1995 and for the period April 21, 1994 to
December 31, 1994, and the combined results of operations and cash flows of the
Uncombined Joint Ventures of DeBartolo Retail Group for the period January 1,
1994 to April 20, 1994 and for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 14, 1996
142
204
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED BALANCE SHEETS
ASSETS
DECEMBER 31,
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
Investment properties (Notes 3 and 5).................................. $784,211 $767,345
Less accumulated depreciation........................................ 184,977 162,839
-------- --------
599,234 604,506
Cash and cash equivalents.............................................. 5,507 6,043
Restricted cash........................................................ 2,089 2,016
Accounts receivable, net of allowance for doubtful accounts of $2,883
and $2,718, in 1995 and 1994......................................... 17,506 18,321
Deferred charges and prepaid expenses (Note 4)......................... 17,992 20,627
-------- --------
$642,328 $651,513
======== ========
LIABILITIES AND ACCUMULATED EQUITY (DEFICIT)
Liabilities:
Mortgages and notes payable (Note 5)................................. $584,495 $592,990
Accounts payable and accrued expenses................................ 14,113 12,217
Affiliate payables (Note 8).......................................... 76,436 72,965
-------- --------
675,044 678,172
======== ========
Commitments and contingencies (Notes 5, 6, 7, and 9)................... -- --
Accumulated deficit.................................................... (32,716) (26,659)
-------- --------
$642,328 $651,513
======== ========
Accumulated equity (deficit):
DeBartolo Realty Partnership, L.P.................................... $(32,896) $(30,412)
Outside partners..................................................... 180 3,753
-------- --------
$(32,716) $(26,659)
======== ========
See accompanying notes.
143
205
NONCONSOLIDATED JOINT VENTURES OF DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF OPERATIONS
DEBARTOLO REALTY
PARTNERSHIP, L.P. DEBARTOLO RETAIL GROUP
------------------------- ----------------------------
APRIL 21, JANUARY 1,
TO TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
-------- ------------ --------------- --------
(DOLLARS IN THOUSANDS)
Revenues (Note 8):
Minimum rents........................... $ 89,727 $ 60,978 $26,101 $ 80,971
Tenant recoveries....................... 44,293 30,967 12,709 40,589
Percentage rents........................ 6,058 4,833 1,406 7,932
Other................................... 12,853 9,252 2,420 8,233
-------- -------- ------- --------
Total revenues 152,931 106,030 42,636 137,725
-------- -------- ------- --------
Expenses:
Shopping Center Expenses:
Property operating................... 14,381 10,178 4,247 13,289
Repairs and maintenance.............. 12,065 7,888 3,437 11,563
Real estate taxes.................... 18,630 13,052 5,185 16,898
Advertising and promotion............ 4,972 3,307 684 3,904
Management fees to affiliate (Note
8)................................. 4,984 3,377 1,545 4,731
Provision for doubtful accounts...... 997 276 496 1,078
Ground leases (Note 7)............... 130 88 37 125
Other................................ 1,209 1,612 461 812
-------- -------- ------- --------
Total shopping center
expenses...................... 57,368 39,778 16,092 52,400
Interest expense.......................... 57,561 37,038 15,942 58,615
Depreciation and amortization............. 24,078 16,351 6,885 22,307
-------- -------- ------- --------
139,007 93,167 38,919 133,322
-------- -------- ------- --------
Gain (loss) on sale of assets............. 166 1,196 (1) 1,380
Income before extraordinary item.......... 14,090 14,059 3,716 5,783
Extraordinary item (Note 10).............. (425) (388) -- --
-------- -------- ------- --------
Net income...................... $ 13,665 $ 13,671 $13,716 $ 5,783
======== ======== ======= ========
See accompanying notes.
144
206
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF ACCUMULATED DEFICIT
(DOLLARS IN THOUSANDS)
Balance at December 31, 1992...................................................... $ 1,843
Contributions..................................................................... 6,258
Distributions..................................................................... (31,040)
Net income........................................................................ 5,783
--------
Balance at December 31, 1993...................................................... (17,156)
Contributions..................................................................... 4,398
Distributions..................................................................... (11,532)
Net income........................................................................ 3,716
--------
Balance at April 20, 1994......................................................... (20,574)
Contributions..................................................................... 1,279
Distributions..................................................................... (21,035)
Net income........................................................................ 13,671
--------
Balance at December 31, 1994...................................................... (26,659)
Contributions..................................................................... 9,097
Distributions..................................................................... (28,819)
Net income........................................................................ 13,665
--------
Balance at December 31, 1995...................................................... $(32,716)
========
See accompanying notes.
145
207
NONCONSOLIDATED JOINT VENTURES OF DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF CASH FLOWS
DEBARTOLO REALTY
PARTNERSHIP, L.P. DEBARTOLO RETAIL GROUP
------------------------- --------------------------
APRIL 21, TO JANUARY 1, TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
-------- ------------ ------------- --------
(DOLLARS IN THOUSANDS)
Cash Flows From Operating Activities:
Net income.......................................... $ 13,665 $ 13,671 $ 3,716 $ 5,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of financing costs included in
interest expense............................... 1,941 1,184 367 877
(Gain) loss on sale of assets.................... (166) (1,196) 1 (1,380)
Depreciation and amortization.................... 24,078 16,351 6,885 22,307
Extraordinary items.............................. 425 388 -- --
(Increase) decrease in restricted cash........... (73) 699 (1,548) (1,168)
(Increase) decrease in accounts receivable....... 815 (3,899) 767 (3,568)
Decrease (increase) in prepaid expenses and
other.......................................... 39 2,007 (2,001) (175)
Increase (decrease) in accounts payable and
accrued expenses............................... 1,012 (5,881) 6,322 3,405
Other............................................ -- 139 459 --
Net Cash Provided By Operating Activities........ 41,736 23,463 14,968 26,081
Cash Flows From Investing Activities:
Additions to investment properties.................. (9,750) (24,524) (1,961) (9,270)
Additions to lease costs............................ (1,268) (701) (156) (1,170)
Proceeds from sale of land.......................... 193 1,407 1 1,560
Net Cash Used In Investing Activities............ (10,825) (23,818) (2,116) (8,880)
Cash Flows From Financing Activities:
Proceeds from issuance of debt...................... -- 19,667 4,445 88,300
Scheduled principal payments on mortgages........... (3,004) (1,888) (871) (2,443)
Other payments on debt.............................. (5,491) (48,167) -- (84,327)
Loan costs paid..................................... (126) (8,889) (320) (2,573)
Capital contributions............................... 2,522 1,279 4,398 6,258
Partner distributions............................... (28,819) (21,036) (11,532) (31,040)
(Increase) decrease in affiliate receivables (net of
affiliated payables)............................. 3,471 56,962 (2,508) 9,987
Net Cash Used in Financing Activities............ (31,447) (2,072) (6,388) (15,838)
Net Increase (Decrease) In Cash and Cash
Equivalents.................................... (536) (2,427) 6,464 1,363
Cash and Cash Equivalents:
Beginning of year................................... 6,043 8,470 2,006 643
End of year......................................... $ 5,507 $ 6,043 $ 8,470 $ 2,006
Supplemental Information:
Interest paid....................................... $ 56,125 $ 36,032 $ 15,319 $ 55,894
Supplemental Schedule of Non-Cash and Financing
Activities:
Step-up in basis associated with the acquisition of
partnership interests in three properties........ $ 6,734 $ -- $ -- $ --
See accompanying notes
146
208
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
DeBartolo Realty Partnership, L.P. (the "Operating Partnership" or "OP")
was formed as a Delaware limited partnership in 1993 in connection with
DeBartolo Realty Corporation's (the "Company") initial public offering (the
"IPO"). The OP owns 50% or less of twelve joint ventures and accounts for its
investment in these joint ventures under the equity method. Prior to April 21,
1994, each of these joint ventures were owned 50% or less by The Edward J.
DeBartolo Corporation ("EJDC") and certain affiliates.
The accompanying combined financial statements of the nonconsolidated joint
ventures of DeBartolo Realty Partnership, L.P. and uncombined joint ventures of
DeBartolo Retail Group consist of the assets, liabilities and results of
operations identified with the joint ventures which are owned 50% or less by the
OP.
The transaction relating to the acquisition of the investments in joint
ventures is accounted for as a reorganization of entities under common control
and accordingly the assets and liabilities of all combined joint ventures will
be carried forward at historical cost.
In conjunction with the IPO, the OP received options to acquire the
interests of the estate of Edward J. DeBartolo and other members of his family
and affiliates in three nonconsolidated joint ventures. On July 1, 1995, the OP
exercised these options and acquired a 12.8% interest in Miami International
Mall, and 0.1% interests in Coral Square and Lakeland Square. The purchase price
of approximately $6.7 million was payable in limited partnership interests in
the OP.
The joint ventures included in these combined financial statements and the
OP's and DeBartolo Retail Group's ownership interest in each are as follows:
OP'S PERCENTAGE
OWNERSHIP AT
VENTURE PROPERTY DECEMBER 31, 1995
- -------------------------------------- ------------------------- -----------------
Aventura Mall Venture Aventura Mall 33.3%
Biltmore Square Associates Biltmore Square 33.3%
Century III Associates Century III Mall 50.0%
Chesapeake-JCP Associates, Ltd. Chesapeake Square 50.0%
Coral-CS/LTD Associates Coral Square 50.0%
Florida Mall Associates The Florida Mall 50.0%
HD Lakeland Mall Joint Venture Lakeland Square 50.0%
Jacksonville Avenues Limited
Partnership The Avenues 25.0%
Northfield Center Limited Partnership Northfield Square 31.6%
Palm Beach Mall (A Tenancy in Common) Palm Beach Mall 50.0%
Philadelphia Center Associates Great Northeast Plaza 50.0%
West Dade County Associates Miami International Mall 50.0%
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Properties:
Investment properties are stated at cost less accumulated depreciation,
which in the opinion of management is not in excess of net realizable value.
