UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 333-11491
SIMON DeBARTOLO GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 34-1755769
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
115 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-1600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
SIMON DeBARTOLO GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per unit amounts)
March 31, December 31,
1997 1996
ASSETS: ---------- -----------
Investment properties, at cost $5,353,235 $5,301,021
Less _ accumulated depreciation 315,572 279,072
---------- -----------
5,037,663 5,021,949
Cash and cash equivalents 41,946 64,309
Restricted cash 4,422 6,110
Tenant receivables and accrued revenue, net 165,863 166,119
Notes and advances receivable from Management
Company and affiliate 90,157 75,452
Investment in partnerships and joint ventures, at
equity 404,192 394,409
Deferred costs, net 87,006 91,925
Other assets 49,579 46,567
Minority interest 28,068 29,070
---------- -----------
Total assets $5,908,896 $5,895,910
========== ==========
LIABILITIES:
Mortgages and other indebtedness $3,746,992 $3,681,984
Accounts payable and accrued expenses 181,711 170,203
Cash distributions and losses in partnerships and
joint ventures, at equity 18,289 17,106
Investment in Management Company and affiliates 7,980 8,567
Other liabilities 68,191 72,876
---------- -----------
Total liabilities 4,023,163 3,950,736
---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY:
Preferred units, 12,000,000 units outstanding 292,912 292,912
General Partner, 97,534,311 and 96,880,415 units
outstanding, respectively 992,142 1,017,333
Limited Partner, 60,974,050 units outstanding 620,267 640,283
Unamortized restricted stock award (19,588) (5,354)
---------- -----------
Total partners' equity 1,885,733 1,945,174
---------- -----------
Total liabilities and partners' equity $5,908,896 $5,895,910
========== ==========
The accompanying notes are an integral part of these statements.
SIMON DeBARTOLO GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per unit amounts)
For the Three Months
Ended March 31,
1997 1996
--------- ---------
REVENUE:
Minimum rent $ 148,019 $ 78,454
Overage rent 7,515 4,967
Tenant reimbursements 75,823 46,985
Other income 11,057 9,038
--------- ---------
Total revenue 242,414 139,444
--------- ---------
EXPENSES:
Property operating 42,668 24,847
Depreciation and amortization 43,354 24,672
Real estate taxes 24,761 13,829
Repairs and maintenance 9,949 7,073
Advertising and promotion 5,213 4,194
Provision for credit losses 975 1,497
Other 3,788 2,259
--------- ---------
Total operating expenses 130,708 78,371
--------- ---------
OPERATING INCOME 111,706 61,073
INTEREST EXPENSE 67,918 38,566
--------- ---------
INCOME BEFORE MINORITY INTEREST 43,788 22,507
MINORITY INTEREST (1,484) (503)
GAIN ON SALE OF ASSET, NET 37 --
--------- ---------
INCOME BEFORE UNCONSOLIDATED ENTITIES 42,341 22,004
INCOME FROM UNCONSOLIDATED ENTITIES 721 1,828
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS 43,062 23,832
EXTRAORDINARY ITEMS (23,247) (265)
--------- ---------
NET INCOME 19,815 23,567
GENERAL PARTNER PREFERRED UNIT REQUIREMENT (6,406) (2,031)
--------- ---------
NET INCOME AVAILABLE TO UNITHOLDERS $ 13,409 $ 21,536
========= =========
NET INCOME AVAILABLE TO UNITHOLDERS
ATTRIBUTABLE TO:
General Partner $ 8,233 $ 13,154
Limited Partners 5,176 8,382
--------- ---------
$ 13,409 $ 21,536
========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary items $ 0.23 $ 0.23
Extraordinary items (0.15) --
--------- ---------
Net income $ 0.08 $ 0.23
========= =========
The accompanying notes are an integral part of these statements.
SIMON DeBARTOLO GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
For the Three Months
Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: --------- ---------
Net income $ 19,815 $ 23,567
Adjustments to reconcile net income to net
cash provided by operating activities_
Depreciation and amortization 45,322 26,728
Extraordinary items 23,247 265
Gain on sale of assets, net (37) --
Straight-line rent (1,842) 137
Minority interest 1,484 503
Equity in income of unconsolidated entities (721) (1,828)
Changes in assets and liabilities_
Tenant receivables and accrued revenue 3,478 5,883
Deferred costs and other assets (6,238) 115
Accounts payable, accrued expenses and other
liabilities 5,009 (16,122)
--------- ---------
Net cash provided by operating activities 89,517 39,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (51,156) (25,249)
Decrease in restricted cash 1,688 --
Proceeds from sale of assets 599 --
Investments in and advances to
unconsolidated entities (29,014) (5,093)
Distributions from unconsolidated entities 5,843 11,772
--------- ---------
Net cash used in investing activities (72,040) (18,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions 2,961 --
Minority interest distributions (1,346) (1,649)
Partnership distributions (84,167) (50,625)
Mortgage and other indebtedness proceeds, net of
transaction costs 117,958 105,568
Mortgage and other indebtedness principal payments (54,246) (91,548)
Other refinancing transaction (21,000) --
--------- ---------
Net cash used in financing activities (39,840) (38,254)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (22,363) (17,576)
CASH AND CASH EQUIVALENTS, beginning of period 64,309 62,721
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 41,946 $ 45,145
========= =========
The accompanying notes are an integral part of these statements.
SIMON DEBARTOLO GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - ORGANIZATION
Simon DeBartolo Group, Inc. (the "Company"), formerly known as Simon
Property Group, Inc., is a self-administered and self-managed real estate
investment trust ("REIT"). On August 9, 1996 (the "Merger date"), the Company
acquired, through merger (the "Merger") the national shopping center business
of DeBartolo Realty Corporation ("DRC") (See Note 4).
