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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 September 30, 2019

SIMON PROPERTY GROUP, INC.

SIMON PROPERTY GROUP, L.P.

(Exact name of registrant as specified in its charter)

Delaware
(Simon Property Group, Inc.)
Delaware
(Simon Property Group, L.P.)
(State of incorporation
or organization)

001-14469
(Simon Property Group, Inc.)
001-36110
(Simon Property Group, L.P.)
(Commission File No.)

04-6268599
(Simon Property Group, Inc.)
34-1755769
(Simon Property Group, L.P.)
(I.R.S. Employer
Identification No.)

225 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices)

(317636-1600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange on which registered

Simon Property Group, Inc.

Common stock, $0.0001 par value

SPG

New York Stock Exchange

Simon Property Group, Inc.

83/8% Series J Cumulative Redeemable Preferred Stock, $0.0001 par value

SPGJ

New York Stock Exchange

Simon Property Group, L.P.

2.375% Senior Unsecured Notes due 2020

SPG/20

New York Stock Exchange

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.

Simon Property Group, Inc. Yes  No

Simon Property Group, L.P. Yes  No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Simon Property Group, Inc. Yes No

Simon Property Group, L.P. Yes No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Simon Property Group, Inc.:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

Simon Property Group, L.P.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Simon Property Group, Inc.

Simon Property Group, L.P.

Indicate by check mark whether Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). 

Simon Property Group, Inc. Yes  No

Simon Property Group, L.P. Yes  No

As of September 30, 2019, Simon Property Group, Inc. had 306,860,960 shares of common stock, par value $0.0001 per share, and 8,000 shares of Class B common stock, par value $0.0001 per share, outstanding. Simon Property Group, L.P. has no common stock outstanding.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2019 of Simon Property Group, Inc., a Delaware corporation, and Simon Property Group, L.P., a Delaware limited partnership. Unless stated otherwise or the context otherwise requires, references to “Simon” mean Simon Property Group, Inc. and references to the “Operating Partnership” mean Simon Property Group, L.P. References to “we,” “us” and “our” mean collectively Simon, the Operating Partnership and those entities/subsidiaries owned or controlled by Simon and/or the Operating Partnership.

Simon is a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. We are structured as an umbrella partnership REIT under which substantially all of our business is conducted through the Operating Partnership, Simon’s majority-owned partnership subsidiary, for which Simon is the general partner. As of September 30, 2019, Simon owned an approximate 86.8% ownership interest in the Operating Partnership, with the remaining 13.2% ownership interest owned by limited partners. As the sole general partner of the Operating Partnership, Simon has exclusive control of the Operating Partnership’s day-to-day management.

We operate Simon and the Operating Partnership as one business. The management of Simon consists of the same members as the management of the Operating Partnership. As general partner with control of the Operating Partnership, Simon consolidates the Operating Partnership for financial reporting purposes, and Simon has no material assets or liabilities other than its investment in the Operating Partnership. Therefore, the assets and liabilities of Simon and the Operating Partnership are the same on their respective financial statements.

We believe that combining the quarterly reports on Form 10-Q of Simon and the Operating Partnership into this single report provides the following benefits:

enhances investors’ understanding of Simon and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined presentation since substantially all of the disclosure in this report applies to both Simon and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

We believe it is important for investors to understand the few differences between Simon and the Operating Partnership in the context of how we operate as a consolidated company. The primary difference is that Simon itself does not conduct business, other than acting as the general partner of the Operating Partnership and issuing equity or equity-related instruments from time to time. In addition, Simon itself does not incur any indebtedness, as all debt is incurred by the Operating Partnership or entities/subsidiaries owned or controlled by the Operating Partnership.

The Operating Partnership holds, directly or indirectly, substantially all of our assets, including our ownership interests in our joint ventures. The Operating Partnership conducts substantially all of our business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity issuances by Simon, which are contributed to the capital of the Operating Partnership in exchange for, in the case of common stock issuances by Simon, common units of partnership interest in the Operating Partnership, or units, or, in the case of preferred stock issuances by Simon, preferred units of partnership interest in the Operating Partnership, or preferred units, the Operating Partnership, directly or indirectly, generates the capital required by our business through its operations, the incurrence of indebtedness, proceeds received from the disposition of certain properties and joint ventures and the issuance of units or preferred units to third parties.