Costs incurred for the acquisition, development, construction and improvement of
properties, including significant renovations, are capitalized. Interest costs
147
209
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
and real estate taxes incurred with respect to qualified expenditures relating
to the construction of assets are capitalized during the development period.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Depreciation and Amortization:
The cost of buildings, improvements and equipment are depreciated on the
straight-line method over estimated useful lives, as follows:
Buildings -- 30 to 40 years
Improvements -- shorter of lease term or useful life
Equipment -- 3 to 10 years
Tenant allowances paid to tenants for construction are capitalized and
amortized over the terms of each specific lease. Maintenance and repairs are
charged to expense when incurred.
Deferred Charges:
Deferred charges consist principally of financing costs and leasing
commissions which are amortized over the terms of the respective agreements.
Capitalized Interest:
Interest is capitalized on projects during the construction period.
Interest capitalized was $708 in 1995, $798 from April 21, 1994 to December 31,
1994, and $24 for the period January 1, 1994 to April 20, 1994. No interest was
capitalized during 1993.
Cash and Cash Equivalents:
Highly liquid investments with maturities of three months or less are
considered cash equivalents.
Restricted Cash:
Restricted cash is being restricted primarily for payment of expenditures
for improvements relating to a shopping center.
Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of financial instruments:
The fair value of cash and cash equivalents and restricted cash
approximate the carrying value due to the short term nature of these
instruments.
The fair value of the fixed rate mortgages and notes payable is based
on current rates available to the OP for debt of similar terms. Fair value
of variable rate debt is considered to be the carrying amount.
148
210
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Revenue Recognition:
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method over the terms of
leases. Percentage rents are recognized on an accrual basis as earned. Real
estate tax and operating expense recoveries are recognized in the period the
applicable costs are incurred.
Income Taxes:
The allocable share of the taxable income or loss of the joint ventures is
includable in the income tax returns of the partners; accordingly, income taxes
are not reflected in the combined financial statements.
Impact of Recently Issued Accounting Standards:
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The OP will adopt Statement 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
NOTE 3 -- INVESTMENT PROPERTIES
Investment properties consist of shopping center properties, including
peripheral land and properties under development. Investment properties are
summarized as follows:
DECEMBER 31,
---------------------
1995 1994
-------- --------
Land................................................... $ 80,670 $ 79,651
Shopping center buildings, improvements and
equipment............................................ 697,058 684,412
Properties under expansion/renovation.................. 6,336 3,107
Peripheral land parcels................................ 147 175
-------- --------
784,211 767,345
Accumulated depreciation............................... 184,977 162,839
-------- --------
Total investment properties.................. $599,234 $604,506
======== ========
Peripheral land parcels primarily consist of undeveloped land parcels
adjacent to certain shopping centers.
Depreciation expense totaled $22,283 in 1995; $14,982 from April 21, 1994
to December 31, 1994; $6,395 for the period January 1, 1994 to April 20, 1994
and $20,706 for 1993.
149
211
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- DEFERRED CHARGES AND PREPAID EXPENSES
Deferred charges and prepaid expenses are summarized as follows:
DECEMBER 31,
-------------------
1995 1994
------- -------
Lease costs net of accumulated amortization of $10,836
and $10,242 in 1995 and 1994, respectively............. $ 7,996 $ 8,343
Loan costs net of accumulated amortization of $3,285 and
$3,834 in 1995 and 1994, respectively.................. 3,319 3,887
Interest rate buydowns, net of accumulated amortization
of $2,068 and $904 in 1995 and 1994, respectively...... 6,101 7,811
Prepaid expenses and other............................... 576 586
------- -------
$17,992 $20,627
======= =======
Lease cost amortization totaled $1,795 in 1995; $1,369 from April 21, 1994
to December 31, 1994; $490 for the period January 1, 1994 to April 20, 1994; and
$1,601 in 1993.
Amortization of loan costs and interest rate buydowns totaled $1,941 in
1995; $1,184 from April 21, 1994 to December 31, 1994; $367 for the period
January 1, 1994 to April 20, 1994; and $877 in 1993.
NOTE 5 -- MORTGAGES AND NOTES PAYABLE
Mortgage debt, which is collateralized by substantially all investment
properties, is summarized as follows:
DECEMBER 31,
---------------------
1995 1994
-------- --------
Primarily first mortgages with fixed interest rates
ranging from 6.0% to 9.52% (average of 7.6%) at
December 31, 1995, due at various dates through
2003................................................. $401,595 $408,890
First mortgages with variable interest rates (average
of 7.03% at December 31, 1995) due at various dates
through 1998......................................... 107,900 109,100
Commercial paper secured by a first mortgage due to an
affiliate of EJDC on a property under a 10 year
credit facility through 1998 (effective rate
including original issue discount at December 31,
1995 of 7.11%)....................................... 75,000 75,000
-------- --------
Total Mortgages and Notes Payable............ $584,495 $592,990
======== ========
150
212
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The OP's proportionate share of the mortgages and notes payable are as
follows as of December 31:
DECEMBER 31,
---------------------
1995 1994
-------- --------
DeBartolo Realty Partnership, L.P...................... $249,535 $246,365
Outside partners....................................... 334,960 346,625
-------- --------
$584,495 $592,990
======== ========
Annual principal payments and maturities are as follows as of December 31,
1995:
OP'S
TOTAL SHARE
-------- --------
1996................................................... $ 28,873 $ 12,880
1997................................................... 6,214 2,445
1998................................................... 178,510 72,319
1999................................................... 3,795 1,608
2000................................................... 80,854 35,799
Thereafter............................................. 286,249 124,484
-------- --------
$584,495 $249,535
======== ========
A lender on two properties is entitled to receive in addition to any
amounts due pursuant to the terms of the loan, 33 1/3% of net sales or
refinancing proceeds as defined upon sale or refinancing of the properties.
DeBartolo Realty Partnership, L.P. has guaranteed $21,726 of the mortgages
and notes payable relating to three nonconsolidated joint ventures. An affiliate
of EJDC continues to provide a guarantee of 33 1/3% of the debt service
obligation on a $100 million floating rate mortgage at one of the joint
ventures. The OP has agreed to indemnify the EJDC affiliate for any loss or
costs incurred or associated with this guaranty.
Fair Value of Debt Related Financial Instruments:
The estimated fair value of financial instruments are as follows:
DECEMBER, 1995 DECEMBER, 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
Fixed rate mortgages and notes payable........ $401,595 $ 415,563 $408,890 $ 366,041
Variable rate mortgages and notes payable..... 182,900 182,900 184,100 184,100
-------- -------- -------- --------
$584,495 $ 598,463 $592,990 $ 550,141
======== ======== ======== ========
151
213
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- RENTALS UNDER OPERATING LEASES
The properties receive rental income from the leasing of retail shopping
center space under operating leases that expire at various dates through 2020.
Substantially all investment property is leased out under operating leases. The
minimum future rentals based on operating leases held are as follows as of
December 31, 1995:
LEASES
WITH RELATED
ALL LEASES PARTIES(1)
---------- ------------
1996................................................. $ 83,243 $ 3,009
1997................................................. 77,076 2,989
1998................................................. 71,221 2,762
1999................................................. 64,362 2,762
2000................................................. 56,124 2,762
Thereafter........................................... 201,102 15,060
-------- --------
$ 553,128 $ 29,344
======== ========
- ---------------
(1) Represents stores whose parent company also owns units of the OP or stores
whose chief executive officers are on the Board of Directors of the Company.
Minimum future rentals do not include amounts which may be received under
the terms of certain leases based upon a percentage of the tenants' sales or as
reimbursement of shopping center expenses.
No single tenant or group of affiliated tenants collectively accounts for
more than 10% of the combined properties total revenues which include minimum
rents, tenant recoveries, percentage rents and other revenue. The tenant base
includes national and regional retail chains and local retailers and
consequently the combined properties credit risk is concentrated in the retail
industry.
The revenues of the joint ventures may be adversely affected by the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise. At December 31, 1995, leases (excluding rejected leases) of mall
store tenants of the joint ventures open and operating in bankruptcy comprise
approximately 5.1% of mall gross leasable area ("GLA"). Annual rentals paid by
these Mall Store tenants comprised 5.0% of minimum rents paid by mall store
tenants. Substantially all of these tenants are currently meeting their
contractual obligations. At the time a tenant files for bankruptcy protection it
is difficult to determine to what extent these tenants will reject their leases
or seek other concessions as a condition to continued occupancy. The OP expects
certain of these tenants to reject their leases. Based on past experience, the
OP has been able to offset, over a reasonable period of time, the impact on
minimum rents caused by a tenant in bankruptcy.
152
214
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- GROUND LEASES
One joint venture, as lessee, has a ground lease expiring in 2012.