Simon DeBartolo Group, L.P. ("SDG, LP") is a subsidiary partnership of the
Company. Simon Property Group, L.P. ("SPG, LP") is a subsidiary partnership of
SDG, LP and of the Company. SDG, LP and SPG, LP are hereafter collectively
referred to as the "Operating Partnership." Prior to the Merger date,
references to the Operating Partnership refer to SPG, LP only. The 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 March 31, 1997,
the Operating Partnership owned or held an interest in 186 income-producing
properties, consisting of 113 regional malls, 65 community shopping centers,
three specialty retail centers, four mixed-use properties and one value-
oriented super-regional mall in 33 states (the "Properties"). The Operating
Partnership also owns interests in four properties under construction, seven
parcels of land held for future development and substantially all of the
economic interest in M.S. Management Associates, Inc. (the "Management Company"
- - See Note 7).
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
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 March 31, 1997 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, 1996 audited financial statements and notes
thereto included in the Simon DeBartolo Group, L.P. Annual Report on Form 10-K.
The accompanying consolidated condensed financial statements of the
Operating Partnership include all accounts of all entities owned or controlled
by the Operating Partnership. All significant intercompany amounts have been
eliminated. The accompanying consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles,
which requires management to make estimates and assumptions that affect the
reported amounts of the Operating PartnershipCompany's assets, liabilities,
revenues and expenses during the reported periods. Actual results could differ
from these estimates.
Properties which are wholly-owned or owned less than 100% and are
controlled by the Operating Partnership have been consolidated. 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 the Management Company 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. In addition, the Operating Partnership held a 2% noncontrolling
ownership interest in one Property which is accounted for using the cost method
of accounting.
Net operating results of the Operating Partnership are allocated after
preferred distributions, based on its partners' ownership interests. The
Company's weighted average ownership interest in the Operating Partnership for
the three months ended March 31, 1997 and 1996 was 61.4% and 61.1%,
respectively. The Company owned 61.5% and 61.4% of the Operating Partnership
as of March 31, 1997 and December 31, 1996, respectively.
NOTE 3 - RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1997 presentation.
NOTE 4 -THE MERGER
On August 9, 1996, the Company acquired the national shopping center
business of DRC for an aggregate value of $3.0 billion. The acquired portfolio
consisted of 49 regional malls, 11 community centers and 1 mixed-use Property.
These Properties included 47,052,267 square feet of retail space gross leasable
area ("GLA") and 558,636 of office GLA. The Merger was accounted for using the
purchase method of accounting. Of these Properties, 40 regional malls, 10
community centers and the mixed-use Property are being accounted for using the
consolidated method of accounting. The remaining Properties are being
accounted for using the equity method of accounting, with the exception of one
regional mall, which is accounted for using the cost method of accounting.
PRO FORMA
The following unaudited pro forma summary financial information combines
the consolidated results of operations of the Operating Partnership as if the
Merger and the issuances of $200,000 of Series B cumulative preferred stock
("Series B" preferred stock), $100,000 of 6 3/4% putable asset trust securities
("PATS"), and $250,000 of 6 7/8% unsecured notes (the "Notes"), as described in
the Operating Partnership's 1996 Form 10-K, had occurred as of January 1, 1996,
and were carried forward through March 31, 1996. Preparation of the pro forma
summary information was based upon assumptions deemed appropriate by the
Operating Partnership. The pro forma summary information is not necessarily
indicative of the results which actually would have occurred if the Merger and
the issuances of the Notes, PATS and Series B preferred stock had been
consummated at January 1, 1996, nor does it purport to represent the future
financial position and results of operations for future periods.
THREE MONTHS
ENDED MARCH 31,
1996
---------------
Revenue $ 228,720
Net income available to holders of common units 40,249
Net income per unit $ 0.26
Weighted average number of units outstanding 156,761,781
NOTE 5 - CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the three
months ended March 31, 1997 was $61,366, as compared to $37,612 for the same
period in 1996. All accrued distributions had been paid as of March 31, 1997
and December 31, 1996.
NOTE 6 - PER UNIT DATA
Per unit data is based on the weighted average number of units of
ownership in the Operating Partnership ("Units") outstanding during the period.
As used herein, the term Units does not include units of partnership interest
entitled to preferential distribution of cash ("Preferred Units"). The
weighted average number of Units used in the computation for the three months
ended March 31, 1997 and 1996 was 157,951,481 and 95,664,804, respectively.
Units of ownership in the Operating Partnership may be exchanged for shares of
common stock of the Company on a one-for-one basis in certain circumstances.
The outstanding stock options and the Preferred Units have not been included in
the computations of per Unit data as they did not have a dilutive effect.
NOTE 7 - INVESTMENT IN UNCONSOLIDATED ENTITIES
Partnerships and Joint Ventures
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 from such partnerships and
joint ventures follow:
March 31, December 31,
BALANCE SHEETS 1997 1996
ASSETS: ---------- ----------
Investment properties at cost, net $1,905,416 $1,887,555
Cash and cash equivalents 72,536 61,267
Tenant receivables 56,611 58,548
Other assets 74,191 69,365
---------- ----------
Total assets $2,108,754 $2,076,735
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable $1,175,010 $1,121,804
Accounts payable, accrued expenses and other
liabilities 174,686 213,394
---------- ----------
Total liabilities 1,349,696 1,335,198
Partners' equity 759,058 741,537
---------- ----------
Total liabilities and partners' equity $2,108,754 $2,076,735
========== ==========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets $ 616,585 $ 602,084
========== ==========
Partners' equity $ 155,883 $ 144,376
Add: Excess Investment 230,020 232,927
---------- ----------
Operating Partnership's net Investment in Joint
Ventures $ 385,903 $ 377,303
========== ==========
For the Three Months
Ended March 31,
-----------------------
STATEMENTS OF OPERATIONS 1997 1996
REVENUE: --------- ---------
Minimum rent $ 52,455 $ 27,964
Overage rent 1,691 762
Tenant reimbursements 25,232 14,069
Other income 1,697 4,769
--------- ---------
Total revenue 81,075 47,564
OPERATING EXPENSES:
Operating expenses and other 30,794 17,568
Depreciation and amortization 17,999 10,670
--------- ---------
Total operating expenses 48,793 28,238
--------- ---------
OPERATING INCOME 32,282 19,326
INTEREST EXPENSE 21,089 7,847
EXTRAORDINARY LOSS 858 0
--------- ---------
NET INCOME $ 10,335 $ 11,479
========= =========
THIRD-PARTY INVESTORS' SHARE OF NET INCOME 7,294 10,022
--------- ---------
THE OPERATING PARTNERSHIP'S SHARE OF NET INCOME 3,041 1,457
AMORTIZATION OF EXCESS INVESTMENT (2,907) 0
--------- ---------
INCOME FROM UNCONSOLIDATED ENTITIES $ 134 $ 1,457
========= =========
As of March 31, 1997 and December 31, 1996, the unamortized excess of the
Operating Partnership's investment over its share of the equity in the
underlying net assets of the partnerships and joint ventures ("Excess
Investment") was approximately $230,020 and $232,927, respectively. This
Excess Investment, which resulted primarily from the Merger, is being amortized
generally over the life of the related Properties. Amortization included in
income from unconsolidated entities for the three months ended March 31, 1997
was $2,907.
