<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 21, 1996)
$300,000,000
SIMON DEBARTOLO GROUP, L.P.
LOGO
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------------
Simon DeBartolo Group, L.P. (the "Operating Partnership") may offer from
time to time up to $300,000,000 aggregate initial offering
price, or the equivalent thereof in one or more foreign or composite currencies,
of its Medium-Term Notes Due Nine Months or More from Date of Issue (the
"Notes"). Such aggregate initial offering price is subject to reduction as a
result of the sale by the Operating Partnership of other Debt Securities
described in the accompanying Prospectus. Each Note will mature on any day nine
months or more from the date of issue, as specified in the applicable pricing
supplement hereto (each, a "Pricing Supplement"), and may be subject to
redemption at the option of the Operating Partnership or repayment at the option
of the Holder thereof, in each case, in whole or in part, prior to its Stated
Maturity Date, if specified in the applicable Pricing Supplement. In addition,
each Note will be denominated and/or payable in United States dollars or a
foreign or composite currency, as specified in the applicable Pricing
Supplement. The Notes, other than Foreign Currency Notes, will be issued in
minimum denominations of $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement, while Foreign Currency Notes
will be issued in the minimum denominations specified in the applicable Pricing
Supplement. Further, Simon Property Group, L.P., a Delaware limited partnership
and a subsidiary partnership of the Operating Partnership (the "Guarantor"),
will guarantee (the "Guarantee") the due and punctual payment of the principal
of, premium, if any, interest on, and any other amounts payable with respect to,
the Notes, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise.
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE S-3 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
PRICING SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) OPERATING PARTNERSHIP(1)(3)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Per Note........................... 100% .125%-.750% 99.875%-99.250%
- ----------------------------------------------------------------------------------------------------------------------------------
Total(4)........................... $300,000,000 $375,000-$2,250,000 $299,625,000-$297,750,000
==================================================================================================================================
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Chase Securities Inc., Lehman Brothers Inc., J.P. Morgan Securities Inc.,
Morgan Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc.,
Salomon Brothers Inc and UBS Securities LLC (the "Agents"), individually or
in a syndicate, may purchase Notes, as principal, from the Operating
Partnership for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as determined by
the applicable Agent or, if so specified in the applicable Pricing
Supplement, for resale at a fixed offering price. Unless otherwise specified
in the applicable Pricing Supplement, any Note sold to an Agent as principal
will be purchased by such Agent at a price equal to 100% of the principal
amount thereof less a percentage of the principal amount equal to the
commission applicable to an agency sale (as described below) of a Note of
identical maturity. If agreed to by the Operating Partnership and an Agent,
such Agent may utilize its reasonable efforts on an agency basis to solicit
offers to purchase the Notes at 100% of the principal amount thereof, unless
otherwise specified in the applicable Pricing Supplement. The Operating
Partnership will pay a commission to an Agent, ranging from .125% to .750%
of the principal amount of a Note, depending upon its stated maturity, sold
through an Agent. Commissions with respect to Notes with stated maturities
in excess of 30 years that are sold through such Agent will be negotiated
between the Operating Partnership and such Agent at the time of such sale.
See "Plan of Distribution."
(2) The Operating Partnership, the Guarantor and certain of their affiliates
have agreed to indemnify the Agents against, and to provide contribution
with respect to, certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Operating Partnership estimated at
$300,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
------------------------
The Notes are being offered on a continuing basis by the Operating
Partnership to or through the Agents. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will not be listed on any securities
exchange. There is no assurance that the Notes offered hereby will be sold or,
if sold, that there will be a secondary market for the Notes or liquidity in the
secondary market if one develops. The Operating Partnership reserves the right
to cancel or modify the offer made hereby without notice. The Operating
Partnership or an Agent, if it solicits the offer on an agency basis, may reject
any offer to purchase Notes in whole or in part. See "Plan of Distribution."
------------------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
UBS SECURITIES
------------------------
The date of this Prospectus Supplement is May 15, 1997.
<PAGE> 2
(continued from previous page)
The Operating Partnership may issue Notes that bear interest at fixed rates
("Fixed Rate Notes") or at floating rates ("Floating Rate Notes"). The
applicable Pricing Supplement will specify whether a Floating Rate Note is a
Regular Floating Rate Note, a Floating Rate/Fixed Rate Note or an Inverse
Floating Rate Note and whether the rate of interest thereon is determined by
reference to one or more of the CD Rate, the CMT Rate, the Commercial Paper
Rate, the Eleventh District Cost of Funds Rate, the Federal Funds Rate, LIBOR,
the Prime Rate or the Treasury Rate (each, an "Interest Rate Basis"), or any
other interest rate basis or formula, as adjusted by any Spread and/or Spread
Multiplier. Interest on each Floating Rate Note will accrue from its date of
issue and, unless otherwise specified in the applicable Pricing Supplement, will
be payable monthly, quarterly, semiannually or annually in arrears, as specified
in the applicable Pricing Supplement, and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the rate of interest on each
Floating Rate Note will be reset daily, weekly, monthly, quarterly, semiannually
or annually, as specified in the applicable Pricing Supplement. Interest on each
Fixed Rate Note will accrue from its date of issue and, unless otherwise
specified in the applicable Pricing Supplement, will be payable semiannually in
arrears on May 15 and November 15 of each year and on the Maturity Date. The
Operating Partnership may also issue Discount Notes, Indexed Notes and
Amortizing Notes (as hereinafter defined). See "Description of Notes."
The interest rate, or formula for the determination of the interest rate,
if any, applicable to each Note and the other variable terms thereof will be
established by the Operating Partnership on the date of issue of such Note and
will be specified in the applicable Pricing Supplement. Interest rates or
formulas and other terms of Notes are subject to change by the Operating
Partnership, but no such change will affect any Note previously issued or as to
which an offer to purchase has been accepted by the Operating Partnership.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (or such other depositary
identified in the applicable Pricing Supplement) (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES PRIOR TO THE PRICING OF THE
OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES, THE PURCHASE OF
NOTES FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE NOTES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
<PAGE> 3
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes, whether resulting from such Notes being denominated or
payable in or determined by reference to a currency or composite currency other
than United States dollars or to one or more interest rate, currency or other
indices or formulas, or otherwise. The Operating Partnership and each Agent
disclaim any responsibility to advise prospective investors of such risks as
they exist at the date of this Prospectus Supplement or as they change from time
to time. Prospective investors should consult their own financial and legal
advisors as to the risks entailed by an investment in such Notes and the
suitability of investing in such Notes in light of their particular
circumstances. Such Notes are not an appropriate investment for investors who
are unsophisticated with respect to foreign currency transactions or
transactions involving the applicable interest rate or currency index or other
indices or formulas. Prospective investors should carefully consider, among
other factors, the matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate, currency (including exchange
rates and swap indices between currencies or composite currencies) or other
indices or formulas, either directly or inversely, entails significant risks
that are not associated with similar investments in a conventional fixed rate or
floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant changes,
that no interest will be payable in respect of such Notes or will be payable at
a rate lower than one applicable to a conventional fixed rate or floating rate
debt security issued by the Operating Partnership at the same time, that
repayment of the principal and/or premium, if any, in respect of such Notes may
occur at times other than that expected by the Holders (as defined in the
accompanying Prospectus), and that the Holders could lose all or a substantial
portion of principal and/or premium, if any, payable with respect to such Notes
on the Maturity Date (as defined under "Description of Notes -- General"). Such
risks depend on a number of interrelated factors, including economic, financial
and political events, over which the Operating Partnership has no control.
Additionally, if the formula used to determine the amount of principal, premium,
if any, and/or interest, if any, payable with respect to such Notes contains a
multiplier or leverage factor, the effect of any change in the applicable index
or indices or formula or formulas will be magnified. In recent years, values of
certain indices and formulas have been highly volatile and such volatility may
be expected to continue in the future. Fluctuations in the value of any
particular index or formula that have occurred in the past are not necessarily
indicative, however, of fluctuations that may occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Operating Partnership may be expected to redeem such Notes
when prevailing interest rates are relatively low, Holders generally will not be
able to reinvest the redemption proceeds in a comparable security at an
effective interest rate as high as the current interest rate on such Notes.
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the liquidity
of the secondary market if one develops. See "Plan of Distribution."
The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Operating Partnership and the
value of the applicable index or indices or formula or formulas, including the
complexity and volatility of each such index or formula, the method of
calculating the principal, premium, if any, and/or interest, if any, in respect
of such Notes, the time remaining to the maturity of such Notes, the outstanding
amount of such Notes, any redemption features of such Notes, the amount of other
debt securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect the
market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Holders may not be able to sell such Notes readily or at prices
that will enable them to realize their anticipated yield. No investor should
purchase Notes unless such investor understands and is able to bear the risk
that such Notes may not be
S-3
<PAGE> 4
readily saleable, that the value of such Notes will fluctuate over time and that
such fluctuations may be significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined under "Description of
Notes -- General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the United States dollar and the
Specified Currency (as defined under "Description of Notes -- General") and the
possibility of the imposition or modification of exchange controls by the
applicable governments or monetary authorities. Such risks generally depend on
factors over which the Operating Partnership has no control, such as economic,
financial and political events and the supply and demand for the applicable
currencies or composite currencies. In addition, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to Foreign Currency Notes contains a multiplier or leverage
factor, the effect of any change in the applicable currencies or composite
currencies will be magnified. In recent years, rates of exchange between the
United States dollar and foreign or composite currencies have been highly
volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations that may occur in the
future. Depreciation of the Specified Currency applicable to a Foreign Currency
Note against the United States dollar would result in a decrease in the United
States dollar-equivalent yield of such Foreign Currency Note, in the United
States dollar-equivalent value of the principal and premium, if any, payable on
the Maturity Date of such Foreign Currency Note, and, generally, in the United
States dollar-equivalent market value of such Foreign Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any, on,
a Foreign Currency Note is due, which could affect exchange rates as well as the
availability of the Specified Currency on such date. Even if there are no
exchange controls, it is possible that the Specified Currency would not be
available on the applicable payment date due to other circumstances beyond the
control of the Operating Partnership. In such cases, the Operating Partnership
will be entitled to satisfy its obligations in respect of such Foreign Currency
Note in United States dollars. See "Special Provisions Relating to Foreign
Currency Notes -- Availability of Specified Currency."
CREDIT RATINGS
The credit ratings assigned to the Operating Partnership's medium-term note
program may not reflect the potential impact of all risks related to structure
and other factors on the value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of investing in such Notes in
light of their particular circumstances.
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of November 26, 1996, as amended or supplemented from time to time,
among the Operating Partnership, Simon Property Group, L.P. (the "Guarantor"),
as guarantor, and The Chase Manhattan Bank, as trustee (the "Trustee"), as
supplemented by the Third Supplemental Indenture, dated as of May 15, 1997
between the Operating Partnership, the Guarantor and the Trustee (together, the
"Indenture"). The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended. The Guarantor will guarantee the due and punctual
payment of the principal of, premium, if any, interest on, and any other amounts
payable with respect to, the Notes, when and as the same shall become due and
payable, whether at a maturity date, on redemption, by declaration of
acceleration or otherwise. See "-- The Guarantee." The following summary of
certain provisions of the Notes and the Indenture does not purport to be
complete and is qualified in its entirety by reference to the actual provisions
of the Notes and the Indenture. Capitalized terms used but not defined herein
shall have the meanings given to them in the accompanying Prospectus, the Notes
or the
S-4
<PAGE> 5
Indenture, as the case may be. The term "Debt Securities," as used in this
Prospectus Supplement, refers to all debt securities, including the Notes,
issued and issuable from time to time under the Indenture. The following
description of Notes will apply to each Note offered hereby unless otherwise
specified in the applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be direct, unsecured general obligations of the Operating
Partnership and will rank pari passu with each other and with all other
unsecured and unsubordinated indebtedness of the Operating Partnership from time
to time outstanding. The Indenture does not limit the aggregate initial offering
price of Debt Securities that may be issued thereunder and Debt Securities may
be issued thereunder from time to time in one or more series up to the aggregate
initial offering price from time to time authorized by the Operating Partnership
for each series. As of the date of this Prospectus Supplement, the Operating
Partnership has issued $250,000,000 aggregate initial offering price of Debt
Securities and $100,000,000 aggregate initial offering price of unregistered
6.75% Notes due November 15, 2010, all of which is outstanding as of such date.
The Notes will be effectively subordinated to (i) the prior claims of each
secured mortgage lender to any specific Portfolio Property which secures such
lender's mortgage and (ii) any claims of creditors of entities wholly or partly
owned, directly or indirectly, by the Operating Partnership. Subject to certain
limitations set forth in the Indenture, and as described under "-- Certain
Covenants -- Limitations on Incurrence of Debt" below, the Indenture will permit
the Operating Partnership to incur additional secured and unsecured
indebtedness. The Operating Partnership may, from time to time, without the
consent of the Holders of the Notes, provide for the issuance of Notes or other
Debt Securities under the Indenture in addition to the $300,000,000 aggregate
initial offering price of Notes offered hereby.
The Notes are currently limited to up to $300,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies. The Notes will be offered on a continuous basis and will mature on
any day nine months or more from its date of issue (the "Stated Maturity Date"),
as specified in the applicable Pricing Supplement, unless the principal thereof
(or any installment of principal thereof) becomes due and payable prior to the
Stated Maturity Date, whether by the declaration of acceleration of maturity,
notice of redemption at the option of the Operating Partnership, if applicable,
notice of the Holder's option to elect repayment, if applicable, or otherwise
(the Stated Maturity Date or such prior date, as the case may be, is herein
referred to as the "Maturity Date" with respect to the principal of such Note
repayable on such date). Unless otherwise specified in the applicable Pricing
Supplement, interest-bearing Notes will either be Fixed Rate Notes or Floating
Rate Notes, as specified in the applicable Pricing Supplement. The Operating
Partnership may also issue Discount Notes, Indexed Notes and Amortizing Notes
(as such terms are hereinafter defined).
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, in respect thereof will be made in, United States dollars. The
Notes also may be denominated in, and payments of principal, premium, if any,
and/or interest, if any, in respect thereof may be made in, one or more foreign
or composite currencies ("Foreign Currency Notes"). See "Special Provisions
Relating to Foreign Currency Notes -- Payment of Principal, Premium, if any, and
Interest, if any." The currency or composite currency in which a particular Note
is denominated (or, if such currency or composite currency is no longer legal
tender for the payment of public and private debts, such other currency or
composite currency of the relevant country which is then legal tender for the
payment of such debts) is herein referred to as the "Specified Currency" with
respect to such Note. References herein to "United States dollars", "U.S.
dollars" or "$" are to the lawful currency of the United States of America (the
"United States").
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currencies. At the
present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign or composite currencies and
vice versa, and commercial banks do not generally offer non-United States dollar
checking or savings account facilities in the United States. The Agent from or
through which a Foreign Currency Note is purchased may be prepared to
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<PAGE> 6
arrange for the conversion of United States dollars into the applicable
Specified Currency in order to enable the purchaser to pay for such Foreign
Currency Note, provided that a request is made to such Agent on or prior to the
fifth Business Day (as hereinafter defined) preceding the date of delivery of
such Foreign Currency Note, or by such other day as determined by such Agent.
Each such conversion will be made by such Agent on such terms and subject to
such conditions, limitations and charges as such Agent may from time to time
establish in accordance with its regular foreign exchange practices. All costs
of exchange will be borne by the purchaser of each such Foreign Currency Note.
See "Special Provisions Relating to Foreign Currency Notes."
Interest rates offered by the Operating Partnership with respect to the
Notes may differ depending upon, among other factors, the aggregate principal
amount of Notes purchased in any single transaction. Notes with different
variable terms other than interest rates may also be offered concurrently to
different investors. Interest rates or formulas and other terms of Notes are
subject to change by the Operating Partnership from time to time, but no such
change will affect any Note previously issued or as to which an offer to
purchase has been accepted by the Operating Partnership.
Each Note will be issued as a Book-Entry Note represented by one or more
fully registered Global Securities or as a fully registered Certificated Note.
The minimum denominations of each Note other than a Foreign Currency Note will
be $1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement, while the minimum denominations of each Foreign
Currency Note will be specified in the applicable Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by the Operating Partnership through the Trustee
to the Depositary. See "-- Book-Entry Notes." In the case of Certificated Notes,
payment of principal and premium, if any, due on the Maturity Date will be made
in immediately available funds upon presentation and surrender thereof at the
office or agency maintained by the Operating Partnership for such purpose in the
Borough of Manhattan, The City of New York (or, in the case of any repayment on
an Optional Repayment Date, upon presentation of such Certificated Note and a
duly completed election form in accordance with the provisions described below),
currently the corporate trust office of the Trustee located initially at 55
Water Street, North Building, 2nd Floor, Room 234, New York, New York 10041.