Following is a schedule of future minimum rental payments required under this
ground lease as of December 31, 1995:
1996................................................ $ 120
1997................................................ 120
1998................................................ 120
1999................................................ 120
2000................................................ 120
Thereafter.......................................... 1,380
------
$1,980
======
NOTE 8 -- TRANSACTIONS WITH AFFILIATES
Management and Other Fees: The Property Manager, an affiliate of the OP,
has contracted to provide management, leasing, development and construction
management services to the joint ventures. One joint venture is managed by a
partner in that joint venture who is unrelated to the OP. Amounts included in
the nonconsolidated financial statements related to agreements with the Property
Manager are as follows:
PERIOD FROM PERIOD FROM
APRIL 21, 1994 JANUARY 1, 1994
DECEMBER 31, TO DECEMBER 31, TO APRIL 20, DECEMBER 31,
1995 1994 1994 1993
------------ --------------- --------------- ------------
Management fees...................... $4,075 $ 2,871 $ 1,353 $4,271
Leasing fees......................... 986 550 156 1,117
Development and Construction......... 969 802 312 589
Other Reimbursements................. 119 163 55 302
Insurance: The joint ventures have first dollar commercial general
liability coverage and special cause of loss property insurance with a $5
deductible. Prior to 1995 the joint ventures' insurance carrier reinsured
certain coverages with an affiliate of EJDC. Charges to the joint ventures for
the reinsured amounts totaled $936 from April 21, 1994 to December 31, 1994.
Prior to April 21, 1994, the joint ventures had first dollar commercial general
liability insurance of which an affiliated insurance company reinsured the first
$250 per occurrence. Additionally, the joint ventures had "All Risk" Property
insurance. The insurance company reinsured the first $95 per occurrence with an
affiliate of EJDC. Charges for the reinsured amounts totaled $371 for the period
January 1, 1994 to April 20, 1994 and $1,074 for 1993.
Affiliate Leases: On November 6, 1995, Fun-N-Games, an affiliate of EJDC
which operated amusement centers in the joint venture properties, was sold to an
independent third party operator who continues to operate these stores. The
joint ventures recorded total revenues and operating expense reimbursements of
$559 through November 6, 1995; $504 from April 21, 1994 to December 31, 1994;
$254 for the period from January 1, 1994 to April 20, 1994 and $725 for 1993.
Affiliates of certain anchor tenants and small shops in various properties
are partners in those properties or are partners in the Operating Partnership.
As of December 31, 1995, these tenants own or lease space in 10 properties.
These properties recorded rental income and operating expense reimbursements of
$3,451 in 1995; $3,223 from April 21, 1994 to December 31, 1994; $1,443 for the
period January 1, 1994 to April 20, 1994 and $4,320 in 1993.
153
215
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Affiliate Payables: At December 31, 1995, affiliate payables represent
amounts due to the Property Manager for normal monthly operating costs and
advances from DeBartolo Realty Partnership, L.P. Concurrent with the offering,
net affiliate payables, which were primarily non-interest bearing, were
distributed to EJDC. Interest expense including interest charged to properties
by affiliates of venturers totaled $6,689 in 1995; $7,681 from April 21, 1994 to
December 31, 1994; $1,976 for the period from January 1, 1994 to April 20, 1994
and $6,098 in 1993.
NOTE 9 -- CONTINGENT LIABILITIES
Certain of the properties are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the properties believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the combined
financial statements.
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the OP's financial position or results of operations.
Management is unaware of any instances in which it would incur significant
environmental costs if any or all properties were sold, disposed of or
abandoned.
NOTE 10 -- EXTRAORDINARY ITEM
The extraordinary charge in 1995 represents the write-off of unamortized
deferred financing costs of $425 relating to the partial paydown of mortgage
debt of one property. The extraordinary charge in 1994 resulted from prepayment
penalties and the write-off of unamortized deferred financing costs related to
the satisfaction of mortgage notes payable.
NOTE 11 -- SUBSEQUENT EVENT
On January 31, 1996, the Property Manager was assigned a 33% partnership
interest in one of the nonconsolidated joint ventures and a 25% partnership
interest in another nonconsolidated joint venture from an unrelated joint
venture partner.
154
216
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE OPERATING PARTNERSHIP OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS
OF THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.......... S-3
The Operating Partnership.............. S-7
Recent Developments.................... S-12
Use of Proceeds........................ S-18
Accounting Treatment of the Merger..... S-18
Capitalization......................... S-19
Selected Financial and Operating
Data................................. S-20
Business and Properties................ S-23
Description of the Notes............... S-38
Management............................. S-45
Underwriting........................... S-48
Pro Forma Combined Condensed
Financial Information................ SF-1
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
The Operating Partnership.............. 4
The Merger............................. 6
Use of Proceeds........................ 8
Ratio of Earnings to Fixed Charges..... 8
Description of Debt Securities......... 9
Plan of Distribution................... 19
Legal Matters.......................... 20
Experts................................ 20
Certain Information with respect to
Simon DeBartolo Group, L.P. ......... 21
Certain Information with respect to
Simon Property Group, L.P............ 49
Certain Information with respect to
DeBartolo Realty Partnership, L.P.... 108
UNTIL , 1997 (90 DAYS AFTER
THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
$ ,000,000
% REDEEMABLE NOTES
DUE , 200
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
UBS SECURITIES
NOVEMBER , 1996
- ------------------------------------------------------
- ------------------------------------------------------
217
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (not including underwriting commissions and fees) of issuance
and distribution of the securities are estimated to be:
Securities and Exchange Commission Registration Fee...................... $ 258,620
Printing Costs........................................................... $ 150,000(1)
NASD Filing Fees......................................................... $ 30,500
Fees of Rating Agencies.................................................. $ 210,000
Accounting Fees and Expenses............................................. $ 100,000(1)
Attorneys' Fees and Expenses............................................. $ 150,000(1)
Blue Sky Fees and Expenses............................................... $ 90,000
Miscellaneous Expenses................................................... $ 165,880(1)
-----------
Total.......................................................... $1,155,000(1)
===========
- ---------------
(1) Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Partnership Agreement of each of the Operating Partnership and SPG, LP
contains provisions indemnifying their respective general partners' officers and
directors against certain liabilities. Each such Partnership Agreement provides
for indemnification of such general partners and their officers and directors to
the same extent indemnification is provided to officers and directors of the
Company in its Charter, and limits the liability of such general partners and
their officers and directors to the Operating Partnership or SPG, LP and their
respective partners to the same extent liability of officers and directors of
the Company to the Company and its stockholders is limited under the Company's
Charter. In addition, the Company's officers and directors are indemnified under
Maryland law and the Company's Charter. The Company's Charter requires the
Company to indemnify its directors and officers to the fullest extent permitted
from time to time by the laws of Maryland. The Company's By-Laws contain
provisions which implement the indemnification provisions of the Company's
Charter.
The Maryland General Corporation Law (the "MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that the act
or omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. No amendment of the Company's Charter shall limit or
eliminate the right to indemnification provided with respect to acts or
omissions occurring prior to such amendment or repeal. Maryland law permits the
Company to provide indemnification to an officer to the same extent as a
director, although additional indemnification may be provided if such officer is
not also a director.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. The MGCL does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(1) it is proved that the person actually received an improper benefit or profit
in money, property or services (to the extent such benefit or profit was
received) or (2) a judgment or other final adjudication adverse to such person
is entered in a proceeding based on a finding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the
II-1
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cause of action adjudicated in the proceeding. The Company's Charter contains a
provision consistent with the MGCL. No amendment of the Company's Charter shall
limit or eliminate the limitation of liability with respect to acts or omissions
occurring prior to such amendment or repeal.
The Company has entered into indemnification agreements with each of the
Company's directors and officers. The indemnification agreements require, among
other things, that the Company indemnify its directors and officers to the
fullest extent permitted by law, and advance to the directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company also must indemnify and advance
all expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements, and cover each director and officer if the
Company obtains directors' and officers' liability insurance.
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
1.1* -- Form of Underwriting Agreement
4.1** -- Form of Indenture
5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
12.1** -- Calculation of Ratio of Earnings to Fixed Charges
23.1** -- Consent of Arthur Andersen LLP
23.2** -- Consent of Ernst & Young LLP
23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in Exhibit 5.1)
23.4** -- Consent of Willkie Farr & Gallagher
24.1** -- Power of Attorney (included in the signature page to the Registration Statement)
25.1** -- Statement of Eligibility of Trustee on Form T-1
99.1** -- Agreement dated November 13, 1996 between Simon DeBartolo Group, Inc. and Simon
DeBartolo Group, L.P.
99.2 -- Contribution Agreement dated June 25, 1996, with related Instrument of Assignment
dated August 9, 1996.
- ---------------
* To be filed by amendment or incorporated by reference herein by a Current
Report on Form 8-K.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-2
219
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) Each of the undersigned registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of such registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, such registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) Each of the undersigned registrants hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(e) Each of the undersigned registrants hereby undertakes to file an
application for the purpose of determining the eligibility of the Trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-3
220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Indianapolis, State of Indiana, on November 21
1996.
SIMON DeBARTOLO GROUP, L.P.
By: SD PROPERTY GROUP, INC.
By: /s/ DAVID SIMON
---------------------------------
David Simon
(Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in their
capacities as officers and directors of the managing partner of the Registrant
and on the date indicated.
NAME TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
* Co-Chairman of the Board of November 21, 1996
- ---------------------------------------- Directors
Melvin Simon
* Co-Chairman of the Board of November 21, 1996
- ---------------------------------------- Directors
Herbert Simon
/s/ DAVID SIMON Chief Executive Officer and November 21, 1996
- ---------------------------------------- Director (Principal Executive
David Simon Officer, Financial Officer and
Accounting Officer)
* President, Chief Operating November 21, 1996
- ---------------------------------------- Officer and Director
Richard S. Sokolov
* Director November 21, 1996
- ----------------------------------------
Birch Bayh
* Director November 21, 1996
- ----------------------------------------
Edward J. Debartolo, Jr.