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.
The Management Company
The Management Company, including its consolidated subsidiaries, provides
management, leasing, development, accounting, legal, marketing and management
information systems services to 33 non-wholly owned Properties, Melvin Simon &
Associates, Inc. ("MSA"), and certain other nonowned properties. Certain
subsidiaries of the Management Company provide architectural, design,
construction, insurance and other services primarily to certain of the
Properties. The Operating Partnership's share of consolidated net income of
the Management Company, after intercompany profit eliminations, was $587 and
$371 for the three month periods ended March 31, 1997 and 1996, respectively.
NOTE 8 - DEBT
On January 31, 1997, the Operating Partnership completed a refinancing
transaction involving debt on four consolidated Properties. The transaction
consisted of the payoff of one loan totaling $43,375, a restatement of the
interest rate on the three remaining loans, the acquisition of the contingent
interest feature on all four loans for $21,000, and $3,904 of principal
reductions on two additional loans. This transaction, which was funded using
the Operating Partnership's unsecured revolving credit facility, resulted in an
extraordinary loss of $23,247, including the write-off of deferred mortgage
costs of $2,247.
At March 31, 1997, the Operating Partnership had consolidated debt of
$3,746,992, of which $2,753,668 was fixed-rate debt and $993,324 was variable-
rate debt. The Operating Partnership's pro rata share of indebtedness of the
unconsolidated joint venture Properties as of March 31, 1997 and December 31,
1996 was $464,677 and $448,218, respectively. As of March 31, 1997 and
December 31, 1996, the Operating Partnership had interest-rate protection
agreements related to $652,936 and $524,561 of its pro rata share of
indebtedness, 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 $613 and $453 for the three months
ended March 31, 1997 and 1996, respectively.
On April 14, 1997, the Operating Partnership obtained improvements to its
unsecured revolving line of credit (the "Credit Line"). The Credit Line
agreement was amended to reduce the interest rate from LIBOR plus 90 basis
points to LIBOR plus 75 basis points. In addition, the Credit Line's
competitive bid feature, which can further reduce interest costs, was increased
from $150,000 to $300,000.
The Operating Partnership is currently finalizing the allocation of
$300,000 of its debt shelf registration with the Securities and Exchange
Commission to a Medium-Term Note Program, although management has no immediate
plans to issue securities under the program.
NOTE 8 - PARTNERS' EQUITY
The following table summarizes the change in the Operating Partnership's
partners' equity since December 31, 1996.
Unamor-
tized
Restricted Total
Preferred General Limited Stock Partners'
Units Partner Partner Award Equity
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 $ 292,912 $1,017,333 $ 640,283 $ (5,354) $1,945,174
Units issued in connection
with stock incentive program
(503,648 Units) 15,739 (15,739) -
Other Units issuances (146,347
Units) 3,406 3,406
Amortization of stock
incentive 1,505 1,505
Adjustment to allocate net
equity of the Operating
Partnership (4,838) 4,838 -
Net income 6,406 8,233 5,176 19,815
Distributions (6,406) (47,731) (30,030) (84,167)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 $ 292,912 $ 992,142 $ 620,267 $ (19,588) $1,885,733
========== ========== ========== ========== ==========
STOCK INCENTIVE PROGRAMS
Under the terms of the Operating Partnership's Stock Incentive Programs
(the "Plans"), eligible executives receive restricted stock, subject to
performance standards, vesting requirements and other terms of the Plans. On
March 26, 1997, the compensation committee of the board of directors of the
Company approved the issuance of 507,549 shares under the Plans. As of March
31, 1997, there were total of 850,890 shares issued under the Plans, with
391,870 shares remaining available for issuance, subject to applicable
performance standards and other terms of the Plans. The value of shares
issued under the Plans is being amortized pro-rata over their respective four-
year vesting periods. Approximately $1,505 and $521 have been amortized for the
three-month periods ended March 31, 1997 and 1996, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Litigation
Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. On October 16,
1996, a complaint was filed in the Court of Common Pleas of Mahoning County,
Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. The
named defendants are SD Property Group, Inc., a 99%-owned subsidiary of the
Company, and DeBartolo Properties Management, Inc., and the plaintiffs are 27
former employees of the defendants. In the complaint, the plaintiffs allege
that they were recipients of deferred stock grants under the DRC stock
incentive plan (the "DRC Plan") and that these grants immediately vested under
the DRC Plan's "change in control" provision as a result of the Merger.
Plaintiffs assert that the defendants' refusal to issue them approximately
661,000 shares of DRC common stock, which is equivalent to approximately
450,000 shares of common stock of the Company computed at the 0.68 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 DRC
Plan, dividends on such stock from the time of the grants, compensatory damages
for breach of the implied covenant of good faith and fair dealing, and punitive
damages.
The complaint was served on the defendants on October 28, 1996, and
pretrial proceedings have just commenced. The Operating Partnership is of the
opinion that it has meritorious defenses and accordingly intends to defend this
action vigorously. While it is difficult for the Operating Partnership to
predict the outcome of this litigation at this stage based on the information
known to the Operating Partnership to date, the Operating Partnership does not
expect this action will have a material adverse effect on the Operating
Partnership.