Payment of interest due on the Maturity Date of each Certificated Note will be
made to the person to whom payment of the principal and premium, if any, shall
be made. Payment of interest due on each Certificated Note on any Interest
Payment Date (as hereinafter defined) other than the Maturity Date will be made
at the office or agency referred to above maintained by the Operating
Partnership for such purpose or, at the option of the Operating Partnership, may
be made by check mailed to the address of the Holder entitled thereto as such
address shall appear in the Security Register of the Operating Partnership.
Notwithstanding the foregoing, a Holder of $10,000,000 (or, if the Specified
Currency is other than United States dollars, the equivalent thereof in such
Specified Currency) or more in aggregate principal amount of Certificated Notes
(whether having identical or different terms and provisions) will be entitled to
receive interest payments, if any, on any Interest Payment Date other than the
Maturity Date by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received in writing by the Trustee not less
than 15 days prior to such Interest Payment Date. Any such wire transfer
instructions received by the Trustee shall remain in effect until revoked by
such Holder. For special payment terms applicable to Foreign Currency Notes, see
"Special Provisions Relating to Foreign Currency Notes -- Payment of Principal,
Premium, if any, and Interest, if any."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to Foreign Currency
Notes the payment of which is to be made in a currency or composite currency
other than United States dollars, such day is also not a day on which banking
institutions are authorized or required by law, regulation or executive order to
close in the Principal Financial Center (as hereinafter defined) of the country
issuing the Specified Currency (unless the Specified Currency is European
Currency Units ("ECU"), in which case such day is also not a day that appears as
an ECU non-settlement day on the display designated as "ISDE" on the Reuter
Monitor Money Rates Service (or is not a day designated as an ECU non-settlement
day by the ECU Banking
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<PAGE> 7
Association) or, if ECU non-settlement days do not appear on that page (and are
not so designated), a day that is not a day on which payments in ECU cannot be
settled in the international interbank market); provided, further, that, with
respect to Notes as to which LIBOR is an applicable Interest Rate Basis, such
day is also a London Business Day (as hereinafter defined). "London Business
Day" means any day on which dealings in the Designated LIBOR Currency (as
hereinafter defined) are transacted in the London interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency (except as described in the immediately preceding
paragraph with respect to ECU) or (ii) the capital city of the country to which
the Designated LIBOR Currency, if applicable, relates (or, in the case of ECU,
Luxembourg), except, in each case, that with respect to United States dollars,
Australian dollars, Canadian dollars, Deutsche marks, Dutch guilders, Italian
lire, Swiss francs and ECU's, the "Principal Financial Center" shall be The City
of New York, Sydney, Toronto, Frankfurt, Amsterdam, Milan (solely in the case of
clause (i) above) Zurich, and Luxembourg, respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "-- Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Operating Partnership for such purpose in the Borough of Manhattan, The City of
New York, currently the corporate trust office of the Trustee located at 55
Water Street, North Building, 2nd Floor, Room 234, New York, New York 10041. No
service charge will be made by the Operating Partnership or the Trustee for any
such registration of transfer or exchange of Notes, but the Operating
Partnership may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith (other than
exchanges pursuant to the Indenture not involving any transfer).
The defeasance and covenant defeasance provisions contained in the
Indenture shall apply to the Notes.
Notwithstanding any provisions described in this Prospectus Supplement to
the contrary, if a Note specifies that an Addendum is attached thereto or that
"Other/Additional Provisions" apply, such Note will be subject to the terms
specified in such Addendum or "Other/Additional Provisions," as the case may be,
and will be described in the applicable Pricing Supplement.
REDEMPTION AT THE OPTION OF THE OPERATING PARTNERSHIP
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Operating Partnership prior to the Stated Maturity Date only if an
Initial Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the
Operating Partnership on any date on and after the applicable Initial Redemption
Date in whole or from time to time in part in increments of $1,000 or such other
minimum denomination specified in such Pricing Supplement (provided that any
remaining principal amount thereof shall be at least $1,000 or such minimum
denomination), at the applicable Redemption Price (as hereinafter defined),
together with unpaid interest accrued thereon to the date of redemption, on
written notice given to the Holders thereof not more than 60 nor less than 30
calendar days prior to the date of redemption and in accordance with the
provisions of the Indenture. "Redemption Price", with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the applicable
Pricing Supplement (as adjusted by the Annual Redemption Percentage Reduction,
if applicable) multiplied by the unpaid principal amount to be redeemed. The
Initial Redemption Percentage, if any, applicable to a Note shall decline at
each anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the Redemption
Price is equal to 100% of the unpaid principal amount to be redeemed. For a
discussion of the redemption of Discount Notes, see "-- Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Operating Partnership at the option of
the Holders thereof prior to the Stated Maturity Date only if one or more
Optional Repayment Dates are specified in the applicable Pricing Supplement. If
so specified, the Notes will be subject to repayment at the option of the
Holders thereof on any
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Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued thereon to the date of repayment. For any Note to be repaid, such Note
must be received, together with the form thereon entitled "Option to Elect
Repayment" duly completed, by the Trustee at its office maintained for such
purpose in the Borough of Manhattan, The City of New York, currently the
corporate trust office of the Trustee located at 55 Water Street, North
Building, 2nd Floor, Room 234, New York, New York 10041 (or such other address
of which the Operating Partnership shall from time to time notify the Holders),
not more than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. For a
discussion of the repayment of Discount Notes, see "-- Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any portion
of the Book-Entry Notes represented by such Global Securities repaid must
instruct the Participant (as hereinafter defined) through which they own their
interest to direct the Depositary to exercise the repayment option on their
behalf by delivering the related Global Security and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Security
and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants from
Beneficial Owners of Global Securities relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "-- Book-Entry Notes."
If applicable, the Operating Partnership will comply with the requirements
of Section 14(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14e-1 of the rules promulgated thereunder, and any
other securities laws or regulations in connection with any such repayment.
The Operating Partnership may at any time purchase Notes at any price or
prices in the open market or otherwise. Notes so purchased by the Operating
Partnership may, at the discretion of the Operating Partnership, be held, resold
or surrendered to the Trustee for cancellation.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will be made in an amount equal to the interest accrued from and including
the immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment with
respect to the applicable Note) to but excluding the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as hereinafter defined)
and the related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified
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in the applicable Pricing Supplement, a "Record Date" shall be the fifteenth
calendar day (whether or not a Business Day) immediately preceding the related
Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement interest on
Fixed Rate Notes will be payable on May 15 and November 15 of each year (each,
an "Interest Payment Date" with respect to Fixed Rate Notes) and on the Maturity
Date. Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be computed on the basis of a 360-day year of twelve
30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day with the same force and effect as if made on the date such payment was due,
and no interest will accrue on such payment for the period from and after such
Interest Payment Date or the Maturity Date, as the case may be, to the date of
such payment on the next succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement, provided, however, that the interest rate in
effect on a Floating Rate Note for the period, if any, from the date of issue to
the first Interest Reset Date (as hereinafter defined) will be the Initial
Interest Rate; provided, further, that with respect to a Floating Rate/Fixed
Rate Note the interest rate in effect for the period commencing on the Fixed
Rate Commencement Date to the Maturity Date shall be the Fixed Interest Rate, if
such rate is specified in the applicable Pricing Supplement or, if no such Fixed
Interest Rate is specified, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date. The applicable Pricing
Supplement will specify certain terms with respect to which each Floating Rate
Note is being delivered, including: whether such Floating Rate Note is a
"Regular Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse
Floating Rate Note", the Fixed Rate Commencement Date, if applicable, Fixed
Interest Rate, if applicable, Interest Rate Basis or Bases, Initial Interest
Rate, if any, Initial Interest Reset Date, Interest Reset Dates, Interest
Payment Period and Dates, Index Maturity, Maximum Interest Rate and/or Minimum
Interest Rate, if any, and Spread and/or Spread Multiplier, if any, as such
terms are defined below. If one or more of the applicable Interest Rate Bases is
LIBOR or the CMT Rate, the applicable Pricing Supplement will also specify the
Designated LIBOR Currency, and Designated LIBOR Page or the Designated CMT
Maturity Index and Designated CMT Telerate Page, respectively, as such terms are
defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the applicable
Pricing Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing
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<PAGE> 10
on the Initial Interest Reset Date, the rate at which interest on such
Floating Rate/Fixed Rate Note shall be payable shall be reset as of each
Interest Reset Date; provided, however, that (y) the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate and (z) the interest
rate in effect for the period commencing on the Fixed Rate Commencement
Date to the Maturity Date shall be the Fixed Interest Rate, if such rate is
specified in the applicable Pricing Supplement or, if no such Fixed
Interest Rate is specified, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as hereinafter defined) immediately preceding
such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Business Day, such Interest Reset Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the
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<PAGE> 11
Eleventh District Cost of Funds Rate, which will be calculated on such Interest
Determination Date. The "Interest Determination Date" with respect to the CD
Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate and the
Prime Rate will be the second Business Day immediately preceding the applicable
Interest Reset Date; the "Interest Determination Date" with respect to the
Eleventh District Cost of Funds Rate will be the last working day of the month
immediately preceding the applicable Interest Reset Date on which the Federal
Home Loan Bank of San Francisco (the "FHLB of San Francisco") publishes the
Index (as hereinafter defined); and the "Interest Determination Date" with
respect to LIBOR will be the second London Business Day immediately preceding
the applicable Interest Reset Date, unless the Designated LIBOR Currency is
British pounds sterling, in which case the "Interest Determination Date" will be
the applicable Interest Reset Date. With respect to the Treasury Rate, the
"Interest Determination Date" will be the day in the week in which the
applicable Interest Reset Date falls on which day Treasury Bills (as hereinafter
defined) are normally auctioned (Treasury Bills are normally sold at an auction
held on Monday of each week, unless that day is a legal holiday, in which case
the auction is normally held on the following Tuesday, except that such auction
may be held on the preceding Friday); provided, however, that if an auction is
held on the Friday of the week preceding the applicable Interest Reset Date, the
"Interest Determination Date" will be such preceding Friday; provided, further,
that if the Interest Determination Date would otherwise fall on an Interest
Reset Date, then such Interest Reset Date will be postponed to the next
succeeding Business Day. The "Interest Determination Date" pertaining to a
Floating Rate Note the interest rate of which is determined by reference to two
or more Interest Rate Bases will be the most recent Business Day which is at
least two Business Days prior to the applicable Interest Reset Date for such
Floating Rate Note on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined as of such date, and the applicable
interest rate will take effect on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either or
both of the following: (i) a Maximum Interest Rate, or ceiling, that may accrue
during any Interest Period and (ii) a Minimum Interest Rate, or floor, that may
accrue during any Interest Period. In addition to any Maximum Interest Rate that
may apply to any Floating Rate Note, the interest rate on Floating Rate Notes
will in no event be higher than the maximum rate permitted by New York law, as
the same may be modified by United States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date" with respect to Floating Rate Notes) and, in each case, on the
Maturity Date. If any Interest Payment Date other than the Maturity Date for any
Floating Rate Note would otherwise be a day that is not a Business Day, such
Interest Payment Date will be postponed to the next succeeding Business Day,
except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on a
day that is not a Business Day, the required payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day with the same
force and effect as if made on the date such payment was due, and no interest
will accrue on such payment for the period from and after the Maturity Date to
the date of such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
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With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for Floating Rate Notes
for which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only the
applicable Interest Rate Basis specified in the applicable Pricing Supplement
applied.
Unless otherwise specified in the applicable Pricing Supplement, The Chase
Manhattan Bank will be the "Calculation Agent." Upon request of the Holder of
any Floating Rate Note, the Calculation Agent will disclose the interest rate
then in effect and, if determined, the interest rate that will become effective
as a result of a determination made for the next succeeding Interest Reset Date
with respect to such Floating Rate Note. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date," if applicable, pertaining
to any Interest Determination Date will be the earlier of (i) the tenth calendar
day after such Interest Determination Date or, if such day is not a Business
Day, the next succeeding Business Day or (ii) the Business Day immediately
preceding the applicable Interest Payment Date or the Maturity Date, as the case
may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent after consultation
with the Operating Partnership for negotiable United States dollar certificates
of deposit of major United States money market banks with a remaining maturity
closest to the Index Maturity specified in the applicable Pricing Supplement in
an amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed on
the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate
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Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the weekly or monthly average, as specified in the applicable Pricing
Supplement, for the week or the month, as applicable, ended immediately
preceding the week or the month, as applicable, in which the related CMT Rate
Interest Determination Date occurs. If such rate is no longer displayed on the
relevant page or is not displayed by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such CMT Rate Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers in
The City of New York (which may include the Agents or their affiliates) (each, a
"Reference Dealer") selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent after consultation with the Operating
Partnership and eliminating the highest quotation (or, in the event of quotation
equality, one of the highest) and the lowest quotation (or, in the event of
quotation equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such Treasury
Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from five
such Reference Dealers selected by the Calculation Agent after consultation with
the Operating Partnership and eliminating the highest quotation (or, in the
event of quotation equality, one of the highest) and the lowest quotation (or,
in the event of quotation equality, one of the lowest)), for Treasury Notes with
an original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100 million. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers so
selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate
determined as of such CMT Rate Interest Determination Date will be the CMT Rate
in effect on such CMT Rate Interest Determination Date. If two Treasury Notes
with an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the Calculation Agent will obtain quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on that service
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519)) for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519). If no such page is specified in the applicable Pricing
Supplement, the Designated CMT Telerate Page shall be 7052 for the most recent
week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which
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the CMT Rate will be calculated or, if no such maturity is specified in the
applicable Pricing Supplement, the Designated CMT Maturity Index shall be 2
years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the heading "Commercial Paper." In the event that such rate is not published by
3:00 P.M., New York City time, on the applicable Calculation Date, then the
Commercial Paper Rate on such Commercial Paper Rate Interest Determination Date
will be the Money Market Yield of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an Index
Maturity of 30 days or 90 days, respectively). If such rate is not yet published
in either H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on
the related Calculation Date, then the Commercial Paper Rate on such Commercial
Paper Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the offered
rates at approximately 11:00 A.M., New York City time, on such Commercial Paper
Rate Interest Determination Date of three leading dealers of commercial paper in
The City of New York (which may include the Agents or their affiliates) selected
by the Calculation Agent for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement placed for an industrial issuer
whose bond rating is "AA", or the equivalent, from a nationally recognized
statistical rating organization; provided, however, that if the dealers so
selected by the Calculation Agent after consultation with the Operating
Partnership are not quoting as mentioned in this sentence, the Commercial Paper
Rate determined as of such Commercial Paper Rate Interest Determination Date
will be the Commercial Paper Rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<S> <C> <C>
Money Market Yield = D x 360 x 100
---------
360 - (D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable Interest Period for which interest is being
calculated.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh
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District Cost of Funds Rate in effect on such Eleventh District Cost of Funds
Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent after consultation with the
Operating Partnership prior to 9:00 A.M., New York City time, on such Federal
Funds Rate Interest Determination Date; provided, however, that if the brokers
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate determined as of such Federal Funds Rate
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Designated LIBOR Currency having the
Index Maturity specified in such Pricing Supplement, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for
deposits in the Designated LIBOR Currency having the Index Maturity
specified in such Pricing Supplement, commencing on the applicable Interest
Reset Date, that appears on the Designated LIBOR Page as of 11:00 A.M.,
London time, on such LIBOR Interest Determination Date. If fewer than two
such offered rates so appear, or if no such rate so appears, as applicable,
LIBOR on such LIBOR Interest Determination Date will be determined in
accordance with the provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks (which may include affiliates of the Agents) in the
London interbank market, as selected by the Calculation Agent after
consultation with the Operating Partnership, to provide the Calculation
Agent with its offered quotation for deposits in the Designated LIBOR
Currency for the period of the Index Maturity specified in the applicable
Pricing Supplement, commencing on the applicable Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00 A.M.,
London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in the Designated
LIBOR Currency in such market at such time. If at least two such quotations
are so provided, then LIBOR on such LIBOR Interest Determination Date will
be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., in the applicable Principal Financial Center, on such LIBOR Interest
Determination Date by three major banks (which may include affiliates of
the Agents) in such Principal
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Financial Center selected by the Calculation Agent after consultation with
the Operating Partnership for loans in the Designated LIBOR Currency to
leading European banks, having the Index Maturity specified in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in the Designated LIBOR Currency in
such market at such time; provided, however, that if the banks so selected
by the Calculation Agent are not quoting as mentioned in this sentence,
LIBOR determined as of such LIBOR Interest Determination Date will be LIBOR
in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, the Designated LIBOR Currency shall be United
States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuters Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor service)
on the page specified in such Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate shall be the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent after consultation with the Operating Partnership. If fewer than four such
quotations are so provided, then the Prime Rate shall be the arithmetic mean of
four prime rates quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on such Prime Rate
Interest Determination Date as furnished in The City of New York by the major
money center banks, if any, that have provided such quotations and by a
reasonable number of substitute banks or trust companies (which may include
affiliates of the Agents) necessary in order to obtain four such prime rate
quotations, provided such substitute banks or trust companies are organized and
doing business under the laws of the United States, or any State thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by the
Calculation Agent after consultation with the Operating Partnership to provide
such rate or rates; provided, however, that if the banks or trust companies so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Prime Rate determined as of such Prime Rate Interest Determination Date will
be the Prime Rate in effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuters Monitor
Money Rates Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest
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rate is determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate from the auction held on such Treasury Rate
Interest Determination Date (the "Auction") of direct obligations of the United
States ("Treasury Bills") having the Index Maturity specified in the applicable
Pricing Supplement, as such rate is published in H.15(519) under the heading
"Treasury Bills -- auction average (investment)" or, if not published by 3:00
P.M., New York City time, on the related Calculation Date, the auction average
rate of such Treasury Bills (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the Auction of Treasury Bills having the Index
Maturity specified in the applicable Pricing Supplement are not reported as
provided by 3:00 P.M., New York City time, on the related Calculation Date, or
if no such Auction is held, then the Treasury Rate will be calculated by the
Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 P.M., New York City time, on such Treasury Rate Interest
Determination Date, of three leading primary United States government securities
dealers (which may include the Agents or their affiliates) selected by the
Calculation Agent after consultation with the Operating Partnership, for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
specified in the applicable Pricing Supplement; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any other
term relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
DISCOUNT NOTES
The Operating Partnership may offer Notes ("Discount Notes") from time to
time that have an Issue Price (as specified in the applicable Pricing
Supplement) that is less than 100% of the principal amount thereof (i.e. par) by
more than a percentage equal to the product of 0.25% and the number of full
years to the Stated Maturity Date. Discount Notes may not bear any interest
currently or may bear interest at a rate that is below market rates at the time
of issuance. The difference between the Issue Price of a Discount Note and par
is referred to herein as the "Discount." In the event of redemption, repayment
or acceleration of maturity of a Discount Note, the amount payable to the Holder
of such Discount Note will be equal to the sum of (i) the Issue Price (increased
by any accruals of Discount) and, in the event of any redemption of such
Discount Note (if applicable), multiplied by the Initial Redemption Percentage
(as adjusted by the Annual Redemption Percentage Reduction, if applicable) and
(ii) any unpaid interest accrued thereon to the date of such redemption,
repayment or acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method. The
constant yield will be calculated using a 30-day month, 360-day year convention,
a compounding period that, except for the Initial Period (as hereinafter
defined), corresponds to the shortest period between Interest Payment Dates for
the applicable Discount Note (with ratable accruals within a compounding
period), a coupon rate equal to the initial coupon rate applicable to such
Discount Note and an assumption that the maturity of such Discount Note will not
be accelerated. If the period from the date of issue to the initial Interest
Payment Date for a Discount Note (the "Initial Period") is shorter than the
compounding period for such Discount Note, a proportionate amount of the yield
for an entire compounding period will be accrued. If the Initial Period is
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longer than the compounding period, then such period will be divided into a
regular compounding period and a short period with the short period being
treated as provided in the preceding sentence. The accrual of the applicable
Discount may differ from the accrual of original issue discount for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), certain Discount
Notes may not be treated as having original issue discount within the meaning of
the Code, and Notes other than Discount Notes may be treated as issued with
original issue discount for federal income tax purposes. See "Certain United
States Federal Income Tax Considerations."