* Director November 21, 1996
- ----------------------------------------
William T. Dillard, II
* Director November 21, 1996
- ----------------------------------------
G. William Miller
II-4
221
NAME TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
* Director November 21, 1996
- ----------------------------------------
Fredrick W. Petri
* Director November 21, 1996
- ----------------------------------------
Terry S. Prindiville
* Director November 21, 1996
- ----------------------------------------
J. Albert Smith, Jr.
* Director November 21, 1996
- ----------------------------------------
Philip J. Ward
* Director November 21, 1996
- ----------------------------------------
M. Denise DeBartolo York
*By /s/ DAVID SIMON
- ----------------------------------------
David Simon
Attorney-in-fact
II-5
222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Indianapolis, State of Indiana, on November 21,
1996.
SIMON PROPERTY GROUP, L.P.
By: SIMON DeBARTOLO GROUP, INC.
its general partner
By: /s/ DAVID SIMON
-------------------------------
David Simon
(Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in their
capacities as officers or directors of the general partner of the Registrant and
on the date indicated.
NAME TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
Co-Chairman of the Board of November , 1996
- ---------------------------------------- Directors
Melvin Simon
* Co-Chairman of the Board of November 21, 1996
- ---------------------------------------- Directors
Herbert Simon
/s/ DAVID SIMON Chief Executive Officer and November 21, 1996
- ---------------------------------------- Director (Principal Executive
David Simon Officer, Financial Officer and
Accounting Officer)
* President, Chief Operating November 21, 1996
- ---------------------------------------- Officer and Director
Richard S. Sokolov
* Director November 21, 1996
- ----------------------------------------
Birch Bayh
Director November , 1996
- ----------------------------------------
Edward J. Debartolo, Jr.
Director November , 1996
- ----------------------------------------
William T. Dillard, II
II-6
223
NAME TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
* Director November 21, 1996
- ----------------------------------------
G. William Miller
* Director November 21, 1996
- ----------------------------------------
Fredrick W. Petri
* Director November 21, 1996
- ----------------------------------------
Terry S. Prindiville
Director November , 1996
- ----------------------------------------
J. Albert Smith, Jr.
* Director November 21, 1996
- ----------------------------------------
Philip J. Ward
Director November , 1996
- ----------------------------------------
M. Denise DeBartolo York
*By /s/ DAVID SIMON
- ----------------------------------------
David Simon
Attorney-in-fact
II-7
224
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------- ------------
1.1* -- Form of Underwriting Agreement......................................
4.1** -- Form of Indenture...................................................
5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.................
12.1** -- Calculation of Ratio of Earnings to Fixed Charges...................
23.1** -- Consent of Arthur Andersen LLP......................................
23.2** -- Consent of Ernst & Young LLP........................................
23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in
Exhibit 5.1)........................................................
23.4** -- Consent of Willkie Farr & Gallagher.................................
24.1** -- Power of Attorney (included in the signature page to the
Registration Statement).............................................
25.1** -- Statement of Eligibility of Trustee on Form T-1.....................
99.1** -- Agreement dated November 13, 1996 between Simon DeBartolo Group,
Inc. and Simon DeBartolo Group, L.P.................................
99.2 -- Contribution Agreement dated June 25, 1996, with related Instrument
of Assignment dated August 9, 1996..................................
- ---------------
* To be filed by amendment or incorporated by reference herein by a Current
Report on Form 8-K.
** Previously filed.
1
November 20, 1996
Simon DeBartolo Group, L.P.
Simon Property Group, L.P.
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, IN 46204
Registration Statement on Form S-3
Registration No. 333-11491
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement
on Form S-3 (the "Registration Statement") filed by Simon DeBartolo Group, L.P.,
a Delaware limited partnership (the "Operating Partnership"), and Simon Property
Group, L.P., a Delaware limited partnership (the "Guarantor"), with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations promulgated thereunder, we
have been requested to render our
2
opinion as to the legality of the securities being registered thereunder. The
Registration Statement relates to the registration under the Act of the
Operating Partnership's non-convertible investment grade debt securities,
consisting of notes or debentures denominated in United States dollars or any
other currency (the "Debt Securities") and of the guarantee of the Debt
Securities by the Guarantor (the "Guarantee"). The Debt Securities are being
registered for offering and sale from time to time pursuant to Rule 415 under
the Act. The aggregate public offering price of the Debt Securities will not
exceed $750,000,000 (or its equivalent (based on the applicable exchange rate at
the time of sale) if the Debt Securities are issued with principal amounts
denominated in one or more foreign currencies or currency units as shall be
designated by the Operating Partnership).
The Debt Securities are to be issued under an Indenture to be
entered into between the Operating Partnership, the Guarantor and a trustee (the
"Trustee"), as it may be supplemented from time to time (together, the
"Indenture").
In connection with this opinion, we have examined (i)
originals, photocopies or conformed copies of the Registration Statement
(including the exhibits and amendments thereto), (ii) the form of the Indenture
filed as an exhibit to the Registration Statement, (iii) records of certain of
the corporate proceedings of the managing general partner of the Operating
Partnership relating, among other things, to the proposed issuance and sale of
the Debt Securities and (iv) records of certain of the corporate proceedings of
the general partner of the Guarantor relating to the Guarantee. In addition, we
have made such other examinations of law and fact as we considered
3
necessary in order to form a basis for the opinions hereinafter expressed. In
connection with such investigation, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as photocopies or
conformed copies and the legal capacity of natural persons executing any of the
documents, none of which facts we have independently verified. We have relied as
to matters of fact upon certificates of public officials and officers of the
managing general partner of the Operating Partnership and of officers of the
general partner of the Guarantor.
Based on the foregoing, and subject to the limitations
hereinafter set forth, we are of the opinion that:
i. The Indenture, when duly executed and delivered by the
parties thereto, will represent a valid and binding obligation of each of the
Operating Partnership and the Guarantor under the laws of the State of New York
enforceable against the Operating Partnership and the Guarantor in accordance
with its terms, except as such enforceability may be subject to (a) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally, (b) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law), (c) requirements that a claim with respect to any Debt
Securities denominated other than in United States dollars (or a judgment
denominated other than in United States dollars in respect of such claim) be
converted into United States dollars at a rate of exchange prevailing on
4
a date determined pursuant to applicable law and (d) the enforceability of forum
selection clauses in the federal courts.
ii. When issued, authenticated and delivered, the Debt
Securities will represent valid and binding obligations of the Operating
Partnership under the laws of the State of New York enforceable against the
Operating Partnership in accordance with their respective terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting
creditors' rights generally, (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
(c) requirements that a claim with respect to any Debt Securities denominated
other than in United States dollars (or a judgment denominated other than in
United States dollars in respect of such claim) be converted into United States
dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law and (d) the enforceability of forum selection clauses in the
federal courts.
iii. The Guarantee, when duly executed and delivered by the
Guarantor, and assuming that the Indenture has been duly executed and delivered
by the parties thereto and the Debt Securities being guaranteed have been duly
issued, authenticated and delivered, will represent a valid and binding
obligation of the Guarantor under the laws of the State of New York enforceable
against the Guarantor in accordance with its terms, except as such
enforceability may be subject to (a) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting
creditors' rights generally, (b) general principles of equity (regardless of
whether such
5
enforceability is considered in a proceeding in equity or at law), (c)
requirements that a claim on the Guarantee with respect to any Debt Securities
denominated other than in United States dollars (or a judgment denominated other
than in United States dollars in respect of such claim) be converted into United
States dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law, (d) the enforceability of forum selection clauses in the federal
courts and (e) any provision in the Guarantee purporting to preserve and
maintain the liability of any party thereto despite the fact that the guaranteed
debt is unenforceable due to illegality.
We express no opinion as to the enforceability of any
provisions contained in the Indenture, the Debt Securities or the Guarantee
that constitute waivers which are prohibited under the Uniform Commercial Code
of the State of New York prior to default.
Our opinions expressed above are limited to the laws of the
State of New York and the federal laws of the United States of America. Our
opinions are rendered only with respect to the laws, and the rules, regulations
and orders thereunder, that are currently in effect.
We hereby consent to the use of our name in the Registration
Statement and in the prospectus therein as the same appears in the caption
"Legal Matters" and to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required by the Act or by the rules and
regulations promulgated thereunder.
6
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1
CONFORMED COPY
CONTRIBUTION AGREEMENT (Simon Family Group)
CONTRIBUTION AGREEMENT, dated as of June 25, 1996 (the
"AGREEMENT"), by and among DeBartolo Realty Corporation, an Ohio corporation
("DEBARTOLO"), as the general partner of DeBartolo Realty Partnership, L.P., a
Delaware limited partnership ("DRP"), and, after the consummation of the
transactions contemplated hereby and by the Merger Agreement referred to below,
as a general partner of SDG (as hereinafter defined) (DRP simultaneously
herewith will change its name to Simon DeBartolo Group, L.P. ("SDG")), Simon
Property Group, Inc., a Maryland corporation ("SIMON"), in its individual
capacity and as the general partner of Simon Property Group, L.P., a Delaware
limited partnership ("SPG L.P."), and the limited partners of SPG L.P. listed on
SCHEDULE A (as supplemented from time to time pursuant to Section 1.2(c) hereof)
hereto (together with Simon, the "SUBSCRIBERS").