The presentation of stockholders’ equity, partners’ equity and noncontrolling interests are the main areas of difference between the consolidated financial statements of Simon and those of the Operating Partnership. The differences between stockholders’ equity and partners’ equity result from differences in the equity issued at the Simon and Operating Partnership levels. The units held by limited partners in the Operating Partnership are accounted for as partners’ equity in the Operating Partnership’s financial statements and as noncontrolling interests in Simon’s financial statements. The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships. The noncontrolling interests in Simon’s financial statements include the same noncontrolling interests at the Operating Partnership level and, as previously stated, the units held by limited partners of the Operating Partnership. Although classified differently, total equity of Simon and the Operating Partnership is the same.

To help investors understand the differences between Simon and the Operating Partnership, this report provides:

separate consolidated financial statements for Simon and the Operating Partnership;
a single set of condensed notes to such consolidated financial statements that includes separate discussions of noncontrolling interests and stockholders’ equity or partners’ equity, accumulated other comprehensive income (loss) and per share and per unit data, as applicable;

2

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a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that also includes discrete information related to each entity; and
separate Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds sections related to each entity.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Simon and the Operating Partnership in order to establish that the requisite certifications have been made and that Simon and the Operating Partnership are each compliant with Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. §1350. The separate discussions of Simon and the Operating Partnership in this report should be read in conjunction with each other to understand our results on a consolidated basis and how management operates our business.

In order to highlight the differences between Simon and the Operating Partnership, the separate sections in this report for Simon and the Operating Partnership specifically refer to Simon and the Operating Partnership. In the sections that combine disclosure of Simon and the Operating Partnership, this report refers to actions or holdings of Simon and the Operating Partnership as being “our” actions or holdings. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures, holds assets and incurs debt, we believe that references to “we,” “us” or “our” in this context is appropriate because the business is one enterprise and we operate substantially all of our business through the Operating Partnership.

3

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Simon Property Group, Inc.

Simon Property Group, L.P.

Form 10-Q

INDEX

    

Page

Part I — Financial Information

Item 1.

Consolidated Financial Statements of Simon Property Group, Inc. (Unaudited)

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

5

Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018

6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

7

Consolidated Statements of Equity at September 30, 2019 and 2018

8

Consolidated Financial Statements of Simon Property Group, L.P. (Unaudited)

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

10

Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018

11

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

12

Consolidated Statements of Equity at September 30, 2019 and 2018

13

Condensed Notes to Consolidated Financial Statements

15

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

Part II — Other Information

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

51

Signatures

52

4

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Simon Property Group, Inc.

Unaudited Consolidated Balance Sheets

(Dollars in thousands, except share amounts)

    

September 30, 

    

December 31, 

 

2019

2018

 

ASSETS:

Investment properties, at cost

$

37,590,061

$

37,092,670

Less - accumulated depreciation

 

13,707,832

 

12,884,539

 

23,882,229

 

24,208,131

Cash and cash equivalents

 

3,647,230

 

514,335

Tenant receivables and accrued revenue, net

 

775,617

 

763,815

Investment in unconsolidated entities, at equity

 

2,121,558

 

2,220,414

Investment in Klépierre, at equity

 

1,614,109

 

1,769,488

Deferred costs and other assets

 

1,803,483

 

1,210,040

Total assets

$

33,844,226

$

30,686,223

LIABILITIES:

Mortgages and unsecured indebtedness

$

26,643,879

$

23,305,535

Accounts payable, accrued expenses, intangibles, and deferred revenues

 

1,324,110

 

1,316,861

Cash distributions and losses in unconsolidated entities, at equity

 

1,568,150

 

1,536,111

Other liabilities

 

1,001,048

 

500,597

Total liabilities

 

30,537,187

 

26,659,104

Commitments and contingencies

Limited partners’ preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties

 

226,887

 

230,163

EQUITY:

Stockholders’ Equity

Capital stock (850,000,000 total shares authorized, $0.0001 par value, 238,000,000 shares of excess common stock, 100,000,000 authorized shares of preferred stock):

Series J 83/8% cumulative redeemable preferred stock, 1,000,000 shares authorized, 796,948 issued and outstanding with a liquidation value of $39,847

 

42,502

 

42,748

Common stock, $0.0001 par value, 511,990,000 shares authorized, 320,435,256 and 320,411,571 issued and outstanding, respectively

 

32

 

32

Class B common stock, $0.0001 par value, 10,000 shares authorized, 8,000 issued and outstanding

 

 

Capital in excess of par value

 

9,748,255

 

9,700,418

Accumulated deficit

 

(5,223,093)

 

(4,893,069)

Accumulated other comprehensive loss

 

(121,596)

 

(126,017)

Common stock held in treasury, at cost, 13,574,296 and 11,402,103 shares, respectively

 

(1,773,571)

 

(1,427,431)

Total stockholders’ equity

 

2,672,529

 

3,296,681

Noncontrolling interests

 

407,623

 

500,275

Total equity

 

3,080,152

 

3,796,956

Total liabilities and equity

$

33,844,226

$

30,686,223

The accompanying notes are an integral part of these statements.