Roel Vento et al v. Tom Taylor et al. An affiliate of the Operating
Partnership is a defendant in litigation entitled Roel Vento et al v. Tom
Taylor et al, in the District Court of Cameron County, Texas, in which a
judgment in the amount of $7,800 has been entered against all defendants. This
judgment includes approximately $6,500 of punitive damages and is based upon a
jury's findings on four separate theories of liability including fraud,
intentional infliction of emotional distress, tortuous interference with
contract and civil conspiracy arising out of the sale of a business operating
under a temporary license agreement at Valle Vista Mall in Harlingen, Texas.
The Operating Partnership is seeking to overturn the award and has appealed the
verdict. Although the Operating Partnership is optimistic that it may be able
to reverse or reduce the verdict, there can be no assurance thereof.
Management, based upon the advice of counsel, believes that the ultimate
outcome of this action will not have a material adverse effect on the Operating
Partnership.
The Operating Partnership currently is not subject to any other 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
the Operating Partnership's financial position or results of operations.
=============================================================================
Consolidated Condensed Financial Statements of Simon Property Group, L.P.
(Guarantor)
=============================================================================
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per unit amounts)
March 31, December 31,
1997 1996
ASSETS:
Investment properties, at cost $2,498,799 $2,467,779
Less _ accumulated depreciation 258,509 238,167
2,240,290 2,229,612
Cash and cash equivalents 35,367 50,009
Tenant receivables and accrued revenue, net 136,054 136,496
Notes and advances receivable from Management
Company 78,683 63,978
Investment in partnerships and joint ventures,
at equity 149,349 139,711
Deferred costs, net 79,665 84,295
Other assets 41,103 45,370
Minority interest 9,462 9,712
Total assets $2,769,973 $2,759,183
LIABILITIES:
Mortgages and other indebtedness $2,111,875 $2,042,254
Advances from Simon DeBartolo Group, L.P. 267,966 259,382
Accounts payable and accrued expenses 101,759 113,027
Cash distributions and losses in partnerships
and joint ventures, at equity 18,056 17,106
Investment in Management Company and affiliates
17,932 18,519
Minority interest held by affiliates 74,881 12,128
Other liabilities 34,594 42,139
Total liabilities 2,627,063 2,504,555
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY:
Preferred units, 4,000,000 units authorized,
issued and outstanding 99,923 99,923
General Partner, 958,429 units outstanding 478 1,601
Special Limited Partner, 95,356,834 units
outstanding 47,342 158,458
Unamortized restricted stock award (4,833) (5,354)
Total partners' equity 142,910 254,628
Total liabilities and partners' equity $2,769,973 $2,759,183
The accompanying notes are an integral part of these statements.
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per unit amounts)
For the Three Months
Ended March 31,
1997 1996
REVENUE:
Minimum rent $ 86,489 $ 78,454
Overage rent 4,900 4,967
Tenant reimbursements 51,639 46,985
Other income 4,994 9,038
Total revenue 148,022 139,444
EXPENSES:
Property operating 27,376 24,847
Depreciation and amortization 26,473 24,672
Real estate taxes 15,241 13,829
Repairs and maintenance 6,553 7,073
Advertising and promotion 3,491 4,194
Provision for credit losses 1,288 1,497
Other 1,488 2,259
Total operating expenses 81,910 78,371
OPERATING INCOME 66,112 61,073
INTEREST EXPENSE 43,016 38,566
INCOME BEFORE MINORITY INTEREST 23,096 22,507
MINORITY INTEREST (Including affiliates'
share of $1,902 in 1997) 1,170 (503)
GAIN ON SALE OF ASSETS, NET 37 --
INCOME BEFORE UNCONSOLIDATED ENTITIES 24,303 22,004
INCOME FROM UNCONSOLIDATED ENTITIES 1,774 1,828
INCOME BEFORE EXTRAORDINARY ITEMS 26,077 23,832
EXTRAORDINARY ITEMS (23,247) (265)
NET INCOME 2,830 23,567
PREFERRED UNIT REQUIREMENT 2,031 2,031
NET INCOME AVAILABLE TO UNITHOLDERS $ 799 $ 21,536
NET INCOME AVAILABLE TO UNITHOLDERS
ATTRIBUTABLE TO:
General Partner $ 8 $ 13,154
Limited Partners 791 8,382
$ 799 $ 21,536
EARNINGS PER UNIT:
Income before extraordinary items $ 0.25 $ 0.23
Extraordinary items (0.24) --
Net income $ 0.01 $ 0.23
The accompanying notes are an integral part of these statements.
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
For the Three Months
Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,830 $23,567
Adjustments to reconcile net income to net
cash provided by operating activities_
Depreciation and amortization 28,494 26,728
Loss on extinguishments of debt 23,247 265
Gain on sale of assets, net (37) --
Straight-line rent (58) 137
Minority interest (1,170) 503
Equity in income of unconsolidated entities (1,774) (1,828)
Changes in assets and liabilities_
Tenant receivables and accrued revenue 1,021 5,883
Deferred costs and other assets 802 115
Accounts payable, accrued expenses and other
liabilities (18,813) (16,122)
Net cash provided by operating activities 34,542 39,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,626) (25,249)
Proceeds from sale of assets 599 --
Investments in and advances to
unconsolidated entities (27,303) (5,093)
Distributions from unconsolidated entities 4,467 11,772
Net cash used in investing activities (53,863) (18,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate 8,584 --
Minority interest distributions (1,664) (1,649)
Partnership distributions (49,466) (50,625)
Mortgage and other indebtedness proceeds,
net of transaction costs 117,958 105,568
Mortgage and other indebtedness principal
payments (49,733) (91,548)
Other refinancing transaction (21,000) --
Net cash provided by (used in) financing
activities 4,679 (38,254)
DECREASE IN CASH AND CASH EQUIVALENTS (14,642) (17,576)
CASH AND CASH EQUIVALENTS, beginning
of period 50,009 62,721
CASH AND CASH EQUIVALENTS, end of period $35,367 $45,145
SIMON PROPERTY GROUP, L.P.
Notes to Unaudited Consolidated Condensed Financial Statements
(Dollars in thousands)
Note 1 - Organization
Simon DeBartolo Group, Inc. (the "Company"), formerly known as Simon
Property Group, Inc., is a self-administered and self-managed real estate
investment trust ("REIT"). On August 9, 1996 (the "Merger date"), the Company
acquired, through a merger (the "Merger"), the national shopping center
business of DeBartolo Realty Corporation ("DRC"). (See Note 4.)