RECITALS
(a) Simultaneously with the consummation of the merger of Day
Acquisition Corp. ("SUBCO") with and into DeBartolo (the "MERGER") and the other
transactions contemplated by the Agreement and Plan of Merger (the "MERGER
AGREEMENT"), dated as of March 26, 1996, among Simon, Subco and DeBartolo, each
Subscriber shall contribute to SDG, and SDG shall accept from each such
Subscriber, certain of its respective interests in SPG L.P. (collectively, the
"SIMON INTERESTS") specified pursuant to Recital (b) below, and in consideration
for such contributions by each Subscriber, and in exchange therefor, SDG shall
issue to each Subscriber, and
2
2
each Subscriber shall receive from SDG, certain partnership interests in SDG
("UNITS").
(b) Each Subscriber shall contribute to SDG, and SDG shall
accept from each such Subscriber, the Simon Interests set forth opposite the
name of each such Subscriber on SCHEDULE B hereto (as supplemented from time to
time pursuant to Section 1.2(c) hereof). SDG shall issue to each Subscriber, and
such Subscriber shall receive from SDG, the number of Units set forth opposite
the name of each such Subscriber on SCHEDULE C hereto (as supplemented from time
to time pursuant to Section 1.2(c) hereof).
(c) In order to consummate the transactions contemplated by
this Agreement at the Closing (as hereinafter defined), (i) the Fourth Amended
and Restated Agreement of Limited Partnership of DRP, dated as of April 21, 1994
as heretofore amended (the "DEBARTOLO PARTNERSHIP AGREEMENT"), which, among
other things, will change the name of DRP to "Simon DeBartolo Group, L.P.,"
shall be amended and restated substantially in the form attached hereto as ANNEX
A (the "NEW SDG PARTNERSHIP AGREEMENT"), and (ii) the Second Amended and
Restated Agreement of Limited Partnership of SPG L.P., dated as of December 30,
1995 (the "OLD SPG PARTNERSHIP AGREEMENT"), shall be amended and restated
substantially in the form attached hereto as ANNEX B (the "NEW SPG PARTNERSHIP
AGREEMENT").
(d) Capitalized terms used but not defined herein shall have
the respective meanings ascribed to such terms in the Merger Agreement.
3
3
NOW THEREFORE, in consideration of the mutual agreements
contained herein, the parties hereby agree as follows:
SECTION 1
CONTRIBUTION AND EXCHANGE; CLOSING
1.1 Contribution and Exchange. Subject to the receipt of
the consents specified on SCHEDULE D hereto prior to the Closing in form and
substance satisfactory to DeBartolo and Simon, upon the terms and subject to the
other conditions of this Agreement, each Subscriber shall contribute to SDG, and
SDG shall accept from each such Subscriber, its respective Simon Interests, as
set forth opposite the name of each such Subscriber on SCHEDULE B hereto.(1) SDG
shall issue to each Subscriber, and each Subscriber shall receive from SDG, the
number of Units set forth opposite the name of each such Subscriber on SCHEDULE
C hereto.(2) Each of SDG and SPG L.P. shall make a cash flow distribution to
their respective partners, the record
1/ SCHEDULE B sets forth (i) the limited partner interest of each SPG L.P.
Limited Partner in SPG L.P. being transferred to SDG and (ii) with
respect to Simon's general partner interest in SPG L.P. being
transferred to SDG, units representing 10.5% of the total outstanding
units in SPG L.P. plus the assignment of 49.5% of the interest in the
profits of SPG L.P.
2/ SCHEDULE C sets forth the Units being issued to each SPG L.P. Limited
Partner in SDG as well as the non managing general partner interest
being issued to Simon in SDG. It is anticipated that subsequent to the
first anniversary of the Closing, Simon will transfer to SDG for no
additional consideration, all of its remaining economic interest in SPG
L.P. other than units constituting 1% of the total issued and
outstanding units in SPG L.P. It is also anticipated that 13 months
after the Closing, all Preferred Units owned by Simon will be
transferred to SDG in exchange for the same number of Preferred Units
in SDG.
4
4
date for which shall be the close of business on the last day prior to the
Effective Time. The amount of each such distribution shall be equal to the
amount of each partnership's most recent prior cash flow distribution,
multiplied by the number of days elapsed since the record date for such prior
distribution through and including the Effective Time and divided by 91, which
distribution shall constitute the only cash flow distribution to be paid in
respect of the period from such prior record date through and including the
Effective Time. Such distributions shall be paid in accordance with the
respective past practices of the partnerships.
1.2 The Closing. The closing for the contribution of Simon
Interests in exchange for Units as provided for hereunder (the "CLOSING") shall
take place concurrently with the consummation of the Merger at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
New York. At the Closing:
(a) Each Subscriber shall deliver to SDG such good
and sufficient instruments of conveyance and assignment as SDG and its counsel
shall deem reasonably necessary or appropriate to vest in SDG good title in and
to the Simon Interests, respectively owned by each such Subscriber, free and
clear of all Liens.
(b) Simon, as the general partner of SPG L.P.,
DeBartolo, as the managing general partner of SDG, and, to the extent necessary,
existing limited partners of SPG L.P. shall deliver a duly executed counterpart
of the New SPG Partnership Agreement, pursuant to which (i) SDG agrees to be
bound by the terms and
5
5
conditions of the New SDG Partnership Agreement, and (ii) SDG becomes a limited
partner of SPG L.P.
(c) The New SDG Partnership Agreement shall be
executed and delivered by (i) DeBartolo, as managing general partner of SDG,
(ii) the Simon Limited Partners who become limited partners of SDG (to the
extent their signatures are required), (iii) Simon, as non-managing general
partner of SDG, and (iv) by existing partners of SDG to the extent required, but
in any event, at least a Majority-in-Interest (as such terms is defined in the
DeBartolo Partnership Agreement) of the limited partners of DRP. In this
connection, it is anticipated that other limited partners of SPG L.P. will
execute contribution agreements substantially in the form hereof and that at the
Closing, Units will be issued to such other limited partners of SPG L.P. in
exchange for their respective limited partnership units in SPG L.P. in the same
ratio as Units are being issued to the Simon Limited Partners hereunder. Simon
shall provide from time to time modified Schedules A, B, C, E and F to reflect
the execution and delivery from time to time of additional contribution
agreements, whereupon such holders of interests in SPG L.P. shall become SDG
Limited Partners for the purposes hereof. Each such additional contribution
agreement shall be deemed to constitute a counterpart pursuant to Section 6.7
below. Not less than ten business days prior to the Closing, Simon shall deliver
to DeBartolo, SDG and SPG L.P. a final, accurate composite of all counterpart
contribution agreements signed by all of the Simon Limited Partners who have
signed contribution agreements together with the final forms of Schedules A, B,
C, E and F reflecting all of the Simon Limited Partners that
6
6
have signed Contribution Agreements, the aggregate Simon Interests to be
exchanged by such Simon Limited Partners and other aggregate information called
for by said Schedules. To the extent such composite Contribution Agreement only
reflects the information called for by the preceding sentence, it shall not be
deemed to constitute an amendment, waiver or modification of this Agreement for
the purposes of Section 6.5 below.
(d) Any other documents or agreements required to
admit the Subscribers as partners of SDG shall be executed and delivered as
necessary.
SECTION 2
REPRESENTATION AND WARRANTIES; INDEMNIFICATION
2.1 Representations and Warranties of SDG. SDG represents and
warrants to each Subscriber that:
(a) Due Organization and Good Standing. SDG is a
limited partnership duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. SDG is duly qualified
or licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a material adverse effect on the business, financial
condition or results of operations of SDG or on the ability of SDG
7
7
to consummate the transactions contemplated in this Agreement. The DeBartolo
Partnership Agreement, a copy of which has been delivered to Simon, as general
partner of SPG L.P., has not been amended or modified (except as permitted by
the Merger Agreement), annulled, rescinded or revoked since such delivery, and
is in full force and effect as of the date hereof; it being understood by the
parties hereto that upon the Closing, the DeBartolo Partnership Agreement shall
be amended and restated and the agreements and relationships among the partners
of SDG shall thereafter be governed by the New SDG Partnership Agreement.
(b) Authorization and Validity of Agreement. SDG has
the requisite partnership power and authority to enter into this Agreement and
consummate the transactions contemplated thereby. The execution, delivery and
performance of this Agreement by SDG and the consummation by SDG of the
transactions contemplated hereby have been duly authorized on behalf of SDG by
DeBartolo, as the general partner of SDG. This Agreement has been duly
authorized, executed and delivered by DeBartolo, as the general partner of SDG,
and, subject to the consent of certain limited partners of SDG as required by
the DeBartolo Partnership Agreement (the "S-D CONSENT"), it constitutes a legal,
valid and binding obligation of SDG, enforceable against SDG in accordance with
its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws at
the time in effect affecting the enforceability of rights of creditors and (ii)
the remedy of specific performance and injunctive and other forms of equitable
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8
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Non-Contravention. The execution, delivery and
performance by SDG of this Agreement and the issuance of the Units pursuant to
the New SDG Partnership Agreement do not and will not (i) subject to the
obtaining of the S-D Consent, contravene or conflict with the DeBartolo
Partnership Agreement or the New SDG Partnership Agreement, (ii) contravene or
conflict with or constitute a violation of any provision of any Laws binding
upon or applicable to SDG, (iii) require any consent, approval or other action
by any Governmental Entity or any other person other than those consents or
approvals set forth on SCHEDULE D hereto, (iv) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of SDG under any provision of any agreement, contract, indenture,
lease or other instrument binding upon SDG or any license, franchise, permit or
other similar authorization held by SDG or by which any of SDG's assets may be
bound or (v) result in the creation or imposition of any Liens on SDG; provided,
however, it is understood that the right of SDG to execute, deliver and perform
this Agreement may be deemed to require the consents set forth on SCHEDULE D
hereto.