5

Table of Contents

Simon Property Group, Inc.

Unaudited Consolidated Statements of Operations and Comprehensive Income

(Dollars in thousands, except per share amounts)

For the Three Months Ended

For the Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

 

REVENUE:

Lease income

$

1,308,908

$

1,284,674

$

3,887,532

$

3,811,265

Management fees and other revenues

 

27,976

 

28,784

 

83,768

 

85,506

Other income

 

79,670

 

90,563

 

295,274

 

286,491

Total revenue

 

1,416,554

 

1,404,021

 

4,266,574

 

4,183,262

EXPENSES:

Property operating

 

121,735

 

119,021

 

339,404

 

335,420

Depreciation and amortization

 

334,944

 

316,175

 

1,016,193

 

953,309

Real estate taxes

 

118,031

 

119,315

 

349,404

 

344,950

Repairs and maintenance

 

23,979

 

23,632

 

73,752

 

73,507

Advertising and promotion

 

36,583

 

36,688

 

109,128

 

107,979

Home and regional office costs

 

45,865

 

32,714

 

144,892

 

106,093

General and administrative

 

8,032

 

12,172

 

27,528

 

35,713

Other

 

22,083

 

21,461

 

75,318

 

70,505

Total operating expenses

 

711,252

 

681,178

 

2,135,619

 

2,027,476

OPERATING INCOME BEFORE OTHER ITEMS

 

705,302

 

722,843

 

2,130,955

 

2,155,786

Interest expense

 

(202,382)

 

(199,469)

 

(599,541)

 

(611,585)

Income and other taxes

 

(6,197)

 

(10,118)

 

(23,309)

 

(26,475)

Income from unconsolidated entities

 

119,706

 

134,408

 

316,691

 

325,263

Unrealized gains (losses) in fair value of equity instruments

2,154

(5,452)

(4,846)

1,212

Gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net

 

10,141

 

-

 

12,822

 

144,949

CONSOLIDATED NET INCOME

628,724

642,212

1,832,772

1,989,150

Net income attributable to noncontrolling interests

 

83,636

 

85,111

 

242,216

 

262,722

Preferred dividends

 

834

 

834

 

2,503

 

2,503

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

544,254

$

556,267

$

1,588,053

$

1,723,925

BASIC AND DILUTED EARNINGS PER COMMON SHARE:

Net income attributable to common stockholders

$

1.77

$

1.80

$

5.15

$

5.57

Consolidated Net Income

$

628,724

$

642,212

$

1,832,772

$

1,989,150

Unrealized gain on derivative hedge agreements

 

12,907

 

5,241

 

15,227

 

20,355

Net loss reclassified from accumulated other comprehensive loss into earnings

 

1,087

 

1,591

 

3,261

 

5,929

Currency translation adjustments

 

(6,288)

 

(10,763)

 

(14,656)

 

(35,797)

Changes in available-for-sale securities and other

 

468

 

(22)

 

1,151

 

(88)

Comprehensive income

 

636,898

 

638,259

 

1,837,755

 

1,979,549

Comprehensive income attributable to noncontrolling interests

 

84,662

 

84,466

 

242,778

 

261,260

Comprehensive income attributable to common stockholders

$

552,236

$

553,793

$

1,594,977

$

1,718,289

The accompanying notes are an integral part of these statements.

6

Table of Contents

Simon Property Group, Inc.

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

For the Nine Months Ended

September 30, 

    

2019

    

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

Consolidated Net Income

$

1,832,772

$

1,989,150

Adjustments to reconcile consolidated net income to net cash provided by operating activities

Depreciation and amortization

 

1,055,107

 

1,009,671

Gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net

 

(12,822)

 

(144,949)

Unrealized losses (gains) in fair value of equity instruments

4,846

(1,212)

Gain on interest in unconsolidated entity (Note 6)

(35,621)

Straight-line lease income

 

(49,680)

 

(14,923)

Equity in income of unconsolidated entities

 

(316,691)

 

(325,263)

Distributions of income from unconsolidated entities

 

334,625

 

289,411

Changes in assets and liabilities

Tenant receivables and accrued revenue, net

 

25,720

 

27,668

Deferred costs and other assets

 

(33,340)

 

(74,922)

Accounts payable, accrued expenses, intangibles, deferred revenues and other liabilities

 

7,659

 

32,156

Net cash provided by operating activities

 

2,848,196

 

2,751,166

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions

 

(12,800)

 

Funding of loans to related parties

 

 

(4,641)

Capital expenditures, net

 

(622,687)