Simon DeBartolo Group, L.P. ("SDG, LP") is a subsidiary partnership of the
Company. Simon Property Group, L.P. ("SPG, LP" or the "Simon Operating
Partnership") is a subsidiary partnership of SDG, LP and of the Company. 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
March 31, 1997, the Simon Operating Partnership owned or held an interest in
123 income-producing properties, consisting of 63 regional malls, 53 community
shopping centers, three specialty retail centers, three mixed-use properties
and one value-oriented super-regional mall in 30 states (the "Properties").
The Simon Operating Partnership also owns interests in two specialty retail
centers and two value oriented super-regional malls under construction and five
parcels of land held for future development. The Simon Operating Partnership
also holds substantially all of the economic interest in M.S. Management
Associates, Inc. (the "Management Company"). - (See Note 7.) The Company
indirectly owned 60.8% of the Simon Operating Partnership as of March 31, 1997
and December 31, 1996.
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
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 March 31, 1997, 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, 1996, audited financial statements and notes
thereto included in the Simon Property Group, L.P. Annual Report on Form 10-K.
The accompanying consolidated condensed financial statements of the Simon
Operating Partnership include all accounts of the entities owned or controlled
by the Simon Operating Partnership. All significant intercompany amounts have
been eliminated. The accompanying consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles,
which requires management to make estimates and assumptions that affect the
reported amounts of the Simon Operating Partnership's assets, liabilities,
revenues and expenses during the reported periods. Actual results could differ
from these estimates.
Properties which are wholly-owned or owned less than 100% and are
controlled by the Simon Operating Partnership have been consolidated. 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 the Management Company 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 operating results of the Simon Operating Partnership are allocated
after distributions based on its partners' ownership interests. The Company's
weighted average indirect ownership interest in the Simon Operating Partnership
for the three months ended March 31, 1997 and 1996 was 60.8% and 61.1%,
respectively.
Note 3 - Reclassifications
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1997 presentation.
Note 4 -The Merger
On August 9, 1996, the Company acquired the national shopping center
business of DRC for an aggregate value of $3.0 billion. The acquired portfolio
consisted of 49 regional malls, 11 community centers and 1 mixed-use Property.
These Properties included 47,052,267 square feet of retail gross leasable area
("GLA") and 558,636 of office GLA. The Merger was accounted for using the
purchase method of accounting. Of these Properties, 40 regional malls, 10
community centers and the mixed-use Property are being accounted for using the
consolidated method of accounting. The remaining Properties are being
accounted for using the equity method of accounting, with the exception of one
regional mall, which is accounted for using the cost method of accounting. 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 SPG, LP is absorbed by public company costs and related expenses
incurred by the Company.
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. In connection therewith, the Simon Operating
Partnership transferred partnership interests in certain properties ranging
from 1.0% to 49.5% in the form of a distribution to the partners of the Simon
Operating Partnership, SDG, LP and the Company. The distribution of the
partnership interests in the certain properties has been reflected for
financial reporting purposes as of January 1, 1997. The distribution was
determined based on the historical cost value of the partnership interests
transferred, which aggregated $65,603. The interest in the properties now held
directly by SDG, LP and the Company is reflected as minority interest held by
affiliates in the accompanying financial statements.
Note 5 - Cash Flow Information
Cash paid for interest, net of amounts capitalized, during the three
months ended March 31, 1997, was $37,247, as compared to $37,612 for the same
period in 1996. All accrued distributions had been paid as of March 31, 1997
and December 31, 1996.
Note 6 - Per Unit Data
Per unit data is based on the weighted average number of units of
partnership interest in the Simon Operating Partnership ("Units") outstanding
during the period. As used herein, the term Units does not include units of
partnership interest entitled to preferential distribution of cash ("Preferred
Units"). The weighted average number of units used in the computation for the
three months ended March 31, 1997 and 1996 was 96,315,263 and 86,757,624,
respectively. Additionally, Preferred Units may be converted into common stock
of the Company. The outstanding stock options and Preferred Units have not
been included in the computations of per Unit data as they did not have a
dilutive effect.
Note 7 - Investment in Unconsolidated Entities
Partnerships and Joint Ventures
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 from such partnerships and
joint ventures follow:
March 31, December 31,
BALANCE SHEETS 1997 1996
Assets: ---------- ----------
Investment properties at cost, net $1,389,597 $1,328,600
Cash and cash equivalents 56,213 41,270
Tenant receivables 36,285 37,067
Other assets 56,390 54,981
---------- ----------
Total assets $1,538,485 $1,461,918
========== ==========
Liabilities and Partners' Equity:
Mortgages and other notes payable $ 663,530 $ 569,433
Accounts payable, accrued expenses and other
liabilities 126,721 161,552
---------- ----------
Total liabilities 790,251 730,985
Partners' equity 748,234 730,933
---------- ----------
Total liabilities and partners' equity $1,538,485 $1,461,918
========== ==========
The Simon Operating Partnership's Share of:
Total assets $ 350,839 $ 340,449
========== ==========
Investment in partnerships and joint
ventures, at equity $ 149,349 $ 139,711
Cash distributions and losses in partnerships
and joint ventures, at equity (18,056) (17,106)
---------- ----------
Partners' equity $ 131,293 $ 122,605
========== ==========
For the Three Months
Ended March 31,
-----------------------
STATEMENTS OF OPERATIONS 1997 1996
Revenue: --------- ---------
Minimum rent $ 30,303 $ 27,964
Overage rent 869 762
Tenant reimbursements 14,000 14,069
Other income 1,335 4,769
--------- ---------
Total revenue 46,507 47,564
Operating Expenses:
Operating expenses and other 17,678 17,568
Depreciation and amortization 11,910 10,670
--------- ---------
Total operating expenses 29,588 28,238
--------- ---------
Operating Income 16,919 19,326
Interest Expense 9,426 7,847
Extraordinary Loss 858 0
Net Income $ 6,635 $ 11,479
========= =========
Third-Party Investors' Share of Net Income 5,448 10,022
--------- ---------
The Simon Operating Partnership's Share of Net
Income $ 1,187 $ 1,457
========= =========
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.