INDEXED NOTES
The Operating Partnership may from time to time offer Notes ("Indexed
Notes") with the amount of principal, premium and/or interest payable in respect
thereof to be determined with reference to the price or prices of specified
commodities or stocks, to the exchange rate of one or more designated currencies
(including a composite currency such as the ECU) relative to an indexed currency
or to other items, in each case as specified in the applicable Pricing
Supplement. In certain cases, Holders of Indexed Notes may receive a principal
payment on the Maturity Date that is greater than or less than the principal
amount of such Indexed Notes depending upon the relative value on the Maturity
Date of the specified indexed item. Information as to the method for determining
the amount of principal, premium, if any, and/or interest, if any, payable in
respect of Indexed Notes, certain historical information with respect to the
specified indexed item and any material tax considerations associated with an
investment in Indexed Notes will be specified in the applicable Pricing
Supplement. See also "Risk Factors."
AMORTIZING NOTES
The Operating Partnership may from time to time offer Notes ("Amortizing
Notes") with the amount of principal thereof and interest thereon payable in
installments over the term of such Notes. Unless otherwise specified in the
applicable Pricing Supplement, interest on each Amortizing Note will be computed
on the basis of a 360-day year of twelve 30-day months. Payments with respect to
Amortizing Notes will be applied first to interest due and payable thereon and
then to the reduction of the unpaid principal amount thereof. Further
information concerning additional terms and provisions of Amortizing Notes will
be specified in the applicable Pricing Supplement, including a table setting
forth repayment information for such Amortizing Notes.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit any Subsidiary (as defined below) to, incur any Debt (as defined
below), other than intercompany debt (representing Debt to which the only
parties are Simon DeBartolo Group, Inc. (the "Company"), the Operating
Partnership and any of their Subsidiaries (but only so long as such Debt is held
solely by any of the Company, the Operating Partnership and any Subsidiary) that
is subordinate in right of payment to the Notes), if, immediately after giving
effect to the incurrence of such additional Debt, the aggregate principal amount
of all outstanding Debt would be greater than 60% of the sum of (i) the
Operating Partnership's Adjusted Total Assets (as defined below) as of the end
of the fiscal quarter prior to the incurrence of such additional Debt and (ii)
any increase in Adjusted Total Assets from the end of such quarter including,
without limitation, any pro forma increase from the application of the proceeds
of such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, pledge, encumbrance or security interest of
any kind upon any of the property of the Operating Partnership or any Subsidiary
("Secured Debt"), whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such
additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt is greater than 55% of the sum of (i) the Operating Partnership's
Adjusted Total Assets as of the end of the fiscal quarter prior to the
incurrence of such additional Secured Debt and (ii) any increase in Adjusted
Total Assets from the end of such quarter including, without limitation, any pro
forma increase from the application of the proceeds of such additional Secured
Debt.
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In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Annualized EBITDA After Minority Interest to Interest
Expense (in each case as defined below) for the period consisting of the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Debt is to be incurred shall have been less than 1.75 to 1 on a pro
forma basis after giving effect to the incurrence of such Debt and to the
application of the proceeds therefrom, and calculated on the assumption that (i)
such Debt and any other Debt incurred since the first day of such four-quarter
period had been incurred, and the proceeds therefrom had been applied (to
whatever purposes such proceeds had been applied as of the date of calculation
of such ratio), at the beginning of such period, (ii) any other Debt that has
been repaid or retired since the first day of such four-quarter period had been
repaid or retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period),
(iii) any income earned as a result of any assets having been placed in service
since the end of such four-quarter period had been earned, on an annualized
basis, during such period, and (iv) in the case of any acquisition or
disposition by the Operating Partnership, any Subsidiary or any unconsolidated
joint venture in which the Operating Partnership or any Subsidiary owns an
interest, of any assets since the first day of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition and any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation.
For purposes of the foregoing provisions regarding the limitations on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Company, the
Operating Partnership, its Subsidiaries or by any unconsolidated joint venture,
whenever the Company, the Operating Partnership, any Subsidiary, or any
unconsolidated joint venture, as the case may be, shall create, assume,
guarantee or otherwise become liable in respect thereof.
Maintenance of Unencumbered Assets. The Operating Partnership is required
to maintain Unencumbered Assets (as defined below) of not less that 150% of the
aggregate outstanding principal amount of the Unsecured Debt (as defined below)
of the Operating Partnership.
As used herein:
"Adjusted Total Assets" as of any date means the sum of (i) the amount
determined by multiplying the sum of the shares of common stock of the Company
issued in the initial public offering of the Company ("IPO") and the units of
the Operating Partnership not held by the Company outstanding on the date of the
IPO, by $22.25 (the "IPO Price"), (ii) the principal amount of the outstanding
consolidated debt of the Company on the date of the IPO, less any portion
applicable to minority interests, (iii) the Operating Partnership's allocable
portion, based on its ownership interest, of outstanding indebtedness of
unconsolidated joint ventures on the date of the IPO, (iv) the purchase price or
cost of any real estate assets acquired (including the value, at the time of
such acquisition, of any units of the Operating Partnership or shares of common
stock of the Company issued in connection therewith) or developed after the IPO
by the Operating Partnership or any Subsidiary, less any portion attributable to
minority interests, plus the Operating Partnership's allocable portion, based on
its ownership interest, of the purchase price or cost of any real estate assets
acquired or developed after the IPO by any unconsolidated joint venture, (v) the
value of the Merger (as defined in the accompanying Prospectus) compiled as the
sum of (a) the purchase price including all related closing costs and (b) the
value of all outstanding indebtedness less any portion attributable to minority
interests, including the Operating Partnership's allocable share, based on its
ownership interest, of outstanding indebtedness of unconsolidated joint ventures
at the Merger Date (as defined in the accompanying Prospectus), and (vi) working
capital of the Operating Partnership; subject, however, to reduction by the
amount of the proceeds of any real estate assets disposed of after the IPO by
the Operating Partnership or any Subsidiary, less any portion applicable to
minority interests, and by the Operating Partnership's allocable portion, based
on its ownership interest, of the proceeds of any real estate assets disposed of
after the IPO by unconsolidated joint ventures.
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"Annualized EBITDA" means earnings before interest, taxes, depreciation and
amortization for all properties with other adjustments as are necessary to
exclude the effect of items classified as extraordinary items in accordance with
generally accepted accounting principles, adjusted to reflect the assumption
that (i) any income earned as a result of any assets having been placed in
service since the end of such period had been earned, on an annualized basis,
during such period, and (ii) in the case of any acquisition or disposition by
the Operating Partnership, any Subsidiary or any unconsolidated joint venture in
which the Operating Partnership or any Subsidiary owns an interest, of any
assets since the first day of such period, such acquisition or disposition and
any related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition.
"Annualized EBITDA After Minority Interest" means Annualized EBITDA after
distributions to third party joint venture partners.
"Debt" means any indebtedness of the Operating Partnership and its
Subsidiaries on a consolidated basis, less any portion attributable to minority
interests, plus the Operating Partnership's allocable portion, based on its
ownership interest, of indebtedness of unconsolidated joint ventures, in respect
of (i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, as determined in accordance with generally accepted accounting
principles, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Operating
Partnership or any Subsidiary directly, or indirectly through unconsolidated
joint ventures, as determined in accordance with generally accepted accounting
principles, (iii) reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property, except
any such balance that constitutes an accrued expense or trade payable, and (iv)
any lease of property by the Operating Partnership or any Subsidiary as lessee
which is reflected in the Operating Partnership's consolidated balance sheet as
a capitalized lease or any lease of property by an unconsolidated joint venture
as lessee which is reflected in such joint venture's balance sheet as a
capitalized lease, in each case, in accordance with generally accepted
accounting principles; provided, that Debt also includes, to the extent not
otherwise included, any obligation by the Operating Partnership or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise,
items of indebtedness of another person (other than the Operating Partnership or
any Subsidiary) described in clauses (i) through (iv) above (or, in the case of
any such obligation made jointly with another person, the Operating
Partnership's or Subsidiary's allocable portion of such obligation based on its
ownership interest in the related real estate assets).
"Interest Expense" includes the Operating Partnership's pro rata share of
joint venture interest expense and is reduced by amortization of debt issuance
costs.
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other entity, a majority of the outstanding voting stock,
partnership interests or membership interests, as the case may be, of which is
owned or controlled, directly or indirectly, by the Operating Partnership or by
one or more other Subsidiaries of the Operating Partnership and, for purposes of
this definition, shall include the Guarantor. For the purposes of this
definition, "voting stock" means stock having voting power for the election of
directors, or trustees, as the case may be, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Unencumbered Annualized EBITDA After Minority Interest" means Annualized
EBITDA After Minority Interest less any portion thereof attributable to assets
serving as collateral for Secured Debt.
"Unencumbered Assets" as of any date shall be equal to Adjusted Total
Assets as of such date multiplied by a fraction, the numerator of which is
Unencumbered Annualized EBITDA After Minority Interest and the denominator of
which is Annualized EBITDA After Minority Interest.
"Unsecured Debt" means Debt which is not secured by any mortgage, lien,
pledge, encumbrance or security interest of any kind.
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Reference is made to the section entitled "Description of Debt
Securities -- Certain Covenants" in the accompanying Prospectus for a
description of additional covenants applicable to the Notes. Compliance with the
covenants described herein and such additional covenants with respect to the
Notes generally may not be waived by the Board of Directors of the general
partners of the Operating Partnership, or by the Trustee unless the Holders of
at least a majority in principal amount of all outstanding Notes consent to such
waiver; provided, however, that the defeasance and covenant defeasance
provisions of the Indenture described under "Description of Debt
Securities -- Discharge" and "-- Defeasance and Covenant Defeasance" in the
accompanying Prospectus will apply to the Notes and the Guarantee, including
with respect to the covenants described in this Prospectus Supplement.
BOOK-ENTRY NOTES
The Operating Partnership has established a depositary arrangement with The
Depository Trust Company with respect to the Book-Entry Notes, the terms of
which are summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes of up to $200,000,000 aggregate
principal amount bearing interest (if any) at the same rate or pursuant to the
same formula and having the same date of issue, currency of denomination and
payment, Interest Payment Dates (if any), Stated Maturity Date, redemption
provisions (if any), repayment provisions (if any) and other terms will be
represented by a single Global Security. Each Global Security representing
Book-Entry Notes will be deposited with, or on behalf of, the Depositary and
will be registered in the name of the Depositary or a nominee of the Depositary.
No Global Security may be transferred except as a whole by a nominee of the
Depositary to the Depositary or to another nominee of the Depositary, or by the
Depositary or such nominee to a successor of the Depositary or a nominee of such
successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided below, the Beneficial Owners (as
defined below) of the Global Security or Securities representing Book-Entry
Notes will not be entitled to receive physical delivery of Certificated Notes
and will not be considered the Holders thereof for any purpose under the
Indenture, and no Global Security representing Book-Entry Notes shall be
exchangeable or transferable. Accordingly, each Beneficial Owner must rely on
the procedures of the Depositary and, if such Beneficial Owner is not a
Participant (as defined below), on the procedures of the Participant through
which such Beneficial Owner owns its interest in order to exercise any rights of
a Holder under such Global Security or the Indenture. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The above restrictions and
laws may impair the ability to transfer beneficial interests in a Global
Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depositary
notifies the Operating Partnership that it is unwilling or unable to continue as
Depositary for the Global Securities or the Operating Partnership becomes aware
that the Depositary has ceased to be a clearing agency registered under the
Exchange Act and, in any such case, the Operating Partnership shall not have
appointed a successor to the Depositary within 60 days thereafter, (ii) the
Operating Partnership, in its sole discretion, determines that the Global
Securities shall be exchangeable for Certificated Notes or (iii) an Event of
Default under the Indenture shall have occurred and be continuing with respect
to the Notes. Upon any such exchange, the Certificated Notes shall be registered
in the names of the Beneficial Owners of the Global Security or Securities
representing Book-Entry Notes, which names shall be provided by the Depositary's
relevant Participants (as identified by the Depositary) to the Trustee.
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The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership
nominee). One fully registered Global Security will be issued for each
issue of Book-Entry Notes, each in the aggregate principal amount of such
issue, and will be deposited with the Depositary. If, however, the
aggregate principal amount of any issue exceeds $200,000,000, one Global
Security will be issued with respect to each $200,000,000 of principal
amount and an additional Global Security will be issued with respect to any
remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depositary ("Direct Participants")
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be
made by or through Direct Participants, which will receive a credit for
such Book-Entry Notes on the Depositary's records. The ownership interest
of each actual purchaser of each Book-Entry Note represented by a Global
Security ("Beneficial Owner") is in turn to be recorded on the records of
Direct Participants and Indirect Participants. Beneficial Owners will not
receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners of a Global Security
representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except in the event that
use of the book-entry system for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depositary and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the
Depositary's records reflect only the identity of the Direct Participants
to whose accounts such Book-Entry Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
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Neither the Depositary nor Cede & Co. will consent or vote with
respect to the Global Securities representing the Book-Entry Notes. Under
its usual procedures, the Depositary mails an Omnibus Proxy to the
Operating Partnership as soon as possible after the applicable record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Book-Entry Notes are credited on
the applicable record date (identified in a listing attached to the Omnibus
Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Global Securities representing the Book-Entry Notes will be made in
immediately available funds to the Depositary. The Depositary's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
Participant and not of the Depositary, the Trustee or the Operating
Partnership, subject to any statutory or regulatory requirements as may be
in effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to the Depositary is the responsibility of the Operating
Partnership and the Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct Participants and Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being
redeemed, the Depositary's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any election to have its
Book-Entry Notes repaid by the Operating Partnership, through its
Participant, to the Trustee, and shall effect delivery of such Book-Entry
Notes by causing the Direct Participant to transfer the Participant's
interest in the Global Security or Securities representing such Book-Entry
Notes, on the Depositary's records, to the Trustee. The requirement for
physical delivery of Book-Entry Notes in connection with a demand for
repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Book-Entry Notes are transferred
by Direct Participants on the Depositary's records.