(d) Litigation. There are no pending actions, suits
or proceedings pending or, to the knowledge of DRP, threatened in writing,
against or affecting DRP or any of its properties, assets or operations, or with
respect to which
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9
DRP is responsible by way of indemnity or otherwise that could, individually or
in the aggregate, reasonably be likely to have a material adverse effect.
(e) Units Issued Free and Clear of Liens. All of the
Units required to be issued to each Subscriber pursuant to this Agreement shall
be validly issued free and clear of any Liens, and each Subscriber shall have
all of its respective rights and privileges as provided in the New SDG
Partnership Agreement.
(f) Capitalization. Following the consummation of the
transactions contemplated in this Agreement, the number of Units held by each
partner of SDG shall be calculated as set forth on SCHEDULE E hereto and the
results of such calculation shall be set forth on Exhibit A to the New SDG
Partnership Agreement.
(g) SEC Documents. The Annual Report on Form 10-K of
DeBartolo for the year ended December 31, 1995 as filed with the SEC, a copy of
which has been delivered to each Subscriber, contains no untrue statement of
material fact and does not omit to state any fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
2.2 Representations and Warranties of Simon
(a) SEC Documents. The Annual Report on Form 10-K of
Simon for the year ended December 31, 1995 as filed with the SEC, a copy of
which has been delivered to SDG, contains no untrue statement of material fact
and does not omit to state any material fact required to be stated therein or
necessary to make the
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10
statements therein, in light of the circumstances under which they were made,
not misleading.
2.3 Representations and Warranties of Each Subscriber that Is
Not a Natural Person. Each Subscriber which is not a natural person represents
and warrants to SDG and DeBartolo, as general partner of SDG, and to each other
Subscriber that:
(a) it is an organization duly organized and validly
existing in good standing under the laws of its jurisdiction of organization and
(b) the execution, delivery and performance by such
Subscriber of this Agreement and the New SDG Partnership Agreement (i) are
within its power and authority and do not and will not contravene or conflict
with the certificate or articles of incorporation, by-laws, partnership
agreement or other organizational or governance documents of such Subscriber and
(ii) have been duly authorized by all necessary action by such Subscriber.
2.4 Representations and Warranties of All Subscribers. Each
Subscriber represents and warrants to SDG and to each other Subscriber as
follows:
(a) Authorization and Validity of Agreement. This Agreement
has been duly executed and delivered by such Subscriber and constitutes a legal,
valid and binding obligation of such Subscriber, enforceable against such
Subscriber in accordance with its terms and the New SDG Partnership Agreement
shall be duly executed and delivered by such Subscriber and shall constitute
legal, valid and binding obligations of such Subscriber, enforceable against
such Subscriber in accordance with its terms, except in each case that (i) such
enforcement may be subject
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to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or similar laws at the time in effect affecting the enforceability of rights of
creditors and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) Non-Contravention. The execution, delivery and
performance by such Subscriber of this Agreement and the New SDG Partnership
Agreement and the consummation of the transactions contemplated herein and
therein by such Subscriber do not and will not (i) contravene or conflict with
or constitute a violation of any provision of any Laws binding upon or
applicable to such Subscriber, (ii) require any consent, approval or other
action by any Governmental Entity or any other person other than those consents
or approvals as set forth on SCHEDULE F, or (iii) result in the creation or
imposition of any Lien on any of the Simon Interests held by such Subscriber.
(c) Litigation. There are no pending actions, suits
or proceedings pending or, to the knowledge of such Subscriber, threatened in
writing, against or affecting such Subscriber or any of its properties, assets
or operations, or with respect to which such Subscriber is responsible by way of
indemnity or otherwise that could or in any way limit the ability of such
Subscriber to consummate the transaction contemplated hereby.
(d) Access to Information. Such Subscriber
acknowledges that it or its representative or agent (i) has been given full and
complete access to SDG
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in connection with this Agreement and the transactions contemplated hereby, (ii)
has had the opportunity to review all documents relevant to its decision to
enter into this Agreement and (iii) has had the opportunity to ask questions of
SDG and its management concerning its investment in SDG and the transactions
contemplated hereby.
(e) Investment Intent of Each Subscriber. Such
Subscriber acknowledges that it understands that the Units to be issued to such
Subscriber in exchange for the Simon Interests to be contributed by Subscriber
as provided herein (i) shall not be registered under the Securities Act in
reliance upon the exemption afforded by Section 4(2) thereof for transactions by
an issuer not involving any public offering and (ii) shall not be registered or
qualified under any applicable state securities laws. Such Subscriber represents
that (i) it is acquiring such Units for investment only and without any view
toward distribution thereof and it shall not sell or otherwise dispose of such
Units except in compliance with the registration requirements or exemption
provisions of any applicable federal or state securities laws and in accordance
with the terms of such securities contained in the New SDG Partnership
Agreement, as amended, (ii) its economic circumstances are such that it is able
to bear all risks of the investment in the Units for an indefinite period of
time, including the risk of a complete loss of its investment in the Units,
(iii) it has knowledge and experience in financial and business matters
sufficient to evaluate the risks of investment in the Units and (iv) it has
consulted with its own counsel and tax advisor, to the extent deemed necessary
by it, as to all legal and taxation matters covered by this
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Agreement and has not relied upon DRP, DeBartolo, Simon or any of
their respective affiliates, officers and representatives for any explanation of
the application of the various federal or state securities laws or tax laws with
regard to its acquisition of the Units. Such Subscriber further acknowledges and
represents that it has made its own independent investigation of SDG and the
business proposed to be conducted by SDG, and that any information relating
thereto furnished to such Subscriber was supplied by or on behalf of SDG.
(f) Ownership and Encumbrance of the Assets.
(i) Such Subscriber has all right, title and
interest in the respective Simon Interests to be contributed to SDG by it free
and clear of any Liens. Except as disclosed on SCHEDULE G, such Subscriber has
not granted any rights, options or rights of first refusal, or entered into any
agreements of any kind that are currently in effect or that have not been
waived, to purchase or otherwise acquire such Simon Interests, or any part
thereof or any interest therein, except the rights of SDG under this Agreement.
(ii) Upon consummation of the Closing, SDG
shall be the legal owner of the Simon Interests delivered by each such
Subscriber free and clear of all Liens.
(g) Advisors. Such Subscriber has consulted with its
own counsel and tax advisor, to the extent such Subscriber deemed necessary, as
to the legal and taxation matters associated with this Agreement and the
transactions contemplated hereby and has not relied upon DRP, DeBartolo, Simon
or any of their respective
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affiliates, officers and representatives for any explanation of the application
of federal or state securities or tax laws with regard to its contribution of
the Simon Interests or its receipt of the Units pursuant to the terms hereof.
2.5 Indemnification. Each Subscriber shall, subject to the
limitations hereinafter set forth, indemnify and hold SDG and its partners free
and harmless of and from any claim, loss, damage, expense, cost or liability
(including, without limitation, reasonable attorneys' fees and disbursements)
resulting from its respective breach of any representation or warranty in made
by it in Sections 2.3 and 2.4. SDG shall, subject to the limitations hereinafter
set forth, indemnify and hold each Subscriber, and its partners, officers and
directors (if applicable), free and harmless of and from any claim, loss,
damage, expense, cost or liability (including without limitation, reasonable
attorneys' fees and disbursements) resulting from a breach of any representation
and warranty in Section 2.1. Simon shall, subject to the limitations hereinafter
set forth, indemnify and hold SDG and its partners free and harmless of and from
any claim, loss, damage, expense, cost or liability (including, without
limitation, reasonable attorneys' fees and disbursements) resulting from a
breach of any representation or warranty in Section 2.2. SPG L.P. shall, subject
to the limitations hereinafter set forth, indemnify and hold SDG and its
partners free and harmless of and from any claim, loss, damage, expense, cost or
liability (including, without limitation, reasonable attorneys' fees and
disbursements) resulting from a breach of any representation or warranty in
Section 2.3. Notwithstanding anything to the contrary contained herein, (i) in
no event shall the amount that SDG may recover against any
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15
Subscriber or that any Subscriber may recover against SDG under or in
respect of this Section 2.5 for a breach of any representation or warranty in
Sections 2.2, 2.4 or 2.5 hereof exceed the fair market value of the Units issued
to such Subscriber, (ii) all obligations and liabilities of each Subscriber
under this Agreement are enforceable solely against such Subscriber's Units and
not against any of such Subscriber's other assets, any other Subscriber or any
assets of any other Subscriber.
2.6 Transfer Taxes. SDG shall be solely responsible for the
payment of any transfer taxes or similar charges imposed by any state, county or
municipality in which any of the Simon Interests is located in connection with
the contribution of the Simon Interests to SDG. Also at the Closing, and in
addition to the delivery of any documents required to be delivered in connection
therewith, each Subscriber and SDG shall execute, acknowledge and deliver such
returns, questionnaires, certificates, affidavits, declarations and other
documents which may be required in connection with the sales taxes and other
taxes, fees or charges imposed by any governmental agency in connection with the
transactions contemplated hereby, and shall complete, sign and swear to the same
as may be necessary.
SECTION 3
CONDITIONS TO CLOSING
3.1 Conditions to Obligations of All Parties. The obligations
of DRP and each Subscriber to consummate the Closing are subject to the
simultaneous consummation of the Merger, the simultaneous execution and delivery
of the New SDG
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16
Partnership Agreement (by DeBartolo, as managing general partner of SDG, Simon,
as non-managing general partner of SDG, and to the extent required by those
limited partners of SPG L.P. who become limited partners of SDG pursuant to the
performance of this Agreement and the other Contribution Agreements) and to the
simultaneous execution and delivery of the New SPG Partnership Agreement.