The Management Company
The Management Company, including its consolidated subsidiaries, provides
management, leasing, development, accounting, legal, marketing and management
information systems services to 33 non-wholly owned Properties, Melvin Simon &
Associates, Inc. ("MSA"), and certain other nonowned properties. Certain
subsidiaries of the Management Company provide architectural, design,
construction, insurance and other services primarily to certain of the
Properties. The Simon Operating Partnership's share of consolidated net income
of the Management Company, after intercompany profit eliminations, was $587 and
$371 for the three-month periods ended March 31, 1997 and 1996, respectively.
Note 8 - Debt
On January 31, 1997, the Simon Operating Partnership completed a
refinancing transaction involving debt on four consolidated Properties. The
transaction consisted of the payoff of one loan totaling $43,375, a restatement
of the interest rate on the three remaining loans, the financing transaction
which included the acquisition of the contingent interest feature on all four
loans for $21,000, and $3,904 of principal reductions on two additional loans.
This transaction, which was funded using the Credit Line (as refined below),
resulted in an extraordinary loss of $23,247, including the write-off of
deferred mortgage costs of $2,247.
At March 31, 1997, the Simon Operating Partnership had consolidated debt
of $2,111,875, of which $1,280,015 was fixed-rate debt and $831,860 was
variable-rate debt. As of March 31, 1997 and December 31, 1996, the Simon
Operating Partnership had interest-rate protection agreements related to
$435,254 and $306,879 principal amount of 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 $230 and $453 for the three months ended March 31, 1997 and 1996,
respectively. The Simon Operating Partnership's pro rata share of indebtedness
of the unconsolidated joint venture Properties as of March 31, 1997 and
December 31, 1996 was $207,261 and $193,310, respectively.
On April 14, 1997, the Simon Operating Partnership, as co-borrower with
SDG, LP, obtained improvements to its unsecured revolving credit facility (the
"Credit Line"). The Credit Line agreement was amended to reduce the interest
rate from LIBOR plus 90 basis points to LIBOR plus 75 basis points. In
addition, the Credit Line's competitive bid feature, which can further reduce
interest costs, was increased from $150,000 to $300,000.
SDG, LP is currently finalizing the allocation of $300,000 of its debt
shelf registration with the Securities and Exchange Commission to a Medium-Term
Note Program, although management has no immediate plans to issue securities
under the program. Debt issued under this shelf registration is guaranteed by
the Simon Operating Partnership.
Net advances due SDG, LP of $268,574 result primarily from debt and equity
instruments issued by SDG, LP for which a portion of the proceeds were advanced
to the Simon Operating Partnership to retire mortgages and other indebtedness
and amounts under the Credit Line. The Simon Operating Partnership has
recognized interest costs based on the terms of the instruments issued by SDG,
LP.
Note 9 - Partners' Equity
The following table summarizes the change in the Simon Operating
Partnership's partners' equity since December 31, 1996.
Unamor-
tized
Special Restricted Total
Preferred General Limited Stock Partners'
Units Partner Partner Award Equity
--------- --------- --------- ---------- ---------
Balance at December 31, 1996 $ 99,923 $ 1,601 $ 158,458 $ (5,354) $ 254,628
Amortization of stock incentive 521 521
Adjustment to allocate net equity
of the Simon Operating
Partnership (3) 3 -
Net income 2,031 8 791 2830
Distributions (2,031) (1,128) (111,910) (115,069)
--------- --------- --------- ---------- ---------
Balance at March 31, 1997 $ 99,923 $ 478 $ 47,342 $ (4833) $ 142,910
========= ========= ========= ========== =========
Note 10 - Commitments and Contingencies
Litigation
Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. On October 16,
1996, a complaint was filed in the Court of Common Pleas of Mahoning County,
Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. The
named defendants are SD Property Group, Inc., a 99%-owned subsidiary of the
Company, and DeBartolo Properties Management, Inc., and the plaintiffs are 27
former employees of the defendants. In the complaint, the plaintiffs allege
that they were recipients of deferred stock grants under the DRC stock
incentive plan (the "DRC Plan") and that these grants immediately vested under
the DRC Plan's "change in control" provision as a result of the Merger.
Plaintiffs assert that the defendants' refusal to issue them approximately
661,000 shares of DRC common stock, which is equivalent to approximately
450,000 shares of common stock of the Company computed at the 0.68 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 DRC
Plan, dividends on such stock from the time of the grants, compensatory damages
for breach of the implied covenant of good faith and fair dealing, and punitive
damages.
The complaint was served on the defendants on October 28, 1996, and
pretrial proceedings have just 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.
Roel Vento et al v. Tom Taylor et al. An affiliate of the Simon Operating
Partnership is a defendant in litigation entitled Roel Vento et al v. Tom
Taylor et al, in the District Court of Cameron County, Texas, in which a
judgment in the amount of $7,800 has been entered against all defendants. This
judgment includes approximately $6,500 of punitive damages and is based upon a
jury's findings on four separate theories of liability including fraud,
intentional infliction of emotional distress, tortuous interference with
contract and civil conspiracy arising out of the sale of a business operating
under a temporary license agreement at Valle Vista Mall in Harlingen, Texas.
The Simon Operating Partnership is seeking to overturn the award and has
appealed the verdict. Although the Simon Operating Partnership is optimistic
that it may be able to reverse or reduce the verdict, there can be no assurance
thereof. Management, based upon the advice of counsel, believes that the
ultimate outcome of this action will not have a material adverse effect on the
Company or the Simon Operating Partnership.
The Company or the Simon Operating Partnership currently are not subject
to any other 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 the Company's or the Simon Operating
Partnership's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 of real estate development and acquisition; governmental actions and
initiatives; and environmental/safety requirements.
OVERVIEW
The financial results reported reflect the Merger of the Company and DRC,
in accordance with the purchase method of accounting utilized to record the
transaction, valued at $3.0 billion. The Merger resulted in the addition of 49
regional malls, 11 community centers and 1 mixed-use Property. These
Properties included 47,052,267 square feet of retail space GLA and 558,636 of
office GLA. Of these Properties, 40 regional malls, 10 community centers and
the mixed-use Property are being accounted for using the consolidated method of
accounting. The remaining Properties are being accounted for using the equity
method of accounting, with the exception of one regional mall, which is
accounted for using the cost method of accounting.