The Depositary may discontinue providing its services as securities
depository with respect to the BookEntry Notes at any time by giving
reasonable notice to the Operating Partnership or the Trustee. Under such
circumstances, in the event that a successor securities depository is not
obtained, Certificated Notes are required to be printed and delivered.
The Operating Partnership may decide to discontinue use of the system
of book-entry transfers through the Depositary (or a successor securities
depository). In that event, Certificated Notes will be printed and
delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Operating
Partnership believes to be reliable, but the Operating Partnership takes no
responsibility for the accuracy thereof.
THE GUARANTEE
The Guarantor will guarantee (the "Guarantee") the due and punctual payment
of principal of, premium, if any, interest on, and any other amounts payable
with respect to, the Notes, when and as the same shall become due and payable,
whether at a maturity date, on redemption, by declaration of acceleration, or
otherwise, in accordance with the terms of the Notes and the Indenture. Pursuant
to the Indenture, (i) the Trustee may exercise its rights thereunder on behalf
of the Holders and (ii) the Guarantor has agreed that it shall take no action
which would cause the Operating Partnership to violate any covenant or agreement
under
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the Indenture. The Guarantee will terminate upon the consummation of the
reorganizational transactions pursuant to which the Operating Partnership is
expected to own directly all of the assets and partnership interests then owned
by the Guarantor. However, there can be no assurance that such reorganizational
transactions will be so effected. See "The Operating Partnership" in the
accompanying Prospectus. No partner (whether limited or general) of the
Guarantor will have any liability for any obligations of the Guarantor under the
Guarantee.
Except as provided by the Guarantee, Holders of the Notes will have no
claims, with respect to any payments in connection with the Notes, against the
assets of any Subsidiary of the Operating Partnership. Any such claim that such
Holders may make will have to be made indirectly through the equity interest
that the Operating Partnership has in its Subsidiaries, and will thus be
structurally subordinated to the claims of creditors of the Subsidiaries. As a
result of the Guarantee, Holders of the Notes, upon exercising their rights with
respect to the Guarantee against the Guarantor, will be considered creditors of
the Guarantor and their claims will rank pari passu with those of other
unsecured and unsubordinated creditors of the Guarantor and will not be
structurally subordinated to such creditors.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing the
applicable currency. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States residents and, with
respect to Foreign Currency Notes, is by necessity incomplete. The Operating
Partnership and the Agents disclaim any responsibility to advise prospective
purchasers who are residents of countries other than the United States with
respect to any matters that may affect the purchase, holding or receipt of
payments of principal of, and premium, if any, and interest, if any, on, Foreign
Currency Notes. Such persons should consult their own financial and legal
advisors with regard to such matters. See "Risk Factors -- Exchange Rates and
Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IF ANY
Unless otherwise specified in the applicable Pricing Supplement, the
Operating Partnership is obligated to make payments of principal of, and
premium, if any, and interest, if any, on, a Foreign Currency Note in the
Specified Currency (or, if such Specified Currency is not at the time of such
payment legal tender for the payment of public and private debts, in such other
coin or currency of the country which issued such Specified Currency as at the
time of such payment is legal tender for the payment of such debts). Any such
amounts payable by the Operating Partnership in the Specified Currency will be
converted by the exchange rate agent named in the applicable Pricing Supplement
(the "Exchange Rate Agent") into United States dollars for payment to Holders
unless otherwise specified below or in the applicable Pricing Supplement or
unless the Holder of such Foreign Currency Note elects, in the manner
hereinafter described, to receive such amounts in the Specified Currency.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by the Operating
Partnership for the purchase by the quoting dealer of the Specified Currency for
United States dollars for settlement on such payment date in the aggregate
amount of such Specified Currency payable to all Holders of Foreign Currency
Notes scheduled to receive United States dollar payments and at which the
applicable dealer commits to execute a contract. All currency exchange costs
will be borne by the Holders of such Foreign Currency Notes by deductions from
such payments. If three such bid quotations are not available, payments will be
made in the Specified Currency
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unless the Specified Currency is not available due to the imposition of exchange
controls or other circumstances beyond the control of the Operating Partnership.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of any payment of principal, premium, if any, and/or interest, if any,
in the Specified Currency by submitting a written request for such payment to
the Trustee at its corporate trust office in The City of New York on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be. Such written request may be mailed or hand
delivered or sent by facsimile transmission. Holders of Foreign Currency Notes
may elect to receive all or a specified portion of all future payments in the
Specified Currency and need not file a separate election for each payment. Such
election will remain in effect until revoked by written notice to the Trustee,
but written notice of any such revocation must be received by the Trustee on or
prior to the applicable Record Date or at least fifteen calendar days prior to
the Maturity Date, as the case may be. Holders of Foreign Currency Notes to be
held in the name of a broker or nominee should contact such broker or nominee to
determine whether and how an election to receive payments in the Specified
Currency may be made.
Unless otherwise specified in the applicable Pricing Supplement, if the
Specified Currency is other than United States dollars, a Beneficial Owner of
the related Global Security or Securities which elects to receive payments of
principal, premium, if any, and/or interest, if any, in the Specified Currency
must notify the Participant through which it owns its interest on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the Depositary of such election on or prior to the third
Business Day after such Record Date or at least twelve calendar days prior to
the Maturity Date, as the case may be, and the Depositary will notify the
Trustee of such election on or prior to the fifth Business Day after such Record
Date or at least ten calendar days prior to the Maturity Date, as the case may
be. If complete instructions are received by the Participant from the Beneficial
Owner and forwarded by the Participant to the Depositary, and by the Depositary
to the Trustee, on or prior to such dates, then such Beneficial Owner will
receive payments in the Specified Currency.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Foreign Currency Notes which are to be made in United States dollars will be
made in the manner specified herein with respect to Notes denominated in United
States dollars. See "Description of Notes -- General." Payments of interest, if
any, on Foreign Currency Notes which are to be made in the Specified Currency on
an Interest Payment Date other than the Maturity Date will be made by check
mailed to the address of the Holders of such Foreign Currency Notes as they
appear in the Security Register, subject to the right to receive such interest
payments by wire transfer of immediately available funds under the circumstances
described under "Description of Notes -- General." Payments of principal of, and
premium, if any, and/or interest, if any, on, Foreign Currency Notes which are
to be made in the Specified Currency on the Maturity Date will be made by wire
transfer of immediately available funds to an account with a bank designated at
least fifteen calendar days prior to the Maturity Date by each Holder thereof,
provided that such bank has appropriate facilities therefor and that the
applicable Foreign Currency Note is presented and surrendered at the office or
agency maintained by the Operating Partnership for such purpose in the Borough
of Manhattan, The City of New York, currently the corporate trust office of the
Trustee located at 55 Water Street, North Building, 2nd Floor, Room 234, New
York, New York 10041, in time for the Trustee to make such payments in such
funds in accordance with its normal procedures.
AVAILABILITY OF SPECIFIED CURRENCY
Except as set forth below, if the Specified Currency for a Foreign Currency
Note is not available for the required payment of principal, premium, if any,
and/or interest, if any, in respect thereof due to the imposition of exchange
controls or other circumstances beyond the control of the Operating Partnership,
the Operating Partnership will be entitled to satisfy its obligations to the
Holder of such Foreign Currency Note by making such payment in United States
dollars on the basis of the Market Exchange Rate (as defined below), computed by
the Exchange Rate Agent, on the second Business Day prior to such payment or, if
such Market
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Exchange Rate is not then available, on the basis of the most recently available
Market Exchange Rate, or as otherwise specified in the applicable Pricing
Supplement.
If the Specified Currency for a Foreign Currency Note is a composite
currency that is not available for the required payment of principal, premium,
if any, and/or interest, if any, in respect thereof due to the imposition of
exchange controls or other circumstances beyond the control of the Operating
Partnership, the Operating Partnership will be entitled to satisfy its
obligations to the Holder of such Foreign Currency Note by making such payment
in United States dollars on the basis of the equivalent of the composite
currency in United States dollars. The component currencies of the composite
currency for this purpose (the "Component Currencies") shall be the currency
amounts that were components of the composite currency as of the last day on
which the composite currency was used. The equivalent of the composite currency
in United States dollars shall be calculated by aggregating the United States
dollar equivalents of the Component Currencies. The United States dollar
equivalent of each of the Component Currencies shall be determined by the
Exchange Rate Agent on the basis of the Market Exchange Rate on the second
Business Day prior to the required payment or, if such Market Exchange Rate is
not then available, on the basis of the most recently available Market Exchange
Rate for each such Component Currency, or as otherwise specified in the
applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The "Market Exchange Rate" for a Specified Currency other than United
States dollars means the noon dollar buying rate in The City of New York for
cable transfers for such Specified Currency as certified for customs purposes
(or, if not so certified, as otherwise determined) by the Federal Reserve Bank
of New York. Any payment made in United States dollars under such circumstances
where the required payment is in a Specified Currency other than United States
dollars will not constitute an Event of Default under the Indenture with respect
to the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Foreign Currency
Notes.
JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Foreign Currency Notes only in United States
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into United States dollars would be determined with reference to
the date of default, the date of entry of the judgment or some other date. Under
current New York law, a state court in the State of New York rendering a
judgment in respect of a Foreign Currency Note would be required to render such
judgment in the Specified Currency, and such foreign currency judgment would be
converted into United States dollars at the exchange rate prevailing on the date
of entry of such judgment. Accordingly, the Holder of such Foreign Currency Note
would be subject to exchange rate fluctuations between the date of entry of such
foreign currency judgment and the time the amount of such foreign currency
judgment is paid to such Holder in United States dollars and converted by such
Holder into the Specified Currency. It is not certain, however, whether a
non-New York state court would follow the same rules and procedures with respect
to conversions of foreign currency judgments.
The Operating Partnership will indemnify the Holder of any Note against any
loss incurred by such Holder as a result of any judgment or order being given or
made for any amount due under such Note and
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such judgment or order requiring payment in a currency or composite currency
(the "Judgment Currency") other than the Specified Currency, and as a result of
any variation between (i) the rate of exchange at which the Specified Currency
amount is converted into the Judgment Currency for the purpose of such judgment
or order, and (ii) the rate of exchange at which the Holder of such Note, on the
date of payment of such judgment or order, is able to purchase the Specified
Currency with the amount of the Judgment Currency actually received by such
Holder, as the case may be.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest
Payments of interest on a Note generally will be taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting).
Original Issue Discount
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). The following summary is based upon final Treasury regulations
(the "OID Regulations") released by the Internal Revenue Service ("IRS") on
January 27, 1994, as amended on June 11, 1996, under the original issue discount
provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that
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is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually at a single fixed rate or "qualified floating
rate" as discussed below. In addition, under the OID Regulations, if a Note
bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates or
interest holidays), and if the greater of either the resulting foregone interest
on such Note or any "true" discount on such Note (i.e., the excess of the Note's
stated principal amount over its issue price) equals or exceeds a specified de
minimis amount, then the stated interest payments on the Note would not be
treated as qualified stated interest payments.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States Federal
income tax purposes as it accrues under a constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of tax accounting. In general, the amount of
original issue discount included in income by the initial U.S. Holder of an
Original Issue Discount Note is the sum of the daily portions of original issue
discount with respect to such Original Issue Discount Note for each day during
the taxable year (or portion of the taxable year) on which such U.S. Holder held
such Original Issue Discount Note. The "daily portion" of original issue
discount on any Original Issue Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Original Issue Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period) and (ii) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of an
Original Issue Discount Note at the beginning of any accrual period is the sum
of the issue price of the Original Issue Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such Original Issue Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the Original Issue Discount Note)
will be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified de minimis amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate
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equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35, increased or decreased by a fixed rate,
will also constitute a qualified floating rate. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Note (e.g., two or more qualified floating rates with values within 25
basis points of each other as determined on the Variable Note's issue date) will
be treated as a single qualified floating rate. Notwithstanding the foregoing, a
variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a maximum numerical
limitation (i.e., a cap) or a minimum numerical limitation (i.e., a floor) may,
under certain circumstances, fail to be treated as a qualified floating rate
under the OID Regulations unless such cap or floor is fixed throughout the term
of the Note. An "objective rate" is a rate that is not itself a qualified
floating rate but which is determined using a single fixed formula and which is
based upon objective financial or economic information. A rate will not qualify
as an objective rate if it is based on information that is within the control of
the issuer (or a related party) or that is unique to the circumstances of the
issuer (or a related party), such as dividends, profits or the value of the
issuer's stock (although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the issuer). Despite the foregoing,
a variable rate of interest on a Variable Note will not constitute an objective
rate if it is reasonably expected that the average value of such rate during the
first half of the Variable Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Variable Note's term. A "qualified inverse floating rate" is any
objective rate where such rate is equal to a fixed rate minus a qualified
floating rate, as long as variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate. The
OID Regulations also provide that if a Variable Note provides for stated
interest at a fixed rate for an initial period of one year or less followed by a
variable rate that is either a qualified floating rate or an objective rate and
if the variable rate on the Variable Note's issue date is intended to
approximate the fixed rate (e.g., the value of the variable rate on the issue
date does not differ from the value of the fixed rate by more than 25 basis
points), then the fixed rate and the variable rate together will constitute
either a single qualified floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and if
interest on such Note is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually, then all stated interest on
such Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a de minimis
amount as discussed above. The amount of qualified stated interest and the
amount of original issue discount, if any, that accrues during an accrual period
on such Variable Note is determined under the rules applicable to fixed rate
debt instruments by assuming that the variable rate is a fixed rate equal to (i)
in the case of a qualified floating rate or qualified inverse floating rate, the
value as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (ii) in the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note. The qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
during the accrual period pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt
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instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Variable Note provides for a qualified
inverse floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. U.S. Holders should be aware that on June
11, 1996 the Treasury Department issued final regulations (the "CPDI
Regulations") concerning the proper United States Federal income tax treatment
of contingent payment debt instruments. In general, the CPDI Regulations cause
the timing and character of income, gain or loss reported on a contingent
payment debt instrument to substantially differ from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of prior United States Federal income tax law. Specifically,
the CPDI Regulations generally require a U.S. Holder of such an instrument to
include contingent and noncontingent interest payments in income as such
interest accrues based upon a projected payment schedule. Moreover, in general,
under the CPDI Regulations, any gain recognized by a U.S. Holder on the sale,
exchange, or retirement of a contingent payment debt instrument will be treated
as ordinary income and all or a portion of any loss realized could be treated as
ordinary loss as opposed to capital loss (depending upon the circumstances). The
proper United States Federal income tax treatment of Variable Notes that are
treated as contingent payment debt obligations will be more fully described in
the applicable Pricing Supplement. Furthermore, any other special United States
Federal income tax considerations, not otherwise discussed herein, which are
applicable to any particular issue of Notes will be discussed in the applicable
Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Operating
Partnership prior to their stated maturity (a "call option") and/or (ii) may be
repayable at the option of the holder prior to their stated maturity (a "put
option"). Notes containing such features may be subject to rules that differ
from the general rules discussed above. Investors intending to purchase Notes
with such features should consult their own tax advisors, since the original
issue discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
The OID Regulations contain certain special rules that generally allow any
reasonable method to be used in determining the amount of original issue
discount allocable to a short initial accrual period (if all other accrual
periods are of equal length) and require that the amount of original issue
discount allocable to the final accrual period equal the excess of the amount
payable at the maturity of the Original Issue Discount Note
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(other than any payment of qualified stated interest) over the Original Issue
Discount Note's adjusted issue price as of the beginning of such final accrual
period. In addition, if an interval between payments of qualified stated
interest on an Original Issue Discount Note contains more than one accrual
period, then the amount of qualified stated interest payable at the end of such
interval is allocated pro rata (on the basis of their relative lengths) between
the accrual periods contained in the interval.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount equal to the
excess of the stated redemption price at maturity on the short-term Note over
the taxpayer's basis in such obligation. In general, an individual or other cash
method U.S. Holder is not required to accrue such original issue discount unless
the U.S. Holder elects to do so. If such an election is not made, any gain
recognized by the U.S. Holder on the sale, exchange or maturity of the Short-
Term Note will be ordinary income to the extent of the original issue discount
accrued on a straight-line basis, or upon election under the constant yield
method (based on daily compounding), through the date of sale or maturity, and a
portion of the deductions otherwise allowable to the U.S. Holder for interest on
borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income for
United States Federal income tax purposes under the accrual method, and certain
other holders including banks and dealers in securities, are required to accrue
original issue discount on a Short-Term Note on a straight-line basis unless an
election is made to accrue the original issue discount under a constant yield
method (based on daily compounding).
Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an Original Issue Discount Note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of an Original Issue Discount
Note, any payment that does not constitute qualified stated interest) on, or any
gain realized on the sale, exchange, retirement or other disposition of, a Note
as ordinary income to the extent of the lesser of (i) the amount of such payment
or realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time of
such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on the basis
of semiannual compounding. Once made, with respect to a Note, such election is
irrevocable with respect to that Note.
A U.S. Holder may be required to defer the deduction of a portion of the
interest paid or accrued on any indebtedness incurred or maintained to purchase
or carry a Note with market discount until the maturity of the Note or certain
earlier dispositions, because a current deduction is only allowed to the extent
of the amount of income included in gross income with respect to the Note plus
the amount by which any remaining interest expense exceeds an allocable portion
of market discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the first taxable year to which such election applies and may be revoked
only with the consent of the IRS.
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Premium
If a U.S. Holder purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium. Any election to
amortize bond premium applies to all taxable debt instruments then owned and
thereafter acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a
Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
such Note. Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, "Foreign Currency" means a currency or composite currency
other than U.S. dollars.
Payments of Interest in a Foreign Currency
CASH METHOD. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of interest
on a Note (other than original issue discount or market discount) will be
required to include in income the U.S. dollar value of the Foreign Currency
payment (determined on the date such payment is received) regardless of whether
the payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the U.S. Holder's tax basis in such Foreign Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting
for United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the U.S.
dollar value of the amount of interest income (including original issue discount
or market discount and reduced by amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Note during an accrual period. The U.S. dollar value of such
accrued income will be determined by translating such income at the average rate
of exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. A U.S. Holder may elect, however, to translate such accrued
interest income using the rate of exchange on the last day of the accrual period
or, with respect to an accrual period that spans two taxable years, using the
rate of exchange on the last day of the taxable year. If the last day of an
accrual period is within five business days of the date of receipt of the
accrued interest, a U.S. Holder may translate such interest using the rate of
exchange on the date of receipt. The above election will apply to other debt
obligations held by the U.S. Holder and may not be changed without the consent
of the IRS. A U.S. Holder should consult a tax advisor before making the above
election. A U.S. Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if
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any, between the U.S. dollar value of the Foreign Currency payment received
(determined on the date such payment is received) in respect of such accrual
period and the U.S. dollar value of interest income that has accrued during such
accrual period (as determined above).
Purchase, Sale and Retirement of Notes
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Note,
determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income) and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year. To
the extent the amount realized represents accrued but unpaid interest, however,
such amounts must be taken into account as interest income, with exchange gain
or loss computed as described in "Payments of Interest in a Foreign Currency"
above. If a U.S. Holder receives Foreign Currency on such a sale, exchange or
retirement the amount realized will be based on the U.S. dollar value of the
Foreign Currency on the date the payment is received or the Note is disposed of
(or deemed disposed of as a result of a material change in the terms of such
Note). In the case of a Note that is denominated in Foreign Currency and is
traded on an established securities market, a cash basis U.S. Holder (or, upon
election, an accrual basis U.S. Holder) will determine the U.S. dollar value of
the amount realized by translating the Foreign Currency payment at the spot rate
of exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Note will equal the cost of the Note to such holder, increased by the
amounts of any market discount or original issue discount previously included in
income by the holder with respect to such Note and reduced by any amortized
acquisition or other premium and any principal payments received by the holder.
A U.S. Holder's tax basis in a Note, and the amount of any subsequent
adjustments to such holder's tax basis, will be the U.S. dollar value of the
Foreign Currency amount paid for such Note, or of the Foreign Currency amount of
the adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date such payment is received or the Note is disposed
of, and the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date the U.S. Holder acquired the Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain or
loss realized by the U.S. Holder on the sale, exchange or retirement of the
Note.
Original Issue Discount
In the case of an Original Issue Discount Note or Short-Term Note, (i)
original issue discount is determined in units of the Foreign Currency, (ii)
accrued original issue discount is translated into U.S. dollars as described in
"Payments of Interest in a Foreign Currency -- Accrual Method" above and (iii)
the amount of Foreign Currency gain or loss on the accrued original issue
discount is determined by comparing the amount of income received attributable
to the discount (either upon payment, maturity or an earlier disposition), as
translated into U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as translated
above.
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Premium and Market Discount
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount taken
into account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued market
discount required to be taken into account currently) is translated into U.S.
dollars at the exchange rate on such disposition date (and no part of such
accrued market discount is treated as exchange gain or loss) and (iii) accrued
market discount currently includable in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange rate
in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note in the manner described in
"Payments of Interest in a Foreign Currency -- Accrual Method" above with
respect to computation of exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium
is determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the U.S. dollar
value of the bond premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and the U.S. dollar
value of the bond premium determined on the date of the acquisition of the Note.
Exchange of Foreign Currencies
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Operating Partnership, a controlled foreign
corporation related to the Operating Partnership or a bank receiving interest
described in section 881(c)(3)(A) of the Code. To qualify for the exemption from
taxation, the last United States payor in the chain of payment prior to payment
to a non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the Note under penalties of perjury, (ii) certifies that such owner is not a
U.S. Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includable in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Operating Partnership or, at the time of such individual's death,
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payments in respect of the Notes would have been effectively connected with the
conduct by such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Operating
Partnership to or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Chase Securities Inc., Lehman Brothers
Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated,
NationsBanc Capital Markets, Inc., Salomon Brothers Inc and UBS Securities LLC
(the "Agents"). The Agents, individually or in a syndicate, may purchase Notes,
as principal, from the Operating Partnership from time to time for resale to
investors and other purchasers at varying prices relating to prevailing market
prices at the time of resale as determined by the applicable Agent or, if so
specified in the applicable Pricing Supplement, for resale at a fixed offering
price. If agreed to by the Operating Partnership and an Agent, such Agent may
also utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Operating Partnership will
pay a commission to an Agent, ranging from .125% to .750% of the principal
amount of each Note, depending upon its stated maturity, sold through such Agent
as an agent of the Operating Partnership. Commissions with respect to Notes with
stated maturities in excess of 30 years that are sold through an Agent as an
agent of the Operating Partnership will be negotiated between the Operating
Partnership and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Operating
Partnership as principal to certain dealers less a concession equal to all or
any portion of the discount received in connection with such purchase. Such
Agent may allow, and such dealers may reallow, a discount to certain other
dealers. After the initial offering of Notes, the offering price (in the case of
Notes to be resold on a fixed offering price basis), the concession and the
reallowance may be changed.
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The Operating Partnership has reserved the right to sell the Notes through
one or more other agents or to other persons as principal. In any such events,
the names of the other agents or principals will be set forth in the applicable
Pricing Supplement.
The Operating Partnership reserves the right to withdraw, cancel or modify
the offer made hereby without notice and may reject offers in whole or in part
(whether placed directly with the Operating Partnership or through an Agent).
Each Agent will have the right, in its discretion reasonably exercised, to
reject in whole or in part any offer to purchase Notes received by it on an
agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date of
settlement. See "Description of Notes -- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the Agents to bid for and
purchase Notes. As an exception to these rules, the Agents are permitted to
engage in certain transactions that stabilize the price of the Notes. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Notes.
If the Agents create a short position in the Notes in connection with the
offering, (i.e., if they sell more Notes than are set forth on the cover page of
this Prospectus Supplement), they may reduce that short position by purchasing
Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
The Agents also may impose a penalty bid on certain Agents. This means that
if the Agents purchase Notes in the open market to reduce the Agents' short
position or to stabilize the price of the Notes, they may reclaim the amount of
the selling concession from the Agents who sold those Notes as part of the
offering.
Neither the Operating Partnership nor any of the Agents makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Operating Partnership nor any of the Agents makes any
representation that the Agents will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Operating
Partnership and certain of its affiliates have agreed to indemnify the Agents
against, and to provide contribution with respect to, certain liabilities
(including liabilities under the Securities Act). The Operating Partnership has
agreed to reimburse the Agents for certain other expenses.
Merrill Lynch and certain of the other Agents have, from time to time,
provided, and may continue to provide in the future, various investing banking,
commercial banking and/or financial advisory services to Simon DeBartolo Group,
Inc. (the "Company"), the Operating Partnership, the Guarantor and certain of
their affiliates, for which certain customary compensation has been, and will
be, received. Merrill Lynch has acted as representative of various underwriters
in connection with public offerings of the Company's Common Stock and Preferred
Stock in 1993, 1995 and 1996 and of the Operating Partnership's Debt Securities
in 1996. Also, in connection with the Merger (as defined in the accompanying
Prospectus), the Company has agreed to pay Merrill Lynch a fee of approximately
$4 million for financial advisory services provided by Merrill Lynch
S-36
<PAGE> 37
and Morgan Stanley & Co. Incorporated ("Morgan Stanley") was paid a fee of
approximately $3.875 million by DeBartolo Realty Corporation ("DRC") for
financial advisory services provided to DRC by Morgan Stanley. The Chase
Manhattan Bank, which serves as the Trustee and the Calculation Agent, is an
affiliate of Chase Securities Inc., one of the Agents. Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Securities Inc., one of the
Agents, The Chase Manhattan Bank, an affiliate of Chase Securities Inc., one of
the Agents, and Union Bank of Switzerland, New York Branch, an affiliate of UBS
Securities LLC, one of the Agents, are lead agents and lenders under the
Operating Partnership's and the Guarantor's $750 million unsecured, three-year
credit facility.
From time to time, the Operating Partnership may issue and sell other Debt
Securities described in the accompanying Prospectus, and the amount of Notes
offered hereby is subject to reduction as a result of such sales.
LEGAL MATTERS
The legality of the Notes offered hereby and the description of Federal
income tax matters contained in this Prospectus Supplement will be passed upon
for the Operating Partnership by Baker & Daniels, Indianapolis, Indiana. Certain
legal matters will be passed upon for the Agents by Rogers & Wells, New York,
New York. Baker & Daniels and Rogers & Wells will rely on (i) the opinions of
Piper & Marbury, LLP, Baltimore, Maryland, as to matters of Maryland law and
(ii) the opinions of Vorys, Sater, Seymour and Pease, Columbus, Ohio, as to
matters of Ohio law.
S-37
<PAGE> 38
PROSPECTUS
$750,000,000
SIMON DEBARTOLO GROUP, L.P.
DEBT SECURITIES
------------------------
Simon DeBartolo Group, L.P. (the "Operating Partnership") may from time to
time offer in one or more series unsecured non-convertible investment grade debt
securities ("Debt Securities") with an aggregate public offering price of up to
$750,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be set forth in one
or more supplements to this Prospectus (each a "Prospectus Supplement"). The
Operating Partnership is a subsidiary of Simon DeBartolo Group, Inc. (the
"Company") and is the Company's primary operating partnership following the
consummation on August 9, 1996 of the merger of DeBartolo Realty Corporation
with a subsidiary of the Company. Simon Property Group, L.P., a Delaware limited
partnership and a subsidiary partnership of the Operating Partnership, will
guarantee (the "Guarantee") the due and punctual payment of the principal of,
premium, if any, interest on, and any other amounts payable with respect to, the
Debt Securities, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise, and
as set forth in the applicable Prospectus Supplement with respect to such Debt
Securities.
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include a specific title, aggregate principal amount,
currency, form (which may be registered or bearer, or certificated or global),
authorized denominations, maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, covenants and any initial public offering price.
The applicable Prospectus Supplement will also contain information, where
applicable, concerning material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Debt Securities
covered by such Prospectus Supplement.
The Debt Securities may be offered directly, through agents designated from
time to time by the Operating Partnership, or to and through underwriters or
dealers. If any agents, dealers or underwriters are involved in the sale of any
of the Debt Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Debt Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such series of Debt Securities.
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will, unless otherwise described in the applicable Prospectus
Supplement, rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. On September 30, 1996, the total
outstanding debt of the Operating Partnership including its pro rata share of
joint venture debt was approximately $3,986.3 million, 92% of which was secured
debt. Except as otherwise described in the applicable Prospectus Supplement, the
Indenture pursuant to which the Debt Securities are issued does not limit the
amount of other indebtedness of the Operating Partnership that may rank equally
with or senior to the Debt Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is November 21, 1996.
<PAGE> 39
AVAILABLE INFORMATION
Simon DeBartolo Group, Inc. (the "Company") is the holder of approximately
a 99.99% interest in SD Property Group, Inc., which is the managing general
partner of the Operating Partnership. Simon Property Group, L.P. ("SPG, LP") is
a subsidiary partnership of the Operating Partnership. The Company is the
general partner of SPG, LP. The Company and SPG, LP are and, following the
effectiveness of the registration statement of which this Prospectus is a part,
the Operating Partnership will be, subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, the Company and SPG, LP file and the Operating Partnership
may be required to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company and SPG, LP can be
inspected and copied, at the prescribed rates, at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 W.
Madison Street, Chicago, Illinois 60661. The Company's Common Stock is traded on
the New York Stock Exchange ("NYSE"). Reports and other information concerning
the Company may be inspected at the principal office of the NYSE at 20 Broad
Street, New York, New York 10005.
The Company, SPG, LP and the Operating Partnership will provide without
charge to each person to whom a copy of this Prospectus is delivered, upon
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents). Written requests
for such copies should be addressed to National City Center, 115 West Washington
Street, Suite 15 East, Indianapolis, Indiana 46204, Attn: Investor Relations,
telephone number (317) 685-7330.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Operating Partnership and SPG, LP
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Debt Securities offered hereby. This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto, in accordance with the rules
and regulations of the Commission. For further information concerning the
Operating Partnership, SPG, LP and the Debt Securities offered hereby, reference
is hereby made to the Registration Statement and the exhibits and schedules
filed therewith, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of which
may be obtained from the Commission at prescribed rates. The Commission
maintains a World Wide Web Site (http://www.sec.gov) that contains such material
regarding issuers that file electronically with the Commission. This
Registration Statement has been so filed and may be obtained at such site. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
Certain information, including, but not limited to, information relating to
the Operating Partnership's and SPG, LP's properties, principal security
holders, management, executive compensation, certain relationships and related
transactions and legal proceedings that would be required to be disclosed in a
prospectus included in a registration statement on Form S-11, has been omitted
from this Prospectus because such information is not materially different from
the information contained in the Company's and SPG, LP's periodic reports, proxy
statements and other information filed by the Company and SPG, LP with the
Commission.
2
<PAGE> 40
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company and SPG, LP which have been filed
with the Commission are hereby incorporated by reference in this Prospectus.
1. The Company's Registration Statement on Form S-4 (Registration No.
333-06933);
2. The Company's Proxy Statement dated June 28, 1996, relating to the
annual and special meeting of stockholders held on August 7, 1996;
3. The Company's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/A-1;
4. The Company's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1996, as amended by Form 10-Q/A, June 30, 1996 and September 30,
1996, as amended by Form 10-Q/A;
5. The Company's Current Reports on Form 8-K filed on March 21, April 1,
May 17, August 12, August 14, August 26, September 18, and September 27, 1996;
6. SPG, LP's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Forms 10-K/A-1 and 10-K/A-2;
7. SPG, LP's Quarterly Reports on Form 10-Q for the calendar quarters ended
March 31, June 30 and September 30, 1996, as amended by Form 10-Q/A; and
8. SPG, LP's Current Report on Form 8-K filed on August 26, 1996, as
amended on August 28, 1996, and on October 21, 1996.
The Exchange Act filing numbers of the Company and SPG, LP are 1-12618 and
33-98364, respectively.
Each document filed by the Company, SPG, LP or the Operating Partnership
subsequent to the date of this Prospectus pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act and prior to termination of the offering of all
Debt Securities to which this Prospectus relates shall be deemed to be
incorporated by reference in this Prospectus and shall be part hereof from the
date of filing of such document. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus (in the case of a statement in a
previously-filed document incorporated or deemed to be incorporated by reference
herein), in any accompanying Prospectus Supplement relating to a specific
offering of Debt Securities or in any other subsequently filed document that is
also incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
The foregoing documents of the Company and SPG, LP filed under the Exchange
Act have been incorporated by reference herein because they contain information
concerning business, properties, operations and management of the Operating
Partnership through which the Company conducts its operations.