 

(585,957)

Cash impact from the consolidation of properties

 

1,045

 

11,276

Net proceeds from sale of assets

 

6,776

 

Investments in unconsolidated entities

 

(42,353)

 

(51,883)

Purchase of marketable and non-marketable securities

 

(134,372)

 

(23,273)

Insurance proceeds for property restoration

3,787

16,160

Distributions of capital from unconsolidated entities and other

 

214,541

 

428,862

Net cash used in investing activities

 

(586,063)

 

(209,456)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sales of common stock and other, net of transaction costs

 

(246)

 

(247)

Purchase of shares related to stock grant recipients' tax withholdings

(2,955)

(2,911)

Redemption of limited partner units

 

(4,549)

 

(7,619)

Purchase of treasury stock

(359,773)

(307,296)

Distributions to noncontrolling interest holders in properties

 

(5,931)

 

(11,524)

Contributions from noncontrolling interest holders in properties

 

106

 

161

Preferred distributions of the Operating Partnership

 

(1,436)

 

(1,436)

Distributions to stockholders and preferred dividends

 

(1,913,666)

 

(1,829,610)

Distributions to limited partners

 

(290,262)

 

(276,530)

Proceeds from issuance of debt, net of transaction costs

 

10,893,698

 

5,895,653

Repayments of debt

 

(7,444,224)

 

(6,786,942)

Net cash provided by (used in) financing activities

 

870,762

 

(3,328,301)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

3,132,895

 

(786,591)

CASH AND CASH EQUIVALENTS, beginning of period

 

514,335

 

1,482,309

CASH AND CASH EQUIVALENTS, end of period

$

3,647,230

$

695,718

The accompanying notes are an integral part of these statements.

7

Table of Contents

Simon Property Group, Inc.

Unaudited Consolidated Statements of Equity

(Dollars in thousands)

   

   

   

Accumulated

   

   

   

Common

   

   

Other

Capital in

Stock

Preferred

Common

Comprehensive

Excess of

Accumulated

Held in

Noncontrolling

Total

    

Stock

    

Stock

    

Income (Loss)

    

Par Value

    

Deficit

    

Treasury

    

interests

    

Equity

January 1, 2019

$

42,748

$

32

$

(126,017)

$

9,700,418

$

(4,893,069)

$

(1,427,431)

$

500,275

$

3,796,956

Exchange of limited partner units (24,000 common shares, note 8)

 

253

 

(253)

 

Series J preferred stock premium amortization

(82)

(82)

Redemption of limited partner units (774 units)

(127)

(8)

(135)

Amortization of stock incentive

1,309

1,309

Treasury stock purchase (46,377 shares)

(7,628)

(7,628)

Long-term incentive performance units

3,701

3,701

Issuance of unit equivalents and other (1,483 common shares repurchased)

1

(1,507)

(250)

 

(2)

 

(1,758)

Unrealized gain (loss) on derivative hedge agreements

8,115

1,227

9,342

Net loss reclassified from accumulated other comprehensive loss into earnings

945

143

1,088

Currency translation adjustments

(4,130)

(614)

(4,744)

Changes in available-for-sale securities and other

125

19

144

Other comprehensive income

5,055

775

5,830

Adjustment to limited partners’ interest from change in ownership in the Operating Partnership

 

4,167

 

(4,167)

 

Distributions to common stockholders and limited partners, excluding Operating Partnership preferred interests

 

(634,222)

 

(96,010)

 

(730,232)

Distributions to other noncontrolling interest partners

 

(552)

(552)

Net income, excluding $479 attributable to preferred interests in the Operating Partnership and a $1,065 loss attributable to noncontrolling redeemable interests in properties

 

 

549,309

 

83,224

 

632,533

March 31, 2019

$

42,666

$

32

$

(120,962)

$

9,706,021

$

(4,979,489)

$

(1,435,309)

$

486,983

$

3,699,942

Series J preferred stock premium amortization

(82)

(82)

Stock incentive program (89,368 common shares, net)

(16,340)

16,340

Amortization of stock incentive

5,098

5,098

Treasury stock purchase (1,046,580 shares)

(173,630)

(173,630)

Long-term incentive performance units

7,721

7,721

Issuance of unit equivalents and other (14,853 common shares repurchased)

11

(5,265)

(2,706)

 

70

 

(7,890)

Unrealized gain (loss) on derivative hedge agreements

(6,113)

(909)

(7,022)

Net loss reclassified from accumulated other comprehensive loss into earnings

942

144

1,086

Currency translation adjustments

(3,078)

(545)

(3,623)

Changes in available-for-sale securities and other

468

71

539

Other comprehensive income

(7,781)