In addition, the Operating Partnership acquired additional interest in two
regional malls and opened one consolidated regional mall during the comparative
periods (the "Property Transactions"). The following is a description of such
transactions. On April 11, 1996, the Operating Partnership acquired the
remaining 50% economic ownership interest in Ross Park Mall in Pittsburgh,
Pennsylvania, and subsequently began accounting for the Property using the
consolidated method of accounting. On July 31, 1996, the Operating Partnership
opened Cottonwood Mall in Albuquerque, New Mexico. The Operating Partnership
owns 100% of this regional mall and accounts for it using the consolidated
method of accounting. On October 4, 1996, the Operating Partnership acquired
the remaining interest in North East Mall and subsequently began accounting for
the Property using the consolidated method of accounting.
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1997 vs. the Three Months Ended March 31,
1996
Total revenue increased $103.0 million or 73.8% for the three months ended
March 31, 1997, as compared to the same period in 1996. This increase is
primarily the result of the Merger ($93.9 million) and the Property
Transactions ($11.2 million).
Total operating expenses increased $52.3 million, or 66.8%, for the three
months ended March 31, 1997, as compared to the same period in 1996. This
increase is primarily the result of the Merger ($47.8 million) and the Property
Transactions ($6.1 million).
Interest expense increased $29.4 million, or 76.1% for the three months
ended March 31, 1997, as compared to the same period in 1996. This increase is
primarily as a result of the Merger ($26.0 million) and the Property
Transactions ($4.1 million).
Income from unconsolidated entities decreased $1.1 million for the three
months ended March 31, 1997, as compared to the same period in 1996. This
decrease is primarily due to the amortization of the Operating Partnership's
excess investment in unconsolidated joint ventures acquired in the Merger ($2.9
million), partially offset by its share of income from these acquired joint
ventures ($1.9 million).
The loss from extraordinary items in 1997 is the result of the acquisition
of the contingent interest feature on four loans for $21.0 million and the
write-off of mortgage costs associated with these loans.
Net income was $19.8 million for the three months ended March 31, 1997,
as compared to $23.6 million for the same period in 1996, reflecting a decrease
of $3.8 million, for the reasons discussed above, and was allocated to the
Company based on the Company's preferred unit preference and ownership interest
in the Operating Partnership during the period.
The Preferred Unit requirement increased by $4.4 million to $6.4 million
in 1997 as a result of the Company's issuance of $200 million of 8 3/4% Series
B cumulative redeemable preferred stock on September 27, 1996. The proceeds of
which were contributed to the Operating Partnership in exchange for Preferred
Units with terms identical to the Series B Cumulative redeemable preferred
stock issued by the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Operating Partnership's balance of unrestricted
cash and cash equivalents was $41.9 million. In addition to its cash balance,
the Operating Partnership has a $750 million Credit Line with $414 million
available after outstanding borrowings and letters of credit. The Company and
the Operating Partnership also have access to public equity and debt markets
through various shelf registrations.
Financing and Debt. The Operating Partnership's ratio of consolidated
debt-to-market capitalization was 42.4% at March 31, 1997.
At March 31, 1997, the Operating Partnership had consolidated debt of
$3,747 million, of which $2,754 million was fixed-rate debt and $993 million
was variable-rate debt. The Operating Partnership's pro rata share of
indebtedness of the unconsolidated joint venture Properties as of March 31,
1997 and December 31, 1996 was $465 million and $448 million, respectively. As
of March 31, 1997 and December 31, 1996, the Operating Partnership had interest-
rate protection agreements related to $653 million and $525 million of its pro
rata share of indebtedness, respectively. The agreements are generally in
effect until the related variable-rate debt matures.
On April 14, 1997, the Operating Partnership obtained improvements to its
Credit Line. The Credit Line agreement was amended to reduce the interest rate
from LIBOR plus 90 basis points to LIBOR plus 75 basis points. In addition,
the Credit Line's competitive bid feature, which can further reduce interest
costs, was increased from $150 million to $300 million.
The Operating Partnership is currently finalizing the allocation of $300
million of its debt shelf registration with the Securities and Exchange
Commission to a Medium-Term Note Program, although management has no immediate
plans to issue securities under the program.
Development, Expansions and Renovations. The Operating Partnership is
involved in several development, expansion and renovation efforts.
In March 1997, the Operating Partnership opened Indian River Commons, a
265,000 square foot community shopping center in Vero Beach, Florida. This 50%-
owned joint venture is accounted for using the equity method of accounting.
Construction also continues on the following development projects: The
Source, a $150 million value-oriented retail and entertainment development
project containing 730,000 square feet of GLA, is expected to open in August
1997 in Westbury (Long Island), New York. Arizona Mills, a $184 million retail
development project containing 1,230,000 square feet of GLA, is expected to
open in November 1997 in Tempe, Arizona. Grapevine Mills, a $202 million
retail development project containing 1,480,000 square feet of GLA, is expected
to open in October 1997 in Grapevine (Dallas/Fort Worth), Texas. The Shops at
Sunset Place, a $143 million destination-oriented retail and entertainment
project containing approximately 500,000 square feet of GLA, is scheduled to
open in 1998 in South Miami, Florida.
In addition, the Operating Partnership is in the preconstruction
development phase on two new community center projects at an aggregate cost of
$54 million. Each of these projects is immediately adjacent to existing
regional mall Properties.
A key objective of the Operating Partnership is to increase the
profitability and market share of its Properties through the completion of
strategic renovations and expansions. The Operating Partnership currently has
a number of expansion projects under construction and in the preconstruction
development stage. The Operating Partnership's share of the projected costs to
fund these projects in 1997 is approximately $325 million. It is anticipated
that these costs will be financed principally with the Credit Line, project-
specific indebtedness, access to debt and equity markets, and cash flow from
operations.