3
<PAGE> 41
THE OPERATING PARTNERSHIP
Simon DeBartolo Group, L.P. (the "Operating Partnership") is a subsidiary
partnership of Simon DeBartolo Group, Inc. (the "Company") (formerly known as
Simon Property Group, Inc. ("SPG")), and is the primary operating partnership of
the Company as a result of the merger of DeBartolo Realty Corporation ("DRC")
with a subsidiary of the Company. Such merger and related transactions thereto
(the "Merger") were consummated on August 9, 1996 (the "Merger Date"), at which
time DRC became an approximately 99.99% owned subsidiary of the Company and was
renamed SD Property Group, Inc. (the "Managing General Partner"). The Managing
General Partner and the Company are both general partners of the Operating
Partnership, but the Managing General Partner is the sole managing general
partner of the Operating Partnership. As part of the Merger, the Company, as
general partner of Simon Property Group, L.P. ("SPG, LP" and, together with the
Operating Partnership, the "Partnerships"), and as owner of 61.1% of the then
outstanding partnership units in SPG, LP, transferred to the Operating
Partnership 10.6% of such partnership units then outstanding and an additional
49.5% interest in the profits (but not the capital) of SPG, LP in exchange for
37.3% of the partnership interests in the Operating Partnership pursuant to a
Contribution Agreement, dated June 25, 1996, and a related Instrument of
Assignment, dated August 9, 1996. All of the limited partners of SPG, LP
contributed another 38.9% of the then outstanding partnership units in SPG, LP
to the Operating Partnership pursuant to similar contribution agreements and
related instruments of assignment. Therefore in total, the Operating Partnership
acquired a 49.5% limited partnership interest in, and an additional 49.5%
interest in the profits of, SPG, LP. See "The Merger." Following certain
redemptions of the Company's interest in SPG, LP completed since the Merger, the
Company owns a 40.8% partnership interest in the capital of SPG, LP and the
Operating Partnership owns a 58.2% special limited partnership in, and an
additional 40.8% interest in the profits of, SPG, LP.
The Company is the parent of the Managing General Partner and owned
effectively as of the Merger Date a controlling 61.4% equity interest in the
Operating Partnership. As of the Merger Date, Melvin Simon, Herbert Simon, David
Simon and certain of their affiliates, including certain other Simon family
members and estates, trusts and other entities established for their benefit
(collectively, the "Simons"), effectively owned a 21.7% equity interest in the
Operating Partnership, and the estate of Edward J. DeBartolo, Edward J.
DeBartolo, Jr., M. Denise DeBartolo York, The Edward J. DeBartolo Corporation,
an Ohio corporation ("EJDC"), and certain of their affiliates, including certain
other DeBartolo family members and estates and trusts established for their
benefit (collectively, the "DeBartolos"), effectively owned a 14.2% equity
interest in the Operating Partnership.
After the Merger, SPG, LP continues to hold interests in certain properties
and is a party to various agreements binding on itself and on subsidiary
partnerships of which it is the general partner. These agreements require the
continued existence of SPG, LP and the consents necessary under these agreements
to permit the combination of SPG, LP and the Operating Partnership were not
obtained at the time of the Merger. To date, all of the required consents have
been obtained. As a result thereof, it is currently expected that subsequent to
the first anniversary of the date of the Merger, reorganizational transactions
will be effected so that the Operating Partnership will directly own all of the
assets and partnership interests now owned by SPG, LP. Prior to such proposed
reorganizational transactions, holders of the Debt Securities to be offered
hereby will not, as a result of the Guarantee be structurally subordinated to
holders of unsecured and unsubordinated indebtedness of SPG, LP but will rank
pari passu with them. After the proposed reorganizational transactions, holders
of the Debt Securities will remain pari passu with holders of such indebtedness.
However, there can be no assurance that such reorganizational transactions will
be so effected.
As of September 30, 1996, on a combined basis: the Operating Partnership
owns or holds interests in a diversified portfolio of 183 income producing
properties (the "Portfolio Properties"), including 112 super-regional and
regional malls, 65 community shopping centers, two specialty retail centers and
four mixed-use properties located in 33 states; the Portfolio Properties contain
an aggregate of more than 111 million square feet of gross leasable area
("GLA"), of which approximately 65 million square feet is GLA owned by the
Partnerships ("Owned GLA"); more than 3,600 different retailers occupy
approximately 12,000 stores in the Portfolio Properties; total estimated retail
sales at the Portfolio Properties approached $16 billion in fiscal 1995; the
Operating Partnership has interests in seven properties under construction in
the United States
4
<PAGE> 42
aggregating approximately six million square feet of GLA, and owns land held for
future development. The Operating Partnership, together with its affiliated
management companies (collectively, the "Management Companies"), manage over 127
million square feet of GLA of retail and mixed-use properties.
As of November 14, 1996, the Operating Partnership and the Management
Companies had approximately 8,000 employees. The Operating Partnership's
executive offices are located at National City Center, 115 West Washington
Street, Suite 15 East, Indianapolis, Indiana 46204, and its telephone number is
(317) 636-1600.
The following chart depicts the organizational and ownership structure of
the Operating Partnership and certain affiliates:
- ---------------
(1) The Simons own less than 1% of the outstanding shares of common stock of the
Company and all of the Class B common stock of the Company.
(2) The DeBartolos own less than 1% of the outstanding common stock of the
Company and all of the Class C common stock of the Company.
(3) The Company owns over 99.9% of the common stock of SD Property Group, Inc.
and, both directly and indirectly through its ownership of the SD Property
Group, Inc., owns at November 14, 1996 61.3% interest in the Operating
Partnership and, as general partner, owns 1% of the partnership units in
SPG, LP and a 40.8% interest in the capital of SPG, LP.
(4) The former limited partners of the Operating Partnership and SPG, LP as a
group (including the Simons and the DeBartolos) own a 38.7% beneficial
interest in the Operating Partnership, of which the Simons own 21.9% and the
DeBartolos own 14.1%.
(5) The Operating Partnership owns at November 14, 1996 58.2% special limited
partnership interest in, and an additional 40.8% interest in the profits of,
SPG, LP.
(6) Properties owned by SPG, LP will be held as they were held in the pre-merger
structure. Later acquired properties will be held by, and future operations
will be conducted through, the Operating Partnership. It is currently
expected that subsequent to the first anniversary of the date of the Merger,
reorganizational
(continued)
5
<PAGE> 43
transactions will be effected so that the Operating Partnership will
directly own all of the assets and partnership interests now owned by SPG,
LP. However, there can be no assurance that such reorganizational
transactions will be so effected.
(7) SPG, LP will guarantee the due and punctual payment of the principal of,
premium, if any, interest on, and any other amounts payable with respect to,
the Notes, when and as the same shall become due and payable, whether at a
maturity date, on redemption, by declaration of acceleration or otherwise.
See "Description of the Debt Securities -- The Guarantee."
THE MERGER
On August 9, 1996, the merger and other related transactions, pursuant to
the agreement and plan of merger among Simon Property Group, Inc. ("SPG"), an
acquisition subsidiary of SPG and DeBartolo Realty Corporation ("DRC"), were
consummated (the "Merger"). Pursuant to the Merger, SPG acquired all the
outstanding shares of common stock of DRC (55,712,529 shares) through the
acquisition subsidiary, at an exchange ratio of 0.68 share of SPG common stock
for each share of DRC common stock (the "Exchange Ratio"). A total of 37,884,520
shares of SPG common stock were issued by the Company, through the acquisition
subsidiary, to the DRC shareholders. DRC and the acquisition subsidiary merged,
with DRC as the surviving entity and becoming a 99.9% subsidiary of SPG. This
portion of the transaction was valued at approximately $923.4 million, based
upon the number of DRC shares of common stock acquired (55,712,529 shares), the
Exchange Ratio and the last reported sales price per share of SPG's common stock
on August 9, 1996 ($24.375). In connection therewith, SPG changed its name to
Simon DeBartolo Group, Inc. (the "Company") and DRC changed its name to SD
Property Group, Inc. (the "Managing General Partner").
In connection with the Merger, the general and limited partners of the
operating partnership of SPG, Simon Property Group, L.P. ("SPG, LP"),
contributed 49.5% (47,442,212 units) of the total outstanding units of
partnership interest in SPG, LP to the operating partnership of DRC, DeBartolo
Realty Partnership, L.P. ("DRP, LP") in exchange for 47,442,212 units of
partnership interest in DRP, LP, whose name has since been changed to Simon
DeBartolo Group, L.P. ("SDG, LP"). The Company retained a 50.5% partnership
interest (48,400,614 units) in SPG, LP but assigned its rights to receive
distributions of profits on 49.5% (47,442,212 units) of the outstanding units of
partnership interest in SPG, LP to SDG, LP. The limited partners of DRP, LP
approved the contribution made by the partners of SPG, LP and simultaneously
exchanged their 38% (34,203,623 units) partnership interest in DRP, LP, adjusted
for the Exchange Ratio, for a smaller partnership interest in SDG, LP. The
exchange of the limited partners' 38% partnership interest in DRP, LP for units
of partnership interest in SDG, LP has been accounted for as an acquisition of
minority interest by the Company and is valued based on the estimated fair value
of the consideration issued (approximately $566.9 million). The units of
partnership interest in SDG, LP may under certain circumstances be exchangeable
for stock of the Company on a one-for-one basis. Therefore, the value of the
acquisition of the DRP, LP limited partners' interest acquired was based upon
the number of DRP, LP units of partnership interest exchanged (34,203,623
units), the Exchange Ratio and the last reported sales price per share of SPG's
common stock on August 9, 1996 ($24.375). The limited partners of SPG, LP
received a 23.7% partnership interest in SDG, LP (37,282,628 units) for the
contribution of their 38.9% partnership interest in SPG, LP (37,282,628 units)
to SDG, LP. The interests transferred by the partners of SPG, LP to DRP, LP have
been appropriately reflected at historical costs.
Upon completion of the Merger, the Company became a general partner of SDG,
LP with 36.9% (57,605,796 units) of the outstanding partnership units in SDG, LP
and the Managing General Partner became the managing general partner of SDG, LP
with 24.3% (37,873,965 units in SPG, LP) of the outstanding partnership units in
SDG, LP. The Company remained the sole general partner of SPG, LP with 1% of the
outstanding partnership units (958,429 units) and 49.5% interest in the capital
of SPG, LP, and SDG, LP became a special limited partner in SPG, LP with 49.5%
(47,442,212 units) of the outstanding partnership units in SPG, LP and an
additional 49.5% interest in the profits of SPG, LP. SPG, LP did not acquire any
interest in SDG, LP. Upon completion of the Merger, the Company directly and
indirectly owned a controlling 61.2% (95,479,761 units) partnership interest in
SDG, LP.
6
<PAGE> 44
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company, using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DRP, LP for consideration
valued at $1.523 billion, including related transaction costs. Although the
Company was the accounting acquirer, SDG, LP (formerly DRP, LP) became the
primary operating partnership through which the future business of the Company
will be conducted, As a result of the Merger, the Company's initial operating
partnership, SPG, LP, became a subsidiary of SDG, LP. However, because the
Company was the accounting acquirer and upon completion of the Merger acquired
majority control of SDG, LP, SPG, LP is the predecessor to SDG, LP for financial
reporting purposes. Accordingly the financial statements and ratios disclosed by
SDG, LP for the post-merger periods will reflect the reverse acquisition of DRP,
LP by the Company using the purchase method of accounting and for all pre-merger
comparative periods, the financial statements and ratios disclosed by SDG, LP
will reflect the financial statements and ratios of SPG, LP as the predecessor
to SDG, LP for financial reporting purposes.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
SPG, LP. However, there can be no assurance that such reorganizational
transactions will be so effected. See "The Operating Partnership."
In connection with the Merger, M.S. Management Associates, Inc., a SPG
management company, purchased from The Edward J. DeBartolo Corporation all of
the voting stock (665 shares of common stock) of DeBartolo Properties
Management, Inc., a DRC management company, for $2.5 million in cash. SDG, LP
continues to hold substantially all of the economic interest in DeBartolo
Properties Management, Inc. The Company holds substantially all of the economic
interest in M.S. Management Associates, Inc., while the voting stock are held by
the Simons and their affiliates.
For an organizational chart of the Company after the Merger, see page 5.
7
<PAGE> 45
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement,
proceeds to the Operating Partnership from the sale of the Debt Securities
offered hereby will be added to the working capital of the Operating Partnership
and will be available for general purposes, which may include the repayment of
indebtedness, the financing of capital commitments and possible future
acquisitions associated with the continued expansion of the Partnerships'
business.
RATIO OF EARNINGS TO FIXED CHARGES
SDG, LP's ratio of earnings to fixed charges for the nine months ended
September 30, 1996 and 1995 was 1.50x and 1.64x, respectively, and for the
fiscal years ended December 31, 1995 and 1994 was 1.67x and 1.43x, respectively.
From the commencement of its operations on December 20, 1993 through December
31, 1993, the ratio of earnings to fixed charges for SPG, LP was 3.36x. SPG, LP
is for financial reporting purposes the predecessor to the Operating
Partnership. See "The Merger."
For purposes of computing the ratio of earnings to fixed charges, earnings
have been calculated by adding fixed charges, excluding capitalized interest, to
income (loss) from continuing operations including income from minority
interests which have fixed charges, and including distributed operating income
from unconsolidated joint ventures instead of income from unconsolidated joint
ventures. Fixed charges consist of interest costs, whether expensed or
capitalized, the interest component of rental expense and amortization of debt
issuance costs.
Prior to the commencement of business by SPG, LP in December 1993, the
predecessor of SPG, LP maintained a different ownership and equity structure.
The predecessor's operating properties have historically generated positive net
cash flow. The financial statements of the predecessor show net income for the
period January 1, 1993 through December 19, 1993, and net losses for the fiscal
years ended December 31, 1992 and 1991. The ratio of earnings to fixed charges
for the period January 1, 1993 through December 19, 1993 was 1.11x. As a
consequence of the net losses for the fiscal years ended December 31, 1992 and
1991, the computation of the ratio of earnings to fixed charges for these fiscal
years indicates that earnings were inadequate to cover fixed charges by
approximately $12.8 million and $18.7 million, respectively.
The new capitalization of the Company effected in December 1993 in
connection with its initial public offering permitted the Company to deleverage
significantly, resulting in an improved ratio of earnings to fixed charges
subsequent to its commencement of operations.
8
<PAGE> 46
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
among the Operating Partnership, SPG, LP, as guarantor, and The Chase Manhattan
Bank, as trustee. The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available for inspection at
the corporate trust office of the trustee at 450 West 33rd Street, 15th Floor,
New York, New York 10001, or as described above under "Available Information."
The Indenture is subject to, and governed by, the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made hereunder or in any Prospectus
Supplement relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
The Debt Securities to be offered hereby and in any applicable Prospectus
Supplement will be "investment grade" securities, meaning at the time of the
offering of such Debt Securities, at least one nationally recognized statistical
rating organization (as defined in the Exchange Act) has rated such Debt
Securities in one of its generic rating categories which signifies investment
grade (typically the four highest rating categories, within which there may be
sub-categories or gradations indicating relative standing, signify investment
grades). An investment grade rating is not a recommendation to buy, sell or hold
securities, is subject to revision or withdrawal at any time by the assigning
entity, and should be evaluated independently of any other rating.
In connection with the first takedown proposed to be made by the Operating
Partnership from the shelf registration statement of which this Prospectus forms
a part, the Company has entered into a forward treasury lock agreement, pursuant
to which the Company and the counterparty to the agreement have agreed to
exchange payments with respect to a notional principal amount of $100 million
based on how a specified interest rate on U.S. Treasuries will have varied from
a base rate of 6.307% on November 22, 1996. The Company will either receive or
make a payment, depending on whether such specified interest rate is above or
below 6.307%. In connection with future takedowns under the registration
statement, the Operating Partnership may enter into interest rate protection
agreements which hedge the interest rate exposure associated with such future
debt offerings.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and, unless otherwise described in the applicable Prospectus
Supplement, will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. No partner (whether limited or
general, including the Company and the Managing General Partner) of the
Operating Partnership has any obligation for payment of principal of (and
premium, if any) and interest, if any, on, or any other amount with respect to,
the Debt Securities (Section 1602). At September 30, 1996, the total outstanding
debt of the Operating Partnership including its pro rata share of joint venture
debt was approximately $3,986.3 million, 92% of which was secured debt. Except
as otherwise described in the applicable Prospectus Supplement, the Indenture
does not limit the amount of other indebtedness of the Operating Partnership
that may rank equally with or senior to the Debt Securities. The Debt Securities
may be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Managing
General Partner, as the managing general partner of the Operating Partnership or
as established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301).