3.2 Conditions to Obligations of SDG. The obligations of DRP to
consummate the Closing with respect to a particular Subscriber is subject to the
satisfaction of the further conditions that: (i) the representations and
warranties of such Subscriber as set forth herein shall be true and correct as
of the Closing Date in all material respects with the same force and effect as
if made on the Closing Date, (ii) the S-D Consent shall have been obtained and
(iii) each Subscriber shall have performed in all material respects all of its
obligations hereunder required to be performed by such Subscriber on or prior to
the Closing Date.
3.3 Conditions to Obligations of Each Subscriber. The obligations of
each Subscriber to consummate the Closing is subject to the further conditions
that: (i) the representations and warranties of DRP set forth in this agreement
shall be true and correct in all material respects as of the Closing Date as
though made on the Closing Date, (ii) DRP shall have performed in all material
respects all of its obligations hereunder required to be performed by DRP at or
prior to the Closing Date, (iii) the requisite partners of DRP shall have
consented the execution and delivery of the New SDG Partnership Agreement and to
the extent required shall have executed and delivered counterparts of the New
SDG Partnership Agreement at the Closing and
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17
(iv) each consent set forth opposite the name of each Subscriber on SCHEDULE F
shall have been obtained.
SECTION 4
COVENANTS
4.1 Further Assurances. SDG and each Subscriber agree, at any time and
from time to time after the Closing, to execute, acknowledge where appropriate
and deliver such further instruments and documents and to take such other action
as the other of them may reasonably request in order to carry out the intents
and purposes of this Agreement. The provisions of this Section 4 shall survive
the Closing.
SECTION 5
CONSENTS TO TRANSFER
5.1 Consent of Simon Limited Partners. Pursuant to Section 9.1 of the
Old SPG Partnership Agreement, the Simon Limited Partners who are parties hereto
hereby (i) consent to the contribution to SDG of the Simon Interests of Simon as
provided herein and (ii) consents to the admission of SDG as a special limited
partner of SPG L.P. pursuant to the Partnership Agreement.
5.2 Consent of Simon. Pursuant to Section 9.2 of the Old SPG
Partnership Agreement, Simon, as the general partner of SPG L.P., hereby (i)
consents to the contribution to SDG of the respective Simon Interests of each
Simon Limited Partner as provided herein and (ii) consents to the admission of
SDG as a limited partner of SPG L.P.
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SECTION 6
MISCELLANEOUS
6.1 Notices. All notices and other communications given or made under
this Agreement shall be in writing and shall be deemed to have been duly given
or made if delivered personally or sent by registered or certified mail (postage
prepaid, return receipt requested) or by telecopier (if written confirmation of
receipt is available and provided) to the parties at the following addresses:
(a) If to SPG to:
Simon Realty Corporation
Merchants Plaza
115 West Washington Street, Suite 15 East
Indianapolis, IN 46204
Attention: David Simon
James M. Barkley, Esq.
Telecopy: (317) 685-7221
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Toby S. Myerson, Esq.
Edwin S. Maynard, Esq.
Telecopy: (212) 757-3990
(b) If to each Subscriber, to the address or
telecopy number thereof that each Subscriber
shall have previously indicated in writing.
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19
or such other addresses as shall be furnished by the parties hereto by like
notice, and such notice or communication shall be deemed to have been given or
made as of the date so delivered or made.
6.2 Entire Agreement. This Agreement (together with each other
Contribution Agreement referred to in Section 1.2(c) above) constitutes the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral and written,
among the parties hereto with respect to such subject matter.
6.3 Binding Effect; Benefit. Subject to Section 6.4 hereof, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
6.4 Assignability. This Agreement (a) shall not be assignable by SDG
without prior written consent of each Subscriber and (b) shall not be assignable
by any Subscriber without the prior written consent of SDG.
6.5 Amendment; Waiver. No provision of this Agreement may be amended,
waived or otherwise modified except by an instrument in writing executed by the
parties hereto.
6.6 Headings. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
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20
6.7 Counterparts. This Agreement may be executed in any number of
counterparts, including those executed from time to time by the holders of
partnership interests in SPG L.P. referred to in Section 1.2(c) above each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument. Delivery of executed signature pages
by telecopier shall be acceptable evidence of delivery to the parties hereto.
Delivery of executed signature pages by telecopier shall be followed immediately
by delivery of the original signature pages by overnight courier.
6.8 Limitation of Liability. Any obligation or liability whatsoever of
either DeBartolo or Simon or any Subscriber which is a corporation or a partner
ship which may arise at any time under this Agreement or any other instrument,
transaction, or undertaking contemplated hereby shall be satisfied, if at all,
out of the assets of the DeBartolo, Simon, SDG or any such other corporation or
partnership only. No such obligation or liability shall be personally binding
upon, nor shall resort for the enforcement thereof be had to, any of DeBartolo,
Simon or SDG's any such other corporation's or partnership's directors,
partners, shareholders, officers, employees, or agents, regardless of whether
such obligation or liability is in the nature of contract, tort or otherwise.
21
21
6.9 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
22
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
DEBARTOLO REALTY GROUP, L.P.
By: DEBARTOLO REALTY CORPORATION,
as General Partner
By: /s/
________________________________
SIMON PROPERTY GROUP, INC.
By: /s/
________________________________
SUBSCRIBER:
By: /s/
________________________________
23
Schedule A
LIST OF SUBSCRIBERS
i. Simon Property Group, Inc.
ii. Melvin Simon
iii. Herbert Simon
iv. Deborah J. Simon
v. Cynthia Simon Skjodt
vi. David E. Simon
vii. Irwin Katz, Trust 8/4/70
viii. Irwin Katz, Melvin Simon Trust No. 1 (4/4/72)
ix. Irwin Katz, Melvin Simon Trust No. 6 (7/21/75)
x. Irwin Katz, Melvin Simon Trust No. 7 (8/11/77)
xi. Irwin Katz, Herbert Simon Trust No. 3 (HST#3)
xii. S.F.G. Company, L.L.C.
xiii. MSA and Subsidiaries
Melvin Simon & Associates, Inc.
Naco Simon Corp.
Penn Simon Corporation
Simon Enterprises, Inc.
Sandy Springs Properties, Inc.
24
Schedule B
SIMON INTERESTS OF EACH SUBSCRIBER
LIMITED PARTNERS
NAME OF SUBSCRIBER SIMON INTEREST
(NUMBER OF UNITS)
Simon Property Group, Inc. 58,560,225
Melvin Simon 6,364,000
Herbert Simon 5,179,414
Deborah J. Simon 405,681
Cynthia Simon Skjodt 405,681
David E. Simon 54,953
Irwin Katz, Trust 8/4/70 2,179,803
Irwin Katz, Melvin Simon Trust No. 1 811,362
(4/4/72)
Irwin Katz, Melvin Simon Trust No. 6 680,734
(7/21/75)
Irwin Katz, Melvin Simon Trust No. 7 275,054
(8/11/77)
Irwin Katz, Herbert Simon Trust No. 3 502,080
(HST#3)
S.F.G. Company, L.L.C. 6,606,200
MSA and Subsidiaries
Melvin Simon & Associates, Inc. 9,681,766
Naco Simon Corp. 50
Penn Simon Corporation 142,148
Simon Enterprises, Inc. 750,981
Sandy Springs Properties, Inc. 62,025
25
Schedule C
UNITS OF EACH SUBSCRIBER IN SIMON DEBARTOLO GROUP, L.P.
UNITS
NAME OF SUBSCRIBER NUMBER OF UNITS
Simon Property Group, Inc. 58,560,225
Melvin Simon 6,364,000
Herbert Simon 5,179,414
Deborah J. Simon 405,681
Cynthia Simon Skjodt 405,681
David E. Simon 54,953
Irwin Katz, Trust 8/4/70 2,179,803
Irwin Katz, Melvin Simon Trust No. 1 811,362
(4/4/72)
Irwin Katz, Melvin Simon Trust No. 6 680,734
(7/21/75)
Irwin Katz, Melvin Simon Trust No. 7 275,054
(8/11/77)
Irwin Katz, Herbert Simon Trust No. 3 502,080
(HST#3)
S.F.G. Company, L.L.C. 6,606,200
MSA and Subsidiaries
Melvin Simon & Associates, Inc. 9,681,766
Naco Simon Corp. 50
Penn Simon Corporation 142,148
Simon Enterprises, Inc. 750,981
Sandy Springs Properties, Inc. 62,025
26
Schedule D
Required Consents of SDG
1. Consent required pursuant to (a) the SECOND AMENDED AND RESTATED
NEW FACILITY CREDIT AGREEMENT, dated as of March 31, 1994 by and among
DeBARTOLO, INC. and THE EDWARD J. DeBARTOLO CORPORATION, as the Borrowers, WELLS
FARGO BANK, N.A., as the Issuing Bank, and the Co-Lenders specified therein, and
WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED as the Administrative Agent
and (b) the pledge agreements and other documents delivered pursuant thereto.
2. Consents required pursuant to (a) the SECOND AMENDED AND RESTATED
RESTRUCTURING FACILITY CREDIT AGREEMENT, dated as of March 31, 1994 by and among
DeBARTOLO, INC. and THE EDWARD J. DeBARTOLO CORPORATION, as the borrowers, and
the Co-Lenders specified therein, and WELLS FARGO REALTY ADVISORS FUNDING,
INCORPORATED, as the Administrative Agent and (b) the pledge agreements and
other documents delivered pursuant thereto.