Distributions. During the first quarter of 1997, the Operating Partnership
paid a distribution of $0.4925 per Unit to Unitholders of record on February 7,
1997. On May 6, 1997, the Operating Partnership declared a distribution of
$0.505 per Unit, an increase of $.0125 per Unit over the previous distribution.
Future distributions will be determined based on actual results of operations
and cash available for distribution. In addition, the Operating Partnership
paid Preferred Unit distributions to the Company of $0.5078 for each share of
the Company's Series A preferred stock and $0.5469 for each share of Series B
preferred stock during the first quarter of 1997.
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 shareholders
in accordance with tax requirements applicable to REITs. Sources of capital
for nonrecurring capital expenditures, such as major building renovations and
expansions, as well as for scheduled principal payments, including balloon
payments, on outstanding indebtedness are expected to be obtained from: (i)
excess cash generated from operating performance; (ii) working capital
reserves; (iii) additional debt financing; and (iv) additional equity sold in
the public markets.
Management continues to actively review and evaluate a number of
individual property and portfolio acquisition opportunities. Management
believes that funds on hand, amounts available under the Credit Line, and
existing debt and equity shelf registrations with the Securities and Exchange
Commission, 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 flows from investing activities for the three months ended March 31,
1997 included, $51.2 million of capital expenditures, which included $9.2
million for the acquisition of the land for the construction of Northeast
Plaza, construction costs of $8.9 million and $4.8 million at Forum phase II
and The Shops at Sunset Place, respectively, and renovation and expansion costs
of approximately $15 million, with the remainder primarily being made up of
tenant allowances. In addition, investments in unconsolidated entities of
$14.3 million included $7.9 million to Grapevine Mills and $2.6 million to The
Source.
Cash flows from financing activities for the three months ended March 31,
1997 included distributions of $84.2 million, net borrowings of $63.7 million
primarily used to fund development activity, and $21.0 million for the
acquisition of a contingent interest feature on four mortgage loans.
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 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 liquidity.
Total EBITDA for the Properties increased from $115.7 million for the
three months ended March 31, 1996 to $205.3 million for the same period in
1997, representing a growth rate of 77.4%. This increase is primarily
attributable to the Merger ($84.0 million) and the Properties opened or
acquired during 1996 and 1997 ($8.7 million). During this period, operating
profit margin increased from 61.9% to 63.5%.
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.
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 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.
The following summarizes FFO of the Operating Partnership and reconciles
net income of the Operating Partnership to FFO for the periods presented:
For the Three Months
Ended March 31,
-----------------------
1997 1996
(In thousands) ---------- ----------
FFO $ 87,939 $ 48,680
========== ==========
Reconciliation:
Income before extraordinary items $ 43,062 $ 23,832
Plus:
Depreciation and amortization from
consolidated Properties 43,312 24,537
The Operating Partnership's share of
depreciation, and amortization from
unconsolidated affiliates 8,858 3,032
Less:
Gain on the sale of real estate (37) N/A
Minority interest portion of depreciation and
amortization (850) (690)
Preferred dividends (6,406) (2,031)
---------- ----------
FFO $ 87,939 $ 48,680
========== ==========
FFO allocable to the Company $ 53,992 $ 29,727
========== ==========
PORTFOLIO DATA
Operating statistics give effect to the Merger and are based upon the
business and Properties of the Operating Partnership and DRC on a combined
basis for all periods presented. The purpose of this presentation is to
provide a more comparable set of statistics on the portfolio as a whole. The
following statistics exclude Ontario Mills and Charles Towne Square. Ontario
Mills is a new value-oriented super-regional mall in a category by itself. The
Operating Partnership intends to create a separate reporting category for its
Mills Properties in 1997, following the expected openings of Grapevine Mills
and Arizona Mills. The Operating Partnership is converting Charles Towne
Square into a community center.
Aggregate Tenant Sales Volume. For the three months ended March 31, 1997
compared to the same period in 1996, total reported retail sales for mall and
freestanding stores at the regional malls for GLA owned by the Operating
Partnership ("Owned GLA") increased 3.8% from $1,377 million to $1,429 million.
Total reported sales for all stores at the community shopping centers for Owned
GLA decreased 2.5% from $319 million to $311 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 0.8% to
84.3% at March 31, 1997 as compared to 83.5% at March 31, 1996 . Occupancy
levels for community shopping centers decreased slightly from 91.8% at March
31, 1996 to 91.7% at March 31, 1997. Total GLA has increased 4.0 million
square feet from March 31, 1996 to March 31, 1997, primarily as a result of the
July 1996 opening of Cottonwood Mall, the November 1996 openings of Ontario
Mills, the Tower Shops and Indian River Mall, and the March 1997 opening of
Indian River Commons, partially offset by the March 1997 sale of Bristol Plaza.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 4.5%, from $19.95 at
March 31, 1996 to $20.84 as of March 31, 1997. In community shopping centers,
average base rents per square foot of Owned GLA increased 4.7%, from $7.37 to
$7.72 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 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.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
4.4* First Amendment to Credit Agreement dated as of April 14, 1997
* Incorporated by reference to the corresponding exhibit included in the
Company's Form 10-Q for the period ended March 31, 1997.
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMON DEBARTOLO GROUP, L.P.
BY: SIMON DEBARTOLO GROUP, INC.,
GENERAL PARTNER
DATE: MAY 15, 1997 /S/ STEPHEN E. STERRETT
------------------------
STEPHEN E. STERRETT,
TREASURER
(PRINCIPAL FINANCIAL OFFICER)
DATE: MAY 15, 1997 /S/ DENNIS CAVANAGH
------------------------
DENNIS CAVANAGH,
SENIOR VICE PRESIDENT OF FINANCIAL SERVICES
(PRINCIPAL ACCOUNTING OFFICER)
5
1,000
3-MOS
DEC-31-1997
MAR-31-1997
41,946
0
165,863
0
0
0
5,353,235
(315,572)
5,908,896
0
3,746,992
0
0
0
1,885,733
5,908,896
0
242,414
0
130,708
0
975
67,918
43,062
43,062
43,062
0
(23,247)
0
19,815
0.08
0.08
The Operating Partnership does not report using a classified Balance Sheet.
Amount represents Partners' equity.
Amounts represent earnings per unit of partnership interest.