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture
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separate and apart from the trust administered by any other Trustee (Section
609), and, except as otherwise indicated herein, any action described herein to
be taken by a Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon acceleration of
the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates,
or the method by which any such record date shall be determined, the person
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(7) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon the Operating Partnership in respect of such
Debt Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Operating Partnership,
if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to
the extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof if other than $5,000, and any integral multiple thereof and the
terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein, or any modification thereof;
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(16) if such Debt Securities are to be issued upon the exercise of
debt warrants, the time, manner and place of such Debt Securities to be
authenticated and delivered;
(17) whether and under what circumstances the Operating Partnership
will pay additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu of
making such payment;
(18) with respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as a
change of control of the Operating Partnership), (i) the possible effects
of such provisions on the market price of the Operating Partnership's
securities or in deterring certain mergers, tender offers or other takeover
attempts, and the intention of the Operating Partnership to comply with the
requirements of Rule 14e-1 under the Exchange Act and any other applicable
securities laws in connection with such provisions; (ii) whether the
occurrence of the specified events may give rise to cross-defaults on other
indebtedness such that payment on such Debt Securities may be effectively
subordinated; and (iii) the existence of any limitation on the Operating
Partnership's financial or legal ability to repurchase such Debt Securities
upon the occurrence of such an event (including, if true, the lack of
assurance that such a repurchase can be effected) and the impact, if any,
under the Indenture of such a failure, including whether and under what
circumstances such a failure may constitute an Event of Default; and
(19) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon acceleration of the maturity thereof ("Original Issue
Discount Securities"). If material or applicable, special U.S. federal income
tax, accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as described under "-- Merger, Consolidation or Sale" below or as
may be set forth in any Prospectus Supplement, the Indenture does not contain
any other provisions that would limit the ability of the Operating Partnership
to incur indebtedness or that would afford holders of the Debt Securities
protection in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the Company or the management of the
Company, or any affiliate of any such party, (ii) a change of control, or (iii)
a reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the holders of the Debt
Securities. In addition, subject to the limitations set forth under "-- Merger,
Consolidation or Sale," the Operating Partnership may, in the future, enter into
certain transactions, such as the sale of all or substantially all of its assets
or the merger or consolidation of the Operating Partnership, that would increase
the amount of the Operating Partnership's indebtedness or substantially reduce
or eliminate the Operating Partnership's assets, which may have an adverse
effect on the Operating Partnership's ability to service its indebtedness,
including the Debt Securities. Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the events of default or covenants that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities unless the Holders of
at least a majority in principal amount of all outstanding Debt Securities of
such series consent to such waiver, except to the extent that the defeasance and
covenant defeasance provisions of the Indenture described under "-- Discharge"
and "-- Defeasance and Covenant Defeasance" below apply to such series of Debt
Securities. See "-- Modification of the Indenture."
Debt Securities may be denominated and payable in a foreign currency or
units of two or more foreign currencies or a composite currency or currencies.
As more fully described in the applicable Prospectus Supplement, awards or
judgments by a court in the United States in connection with a claim with
respect to any Debt Securities denominated other than in United States dollars
(or a judgment denominated other than
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in United States dollars in respect of such claims) may be converted into United
States dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 and any integral multiple thereof (Section
302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
in registered form will be payable at the corporate trust office of the Trustee,
initially located at 450 West 33rd Street, 15th Floor, New York, New York 10001,
provided that, at the option of the Operating Partnership, payment of interest
may be made by check mailed to the address of the Person entitled thereto as it
appears in the applicable Security Register or by wire transfer of funds to such
Person at an account maintained within the United States (Sections 301, 307 and
1002).
Unless otherwise specified in the applicable Prospectus Supplement, any
interest not punctually paid or duly provided for on any Interest Payment Date
with respect to a Debt Security in registered form ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each place of
payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on (A) if such Debt Securities are
issuable only as Registered Securities, the day of the mailing of the relevant
notice of redemption and (B) if such Debt Securities are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if such Debt Securities are also issuable as Registered
Securities and there is no publication, the mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Registered
Security so selected for redemption in whole or in part, except, in the case of
any Registered Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except that, to the extent provided with respect to such Bearer Security, such
Bearer Security may be exchanged for a Registered Security of that series and of
like tenor, provided that such Registered Security shall be simultaneously
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<PAGE> 50
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the
option of the Holder, except the portion, if any, of such Debt Security not to
be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or the Guarantor may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Guarantor, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Guarantor) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Operating Partnership or the Guarantor, such successor entity or any Subsidiary
as a result thereof as having been incurred by the Operating Partnership or the
Guarantor, such successor entity or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an Event of Default,
shall have occurred and be continuing; and (c) an officer's certificate and
legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale"
above, the Operating Partnership is required to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (statutory and charter) and franchises; provided, however, that the
Operating Partnership shall not be required to preserve any such right or
franchise if it determines that the loss thereof is not disadvantageous in any
material respect to the Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that the Operating
Partnership and its subsidiaries shall not be prevented from selling or
otherwise disposing for value their respective properties in the ordinary course
of business (Section 1007).
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value
(subject to reasonable deductibles determined from time to time by the Operating
Partnership) with financially sound and reputable insurance companies (Section
1008).
Payment of Taxes and Other Claims. The Operating Partnership is required
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission
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<PAGE> 51
on or prior to the respective dates (the "Required Filing Dates") by which the
Operating Partnership would have been required so to file such documents if the
Operating Partnership were so subject. The Operating Partnership will also in
any event (x) within 15 days of each Required Filing Date (i) transmit by mail
to all Holders of Debt Securities, as their names and addresses appear in the
Security Register, without cost to such Holders, copies of the annual reports
and quarterly reports which the Operating Partnership would have been required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if the Operating Partnership were subject to such Sections and (ii) file with
the Trustee copies of the annual reports, quarterly reports and other documents
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Operating
Partnership were subject to such Sections and (y) if filing such documents by
the Operating Partnership with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1010).
Additional Covenants. Any additional or different covenants of the
Operating Partnership with respect to any series of Debt Securities will be set
forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series at its Maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), such default having continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of an aggregate principal
amount exceeding $30,000,000 of any recourse indebtedness of the Operating
Partnership, however evidenced, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled within 10
days after written notice as provided in the Indenture; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership or any Significant Subsidiary
or any of their respective property; and (g) any other Event of Default provided
with respect to a particular series of Debt Securities (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series of the Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership (and to the Trustee if given by the Holders); provided, that in the
case of an Event of Default described under paragraph (f) of the preceding
paragraph, acceleration is automatic. However, at any time after such
acceleration with respect to Debt Securities of such series has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of not less than a majority in principal amount of
Outstanding Debt Securities of such series may rescind and annul such
acceleration and its consequences if (a) the Operating Partnership shall have
deposited with the Trustee all amounts due otherwise than on account of such
declaration, plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the non-payment of accelerated
principal of the Debt Securities of such series, have been cured or waived as
provided in the Indenture (Section 502). The Indenture also provides that the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may waive any past default with respect to such series
and its consequences, except a default (x) in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
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The Trustee will be prepared to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if a trust committee of Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any Holders of any series of Debt
Securities then Outstanding under the Indenture, unless such Holders shall have
offered to the Trustee thereunder reasonable security or indemnity (Section
602). The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee with
respect to the Debt Securities of such series. However, the Trustee may refuse
to follow any direction which is in conflict with any law or the Indenture,
which may involve the Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, each of the Operating
Partnership and the Guarantor must deliver to the Trustee a certificate, signed
by one of several specified officers of the Operating Partnership or the
Guarantor, as the case may be, stating whether or not such officer has knowledge
of any default under the Indenture and, if so, specifying each such default and
the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities which are affected by such
modification or amendment (voting as one class); provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby: (a) change the Stated Maturity of the principal
of, or premium (if any) or any installment of interest on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon acceleration of the maturity thereof or that would be provable
in bankruptcy, or adversely affect any right of repayment at the option of the
holder of any such Debt Security; (c) change the Place of Payment, or the coin
or currency, for payment of principal of, premium, if any, or interest on any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage in principal amount of Outstanding Debt Securities
necessary to modify or amend the Indenture, reduce the percentage of Outstanding
Debt Securities of any series necessary to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder, or to reduce
the quorum or voting requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the percentage
required to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the Holder of each Outstanding
Debt Security affected thereby (Section 902).
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The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership with certain covenants relating to
such series of Debt Securities in the Indenture (Section 1013).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Guarantor, and the Trustee without the
consent of any Holder of Debt Securities for any of the following purposes: (i)
to evidence the succession of another Person to the Operating Partnership or the
Guarantor as obligor under the Indenture; (ii) to add to the covenants of the
Operating Partnership or the Guarantor for the benefit of the Holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Operating Partnership in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of the Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, to change or
eliminate any restrictions on payment of the principal of or premium or interest
on Debt Securities, to modify the provisions relating to global Debt Securities,
or to permit or facilitate the issuance of Debt Securities in uncertificated
form, provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of the Indenture, provided that any such
change or elimination shall become effective only when there are no Debt
Securities Outstanding of any series created prior thereto which are entitled to
the benefit of such provision or such amendment shall not apply to any then
Outstanding Debt Security; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series; (viii) to provide
for the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in the Indenture, provided that
such action shall not adversely affect the interests of Holders of Debt
Securities of any series in any material respect; or (x) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
acceleration of the maturity thereof, (ii) the principal amount of a Debt
Security denominated in a foreign currency that shall be deemed Outstanding
shall be the U.S. dollar equivalent, determined on the issue date for such Debt
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of such Debt Security of
the amount determined as provided in (i) above) of such Debt Security, (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series issuable, in whole or in part, as Bearer Securities
(Section 1501). A meeting will be permitted to be called at any time by the
Trustee, and also, upon request, by the Operating Partnership or the Holders of
at least 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given as provided in the Indenture (Section
1502). Except for any consent that must be given by the Holder of each Debt
Security affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage in principal amount of the Outstanding Debt
Securities of a series may be adopted at a meeting at which a quorum is present
by the affirmative vote of the Holders of such specified
16
<PAGE> 54
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of not less than a specified percentage in
principal amount of the Outstanding Debt Securities of a series, then with
respect to such action (and only such action) the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in an amount
sufficient to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium, if any) and interest to the date of such deposit (if
such Debt Securities have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 401).
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership or the Guarantor may elect
either (a) to defease and be discharged from any and all obligations with
respect to such Debt Securities (except for the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities and to hold
moneys for payment in trust) ("defeasance") (Section 1402) or (b) to be released
from its obligations with respect to such Debt Securities under Sections 1006 to
1010, inclusive, of the Indenture (including the restrictions described under
"-- Certain Covenants" above) and its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403), in either case upon the irrevocable deposit by the
Operating Partnership or the Guarantor, as the case may be, with the Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 1404).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Guarantor, as the case may be, has
delivered to the Trustee an Opinion of Counsel (as specified in the Indenture)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for
17
<PAGE> 55
U.S. federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such Opinion of Counsel,
in the case of defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligations or a specific payment of interest on
or principal of any such Government Obligations held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Guarantor, as the case may be, has deposited
funds or Government Obligations to effect defeasance or covenant defeasance with
respect to Debt Securities of any series, (a) the Holder of a Debt Security of
such series is entitled to, and does, elect pursuant to the Indenture or the
terms of such Debt Security to receive payment in a currency, currency unit or
composite currency other than that in which such deposit has been made in
respect of such Debt Security, or (b) a Conversion Event (as defined below)
occurs in respect of the currency, currency unit or composite currency in which
such deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by converting
the amount so deposited in respect of such Debt Security into a currency,
currency unit or composite currency in which such Debt Security becomes payable
as a result of such election or such Conversion Event based on the applicable
market exchange rate (Section 1405). "Conversion Event" means the cessation of
use of (i) a currency, currency unit or composite currency both by the
government of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Community or (iii) any currency unit (or composite currency)
other than the ECU for the purposes for which it was established (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, all payments
of principal of (and premium, if any) and interest on any Debt Security that is
payable in a foreign currency that ceases to be used by its government of
issuance shall be made in U.S. dollars.
In the event the Operating Partnership or the Guarantor effects covenant
defeasance with respect to any Debt Securities and such Debt Securities are
declared due and payable because of the occurrence of any Event of Default other
than the Event of Default described in clause (d) under "-- Events of Default,
Notice and Waiver" with respect to Sections 1006 to 1010, inclusive, of the
Indenture (which sections would no longer be applicable to such Debt Securities)
or described in clause (g) under "-- Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership would remain liable to make
payment of such amounts due at the time of acceleration.
18
<PAGE> 56
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above with respect to the Debt
Securities of or within a particular series.
THE GUARANTEE
The Indenture provides that SPG, LP will, and as further set forth in
detail in the applicable Prospectus Supplement, guarantee (the "Guarantee") the
due and punctual payment of the principal of, premium, if any, interest on, and
any other amounts payable with respect to, the Debt Securities, when and as the
same shall become due and payable, whether at a maturity date, on redemption, by
declaration of acceleration or otherwise in accordance with the terms of the
Debt Securities and the Indenture (Section 1701). The Indenture provides that
(i) the Trustee may exercise its rights thereunder on behalf of the Holders and
(ii) SPG, LP shall covenant that it shall take no action which would cause the
Operating Partnership to violate any covenant, agreement or any other condition
thereunder (Section 1705). The Guarantee will terminate upon the consummation of
the reorganizational transactions pursuant to which the Operating Partnership is
expected to own directly all of the assets and partnership interest then owned
by SPG, LP (Section 1706). However, there can be no assurance that such
reorganizational transactions will be so effected. See "The Operating
Partnership." No partner (whether limited or general, including the Company) of
SPG, LP will have any obligation for any obligations of SPG, LP under the
Guarantee (Section 1707).
In the absence of the Guarantee, Holders of the Debt Securities will have
no claims, with regards to any payments in connection with the Debt Securities
against the assets of SPG, LP or the assets of any other Subsidiary of the
Operating Partnership. Any such claim that such Holders may make will have to be
made indirectly through the equity interest that the Operating Partnership has
in SPG, LP (or other Subsidiaries), and will thus be structurally subordinated
to the claims of creditors of SPG, LP (or other Subsidiaries). As a result of
the Guarantee, Holders of the Debt Securities, upon exercising their rights with
respect to the Guarantee against SPG, LP, will be considered creditors of SPG,
LP and their claims will rank pari passu with those of unsecured and
unsubordinated creditors of SPG, LP and will not be structurally subordinated to
such creditors.
MISCELLANEOUS
No Conversion Rights. The Debt Securities will not be convertible into or
exchangeable for any capital stock of the Company or equity interest in the
Operating Partnership.
Global Securities. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities (the "Global
Securities") that will be deposited with, or on behalf of, a depositary (the
"Depositary") identified in the applicable Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
PLAN OF DISTRIBUTION
The Operating Partnership may sell the Debt Securities to or through
underwriters, and also may sell the Debt Securities directly to one or more
other purchasers or through agents. The distribution of the Debt Securities may
be effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
The Prospectus Supplement will set forth terms of the offering of the Debt
Securities, including (i) the name of any underwriters or agents with whom the
Operating Partnership has entered into arrangements with respect to the sale or
issuance of Debt Securities, (ii) the initial public offering or purchase price
of the Debt Securities, (iii) any underwriting discounts, commissions and other
items constituting underwriter's compensation from the Operating Partnership and
any other discounts, concessions or commissions allowed or reallowed or paid by
any underwriters to other dealers, (iv) any commissions paid to any agents and
(v) the net proceeds to the Operating Partnership. In connection with the sale
of Debt Securities, underwriters may
19
<PAGE> 57
receive compensation from the Operating Partnership or from purchasers of Debt
Securities, for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell Debt Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of Debt Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Operating
Partnership, and any profit on the resale of Debt Securities they realize, may
be deemed to be underwriting discounts and commissions under the Securities Act.
Under agreements the Operating Partnership may enter into, underwriters,
dealers and agents who participate in the distribution of Debt Securities may be
entitled to indemnification by the Operating Partnership against certain
liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Operating Partnership in the
ordinary course of business.
Unless otherwise set forth in the Prospectus Supplement relating to the
issuance of Debt Securities, the obligations of the underwriters to purchase
such Debt Securities will be subject to certain conditions precedent and each of
the underwriters with respect to such Debt Securities will be obligated to
purchase all of the Debt Securities allocated to it if any such Debt Securities
are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If so indicated in the applicable Prospectus Supplement, the Operating
Partnership will authorize underwriters or other persons acting as the Operating
Partnership's agents to solicit offers by certain institutions to purchase Debt
Securities from the Operating Partnership pursuant to contracts providing for
payment and delivery on a future date. Institutions with which such contracts
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases such institutions must be approved by the Operating
Partnership. The obligations of any purchaser under any such contract will be
subject only to the condition that the purchase of the Debt Securities shall not
at any time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
LEGAL MATTERS
The validity of each issue of the Debt Securities will be passed upon for
the Operating Partnership by Paul, Weiss, Rifkind, Wharton & Garrison, New York,
New York. Paul, Weiss, Rifkind, Wharton & Garrison will also pass upon certain
tax matters. Rogers & Wells, New York, New York, will act as counsel to any
underwriters, dealers or agents.
EXPERTS
The audited financial statements and schedules of SPG incorporated by
reference, and SPG, LP included, in the Registration Statement of which this
Prospectus is a part, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are incorporated by reference or included herein in reliance
upon the authority of said firm as experts in giving said reports.