3. Consents required to be obtained prior to the consummation of the
merger as specified in the Merger Agreement.
27
Schedule E
FORMULA FOR DETERMINATION OF SIMON DeBARTOLO
GROUP, L.P. UNITS TO BE OUTSTANDING AFTER THE MERGER
1. The DeBartolo Realty Partnership, L.P. General and Limited
Partners shall receive a number of Units in Simon DeBartolo Group, L.P. equal to
the total number of shares of Simon Property Group, Inc. issued in the Merger to
the shareholders DeBartolo Realty Corporation plus the additional number of
shares that would have been issued had all Limited Partnership interests
outstanding at the Effective Time been exchanged for shares of DeBartolo Realty
Corporation pursuant to the Exchange Rights Agreement dated as of April 21, 1994
with a Valuation Date (as defined in the Exchange Rights Agreement) for such
hypothetical exercise being the business day preceding Effective Time. Were the
closing to have occurred on March 26, 1996, this number would be 61,076,480.(1)
2. The total number of Units in Simon DeBartolo Group, L.P. to be
issued to Simon Property Group, L.P. General and Limited Partners shall be a
maximum of 99% of the total number of outstanding Units in Simon Property Group,
L.P. as at the date of the Merger. At March 26, 1996, the total number of
outstanding units is 95,843,000 and 99% of this number is 94,884,570. The total
number of Units issuable to the DeBartolo Realty Partnership, L.P. General and
Limited Partners are herein referred to as "DeBartolo Units" and the total
number of Units issuable to the Simon Property Group, L.P. General and Limited
Partners are herein called the "SPG Units.(1)
- --------------------
(1) The methodology used to arrive at this formula and these numbers is as
follows. The 61,076,480 Unit number is equal to the total number of
shares of Simon Property Group, Inc. that would be issued in the Merger
at the exchange ratio if the Merger took place on March 26, 1996 and if
all outstand ing limited partnership interests in DeBartolo Realty
Partnership, L.P. had been exercised in full. The 95,843,000 Unit
number is equal to the total number of shares of stock of Sunny that
would be outstanding immediately prior to the Merger if it took place
on March 26, 1996 if all outstanding Units in the Simon Property Group,
L.P. were exercised in full. Since all or almost all of the assets of
DeBartolo Realty Corporation and Simon Property Group, Inc. consist of
their general partnership interests in the two operating partner ships,
the relationship between the shares which would be issued in the Merger
if all outstanding limited partnership interests in DeBartolo Realty
Corporation were exercised in full to the shares of Simon Property
Group, Inc. that would be outstanding immediately prior to the Merger
if all Units were converted prior to the Merger establishes the
relative values of the two partnerships on March 26, 1996. As a matter
of convenience the Simon Property Group, L.P. Units will be exchanged
on a 1-for-1 basis.
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2
3. Of the DeBartolo Units, a percentage equal to its then percentage
interest in the DeBartolo Realty Partnership, L.P. (at present 61.8424%) will be
allocated to DeBartolo Realty Corporation as general partner and the remaining
Units will be allocated to the DeBartolo Realty Partnership, L.P. limited
partners. The number of Units to be issued to each DeBartolo Realty Partnership,
L.P. limited partner will be a percentage of the total number of Units to be
allocated to the DeBartolo Realty Partnership, L.P. partners equal to the
percentage interest that each such limited partner had in the DeBartolo Realty
Partnership, L.P. immediately prior to the Merger. Accordingly, if the Closing
took place March 26, 1996, 37,771,158 Units will be allocated to DeBartolo
Realty Corporation as general managing partner and 23,305,322 Units will be
issued in the aggregate to the DeBartolo Realty Partnership, L.P. limited
partners.
4. The number of Units issued to the Simon Property Group, L.P.
general and limited partners will be as follows: (x) one Unit will be issued for
each Simon Property Group, L.P. Unit exchanged by a Simon Property Group, L.P.
Limited partner and (y) Simon Property Group, Inc., as the general partner of
Simon Property Group, L.P., will receive for the economic interests being
transferred by it a number of Units equal to the number of Simon Property Group,
L.P. Units then owned by it less a number equal to 1% of the then outstanding
Simon Property Group, L.P. Units. Accordingly, if the Closing took place on
March 26, 1996, this number would be 58,579,241. (This number is derived by
multiplying 95,843,000 by 61.22%, the present percentage interest held by Simon
Property Group, Inc. in Simon Property Group, L.P. and subtracting 95,843 Units
being 1% of the outstanding Units). To the extent that Simon Property Group,
L.P. limited partners do not exchange Simon Property Group, L.P. Units, the
Simon Property Group, L.P. Units that would have been issued in respect thereof
will not be issued. This would have the effect of increasing the percentage
interest in Simon DeBartolo Group, L.P. by DeBartolo Realty Partnership, L.P.
partners.
29
Schedule F
Required Consents of Subscribers
Partner Consents:
Circle Centre Partners, Ltd.
Re: Circle Centre Mall, Indianapolis, Indiana
Lender Consents:
CIGNA
1. Ingram Creek
2. Ingram Park Mall
3. LaPlaza Mall
Metropolitan Life Insurance Company
1. Bloomingdale Court
2. Forest Plaza
3. Fox River Plaza
4. Lake View Plaza
5. Lincoln Crossing
6. Matteson Plaza
7. Regency Plaza
8. St. Charles Towne Plaza
9. West Ridge Plaza
10. White Oaks Plaza
Union Bank of Switzerland
1. Circle Centre Mall
2. $400 Million Revolving Credit Facility
Marine Midland, Trustee
1. Jefferson Valley Mall
Citicorp
1. Eastland Mall
2. St. Charles Towne Center
30
2
Lender Consents cont.:
Principal Group
1. Cobblestone Court
2. Crystal Court
3. Fairfax Court
4. Gaitway Plaza
5. Ridgewood Court
6. Royal Eagle Plaza
7. The Plaza at Buckland Hills
8. The Yards Plaza
9. Village Park Plaza
10. West Town Corners
11. Westland Park Plaza
12. Willow Knolls Court
REVOLVING CREDIT AGREEMENT DATED AS OF FEBRUARY 27, 1996, BETWEEN MELVIN SIMON
ASSOCIATES, INC. AND MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND PLEDGE AND
SECURITY AGREEMENT, ALSO DATED AS OF FEBRUARY 27, 1966, AMONG MELVIN SIMON &
ASSOCIATES, INC., PENN SIMON CORPORATION, NACO SIMON CORP., SANDY SPRINGS
PROPERTIES, INC., SIMON ENTERPRISES, INC. AND MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, PURSUANT TO WHICH THE PLEDGORS PLEDGED TO THE BANK THEIR RIGHT TO
RECEIVE CASH DISTRIBUTIONS ATTRIBUTABLE TO THEIR RESPECTIVE LIMITED PARTNERSHIP
UNITS IN SIMON PROPERTY GROUP, L.P. AND CLASS B COMMON STOCK OF SIMON PROPERTY
GROUP, INC.
Pledge and Security Agreement dated as of December 16, 1993, made by Melvin
Simon and Herbert Simon (collectively "Simon Pledgors") to Chemical Bank, and
additional documents executed in connection therewith, pursuant to which the
Simon Pledgors pledged to the Bank 392,135 limited partnership units owned by
them in Simon Property Group, L.P.
31
Schedule G
Rights, Options, Etc.
Revolving Credit Agreement dated as of February 27, 1996, between Melvin Simon
Associates, Inc. And Morgan Guaranty Trust Company of New York and Pledge and
Security Agreement, also dated as of February 27, 1966, among Melvin Simon &
Associates, Inc., Penn Simon Corporation, Naco Simon Corp., Sandy Springs
Properties, Inc., Simon Enterprises, Inc. And Morgan Guaranty Trust Company of
New York, pursuant to which the Pledgors pledged to the Bank their right to
receive cash distributions attributable to their respective limited partnership
units in Simon Property Group, L.P. and Class B common stock of Simon Property
Group, Inc.
Pledge and Security Agreement dated as of December 16, 1993, made by Melvin
Simon and Herbert Simon (collectively "Simon Pledgors") to Chemical Bank, and
additional documents executed in connection therewith, pursuant to which the
Simon Pledgors pledged to the Bank 392,135 limited partnership units owned by
them in Simon Property Group, L.P.
32
INSTRUMENT OF ASSIGNMENT
Reference is made to the Contribution Agreement (the "Contribution
Agreement"), dated as of June 25, 1996, by and among DeBartolo Realty
Corporation, as the general partner of DeBartolo Realty Partnership, L.P., Simon
Property Group, Inc., in its individual capacity and as the general partner of
Simon Property Group, L.P. ("SPG L.P."), and the limited partners of SPG L.P.
listed on Schedule A thereto.
FOR VALUE RECEIVED, the undersigned does hereby contribute, assign and
transfer to DeBartolo Realty Partnership, L.P., a Delaware limited partnership
(to be renamed Simon DeBartolo Group, L.P.), all right, title and interest of
the undersigned in and to its interests in SPG L.P. representing 10.6% of the
units in SPG L.P. outstanding and an additional 49.5% interests in the profits
(and not the capital) of SPG L.P. owned by the undersigned and listed opposite
its name on Schedule B of the Contribution Agreement, effective as of the
Effective Time (as defined in the Contribution Agreement by reference to the
Merger Agreement (as defined in the Contribution Agreement)).
Dated: August 9, 1996
SIMON PROPERTY GROUP, INC.
By /s/
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