The audited financial statements and schedules of DRC incorporated by
reference, and the Operating Partnership (formerly DeBartolo Realty Partnership,
L.P.) included, in the Registration Statement of which this Prospectus is a
part, to the extent and for the periods indicated in their reports, have been
audited by Ernst & Young LLP, independent public accountants, and are
incorporated by reference or included, as the case may be, herein in reliance
upon the authority of said firm as experts in giving said report.
20
<PAGE> 58
CERTAIN INFORMATION WITH RESPECT
TO SIMON DEBARTOLO GROUP, L.P.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Selected Financial and Operating Data.............................................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 26
Simon DeBartolo Group L.P. Consolidated Condensed Balance Sheet as of September 30,
1996 (unaudited) and Simon Property Group, L.P. (the Predecessor to Simon DeBartolo
Group, L.P.) Consolidated Condensed Balance Sheet as of December 31, 1995
(unaudited)........................................................................ 36
Simon DeBartolo Group, L.P. Consolidated Condensed Statement of Operations for the
three and nine month periods ended September 30, 1996 (unaudited) and Simon
Property Group, L.P. (the Predecessor to Simon DeBartolo Group, L.P.) Consolidated
Condensed Statement of Operations for the three and nine month periods ended
September 30, 1995 (unaudited)..................................................... 37
Simon DeBartolo Group, L.P. Consolidated Condensed Statements of Cash Flows for the
nine month period ended September 30, 1996 (unaudited) and Simon Property Group,
L.P. (the Predecessor to Simon DeBartolo Group, L.P.) Consolidated Condensed
Statement of Cash Flows for the nine month period ended September 30, 1995
(unaudited)........................................................................ 38
Notes to Financial Statements...................................................... 39
</TABLE>
21
<PAGE> 59
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth certain selected financial and operating
data on a historical basis for Simon DeBartolo Group, L.P. ("SDG, LP"), and its
Predecessor, Simon Property Group, L.P. ("SPG, LP"). All references herein to
the "Operating Partnership" are to SDG, LP or SPG, LP, as the case may be. The
financial statements of SDG, LP for the post-merger periods will reflect the
reverse acquisition of DeBartolo Realty Partnership, L.P. ("DRP, LP") by Simon
DeBartolo Group Inc. ("SDG" or the "Company") using the purchase method of
accounting and for all pre-merger comparative periods the financial statements
disclosed by SDG, LP will reflect the financial statements of its Predecessor
for financial reporting purposes, SPG, LP. See "The Merger." The historical
financial information should be read in conjunction with the financial
statements and notes thereto included herein.
<TABLE>
<CAPTION>
SIMON SIMON PROPERTY GROUP, L.P.
DEBARTOLO (SPG, LP, THE PREDECESSOR OF SDG, LP) SIMON PROPERTY GROUP
GROUP, L.P. ------------------------------------------------------- (THE PREDECESSOR OF SPG, LP)
------------- FOR THE ----------------------------------------
FOR THE FOR THE PERIOD FROM FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20 PERIOD FROM YEAR YEAR
ENDED ENDED YEAR ENDED YEAR ENDED TO JANUARY 1 TO ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992 1991
------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:(1)
Total Revenue...... $ 485,640 $ 398,297 $ 553,657 $ 473,676 $ 18,424 $ 405,869 $ 400,852 $ 378,029
Expenses:
Operating
Expenses........ 189,888 151,914 209,782 183,433 4,095 175,801 176,682 173,923
Depreciation and
Amortization.... 88,913 65,212 92,739 75,945 2,051 60,243 58,104 56,033
Interest
Expense(2)...... 135,346 112,125 150,224 150,164 3,548 156,909 178,075 159,798
Income (Loss)
before
Extraordinary
Items........... 76,639 72,681 101,505 60,308 8,707 6,912 (11,692) (15,865)
Net Income
(Loss).......... $ 73,844 $ 69,797 $ 98,220 $ 42,328 $ (21,774) $ 33,101 $ (11,692) $ (15,865)
Preferred
Distributions..... 6,286 -- 1,490 -- -- -- -- --
Net Income (Loss)
available to unit
holders........... 67,558 69,797 96,730 42,328 (21,774) 33,101 (11,692) (15,865)
Net Income per
unit before
extraordinary
items........... $ 0.65 $ 0.79 $ 1.08 $ 0.71 $ 0.11 N/A N/A N/A
Net Income per
unit(3)......... $ 0.63 $ 0.76 $ 1.04 $ 0.50 $ (0.28) N/A N/A N/A
Distributions per
unit(14)........ $ 1.14 $ 1.48 $ 1.97 $ 1.90 -- N/A N/A N/A
Weighted average
units
outstanding....... 107,607 91,663 92,666 84,510 78,447 N/A N/A N/A
BALANCE SHEET DATA
(as of end of
period):
Investment in Real
Estate, net..... $ 4,989,949 $ 1,985,841 $2,009,344 $1,829,111 $1,350,360 N/A $1,156,009 $1,143,050
Cash and cash
equivalents..... 92,575 72,983 62,721 105,139 110,625.... N/A 42,682 31,840
Total Assets...... 5,798,196 2,407,499 2,556,436 2,316,860 1,793,654 N/A 1,494,289 1,432,028
Total Debt(4)..... 3,555,123 1,986,072 1,980,759 1,938,091 1,455,884 N/A 1,711,778 1,548,292
Limited Partners'
Interest........ 1,542,792 949,126 908,764 909,306 848,373 N/A N/A N/A
Owner's Equity
(Deficit)....... $ 419,973 $ (709,583) $ (589,126) $ (807,613) $ (791,820) N/A $ (565,566) $ (418,697)
OTHER DATA:
Cash flow provided
by (used in):
Operating
activities..... $ 143,290 $ 129,544 $ 194,336 $ 128,023 N/A N/A N/A N/A
Investing
activities..... (59,711) (101,191) (222,679) (266,772) N/A N/A N/A N/A
Financing
activities..... (53,725) (60,509) (14,075) 133,263 N/A N/A N/A N/A
Restated Funds
from Operations
(FFO) (5)....... $ 173,482 $ 137,287 $ 197,909 $ 167,761 N/A N/A N/A N/A
RATIO OF EARNINGS
TO FIXED CHARGES
OR COVERAGE
DEFICIT(6)........ 1.50x 1.64x 1.67x 1.43x 3.36x 1.11x $ (12,821) $ (18,719)
OTHER RATIOS (as of
end of period)(1):
Ratio of EBITDA
After Minority
Interest to Fixed
Charges and
Preferred Unit
Distributions(7)(8)... 2.10x 2.14x 2.18x 2.18x N/A........ N/A N/A N/A
Ratio of Debt to
Adjusted Total
Assets(9)....... 48.82% 47.63% 46.51% 50.64% N/A N/A N/A N/A
Ratio of Secured
Debt to Adjusted
Total
Assets(10)...... 44.87% 42.84% 42.18% 45.74% N/A........ N/A N/A N/A
Ratio of
Unencumbered
Assets to
Unsecured
Debt(11)........ 6.15x 5.49x 5.49x 3.84x N/A N/A N/A N/A
Ratio of EBITDA
After Minority
Interest to
Interest Expense
(7)(12)........... 2.37x 2.34x 2.39x 2.36x N/A N/A N/A N/A
</TABLE>
22
<PAGE> 60
<TABLE>
<CAPTION>
SIMON SIMON PROPERTY GROUP, L.P.
DEBARTOLO (SPG, LP, THE PREDECESSOR OF SDG, LP) SIMON PROPERTY GROUP
GROUP, L.P. FOR THE (THE PREDECESSOR OF SPG, LP)
FOR THE FOR THE PERIOD FROM FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20 PERIOD FROM YEAR YEAR
ENDED ENDED YEAR ENDED YEAR ENDED TO JANUARY 1 TO ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992 1991
-------- -------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIO DATA (as
of end of period):
Total EBITDA(7)... $ 390,156 $ 315,276 $ 437,548 $ 386,835 $ 346,679(13) N/A $ 316,535 $ 282,326
EBITDA After
Minority
Interest(7)..... 313,201 258,185 357,158 307,372 256,169(13) N/A 227,931 210,634
Number of
Portfolio
Properties at
End of Period... 183 120 122 119 114 N/A 110 108
Total GLA at End
of Period
(thousands of
square feet).... 111,124 59,644 62,232 58,200 54,042 N/A 52,404 51,375
-------- -------- -------- -------- ------- -------- -------- --------
</TABLE>
- ---------------
(1) The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail
sales are typically at their highest levels. In addition, shopping malls
achieve most of their temporary tenant rents during the holiday season. As
a result, earnings are generally highest in the fourth quarter of each
year.
(2) Interest expense for the year ended December 31, 1994 includes $27.2
million of additional non-recurring contingent interest paid in connection
with the refinancing of a Portfolio Property. The property lender was
entitled to participate in the appreciated market value of the Portfolio
Property upon refinancing. Management does not presently expect to enter
into financing arrangements with similar participation features in the
future. Accordingly, management considers the payment made to the lender
unusual in nature. As explained in footnote (5) below, unusual or
extraordinary items are excluded for purposes of computing FFO.
Accordingly, this item has been excluded from FFO in this table and
elsewhere herein.
(3) Per unit data are reflected only for the periods from December 20, 1993
through September 30, 1996. Per unit data are not relevant for the
historical combined financial statements of Simon Property Group, the
Predecessor to SPG, LP, since such financial statements are a combined
presentation of partnerships and corporations.
(4) Historical debt of the Operating Partnership as of September 30, 1996 and
1995 and December 31, 1995 includes $3,232.1 million, $1,778.1 million and
$1,784.8 million, respectively, of mortgage indebtedness and $323.0
million, $208.0 million and $196.0 million, respectively, of outstanding
indebtedness under the credit facilities, respectively.
(5) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means consolidated net income
without giving effect to depreciation and amortization, gains or losses
from extraordinary items, gains or losses on sales of real estate, gains or
losses on investments in marketable securities and any provision/benefit
for income taxes for such period, plus the allocable portion, based on
ownership interest, of FFO of unconsolidated joint ventures, all determined
on a consistent basis in accordance with generally accepted accounting
principles. Management believes that FFO is an important and widely used
measure of the operating performance of REITs which provides a relevant
basis for comparison among REITs. FFO is presented to assist investors in
analyzing the performance of the Operating Partnership. The Operating
Partnership's method of calculating FFO may be different from the methods
used by other REITs. FFO (i) does not represent cash flows from operations
as defined by generally accepted accounting principles, (ii) should not be
considered as an alternative to net income as a measure of operating
performance or to cash flows from operating, investing and financing
activities and (iii) is not an alternative to cash flows as a measure of
liquidity. In March 1995, NAREIT modified its definition of FFO. The
modified definition provides that amortization of deferred financing costs
and depreciation of nonrental real estate assets are no longer to be added
back to net income in arriving at FFO. The modified definition was adopted
by the Operating Partnership beginning in 1996. Additionally the FFO for
prior periods have been restated to reflect the new definition in order to
make the amounts comparative.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
have been calculated by adding fixed charges, excluding capitalized
interest, to income (loss) from continuing operations including income from
minority interests which have fixed charges, and including distributed
operating income from unconsolidated joint ventures instead of income from
unconsolidated joint ventures. Fixed
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charges consist of interest costs, whether expensed or capitalized, the
interest component of rental expense and amortization of debt issuance
costs.
(7) Total EBITDA represents earnings before interest, taxes, depreciation and
amortization for all properties. EBITDA After Minority Interest represents
earnings before interest, taxes, depreciation and amortization for all
properties after distribution to third party joint venture partners. EBITDA
(i) does not represent cash flow from operations as defined by generally
accepted accounting principles, (ii) should not be considered as an
alternative to net income as a measure of operating performance or to cash
flows from operating, investing and financing activities; and (iii) is not
an alternative to cash flows as a measure of liquidity. Management believes
that in addition to cash flows and net income, EBITDA is a useful financial
performance measurement for assessing the operating performance of an
equity REIT because, together with net income and cash flows, EBITDA
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as revenues and operating expenses, should be considered.
The Operating Partnership's method of calculating EBITDA may be different
from the methods used by other REITs. The Company's weighted average
ownership interest in the operating results for the nine months ended
September 30, 1996 and 1995 was 61.2% and 59.3%, respectively, and was
60.3%, 55.2% and 52.2% during 1995, 1994 and 1993, respectively. The
Company's ownership interest in the Operating Partnership was 61.5% and
60.9% at September 30, 1996 and 1995, respectively, and was 61.0% and 56.4%
at December 31, 1995 and 1994, respectively.
(8) For purposes of computing the ratio of EBITDA After Minority Interest to
Fixed Charges and Preferred Unit Distributions, Fixed Charges and Preferred
Unit Distributions consist of interest costs, whether expensed or
capitalized and including the Operating Partnership's pro rata share of
joint venture interest expense, the interest component of rental expense
and amortization of debt issuance costs, plus any distributions on
outstanding preferred units.
(9) Debt consists of indebtedness of the Operating Partnership and its
consolidated subsidiaries, less any portion attributable to minority
interests, plus the Operating Partnership's allocable portion of
indebtedness of unconsolidated joint ventures from borrowed money, secured
indebtedness, reimbursement obligations in connection with letters of
credit and capitalized leases. "Adjusted Total Assets" as of any date means
the sum of (i) the amount determined by multiplying the sum of the shares
of common stock of the Company issued in the initial public offering of the
Company ("IPO") and the units of the Operating Partnership not held by the
Company outstanding on the date of the IPO, by $22.25 (the "IPO Price"),
(ii) the principal amount of the outstanding consolidated debt of the
Company on the date of the IPO, less any portion applicable to minority
interests, (iii) the Operating Partnership's allocable portion, based on
its ownership interest, of outstanding indebtedness of unconsolidated joint
ventures on the date of the IPO, (iv) the purchase price or cost of any
real estate assets acquired (including the value, at the time of such
acquisition, of any units of the Operating Partnership or shares of common
stock of the Company issued in connection therewith) or developed after the
IPO by the Operating Partnership or any Subsidiary, less any portion
attributable to minority interests, plus the Operating Partnership's
allocable portion, based on its ownership interest, of the purchase price
or cost of any real estate assets acquired or developed after the IPO by
any unconsolidated joint venture, (v) the value of the Merger compiled as
the sum of (a) the purchase price including all related closing costs and
(b) the value of all outstanding indebtedness less any portion attributable
to minority interests, including the Operating Partnership's allocable
share, based on its ownership interest, of outstanding indebtedness of
unconsolidated joint ventures at the Merger date, and (vi) working capital
of the Operating Partnership; subject, however, to reduction by the amount
of the proceeds of any real estate assets disposed of after the IPO by the
Operating Partnership or any Subsidiary, less any portion applicable to
minority interests, and by the Operating Partnership's allocable portion,
based on its ownership interest, of the proceeds of any real estate assets
disposed of after the IPO by unconsolidated joint ventures. On a pro forma
basis as of September 30, 1996, the Operating Partnership's Adjusted Total
Assets were $8.17 billion.
(10) Secured Debt consists of Debt secured by a mortgage or other encumbrance on
any property of the Operating Partnership or any Subsidiary.
(11) Unencumbered Assets is equal to Adjusted Total Assets multiplied by a
fraction, the numerator of which is Unencumbered Annualized EBITDA After
Minority Interest and the denominator of which is Annualized EBITDA After
Minority Interest. Unencumbered Annualized EBITDA means Annualized
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EBITDA less any portion attributable to assets serving as collateral for
Secured Debt. Annualized EBITDA means earnings before interest, taxes,
depreciation and amortization for all portfolio properties with other
adjustments as are necessary to exclude the effect of items classified as
extraordinary items in accordance with generally accepted accounting
principles, adjusted to reflect the assumption that (i) any income earned
as a result of any assets having been placed in service since the end of
such period had been earned on an annualized basis, during such period, and
(ii) in the case of an acquisition or disposition by the Operating
Partnership, any Subsidiary or any unconsolidated joint venture in which
the Operating Partnership or any Subsidiary owns an interest, of any assets
since the first day of such period, such acquisition or disposition and any
related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition. Annualized EBITDA After Minority Interest means Annualized
EBITDA after distributions to third party joint venture partners. Unsecured
Debt means Debt not secured by a mortgage or other encumbrance on any
property of the Operating Partnership or any subsidiary.
(12) For purposes of computing the ratio of EBITDA After Minority Interest to
Interest Expense, Interest Expense includes the Company's pro rata share,
based on ownership interest, of joint venture interest expense and is
reduced by amortization of debt issuance costs.
(13) Represents the combined EBITDA and EBITDA After Minority Interest of the
Portfolio Properties for the full year ended December 31, 1993.
(14) In connection with the Merger, the Operating Partnership declared a special
distribution of 0.1515 per unit and adjusted its distribution cycle
accordingly. As a result, the third quarter distribution of 0.4925 per unit
was declared on October 10, 1996 and is payable on November 22, 1996.
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SIMON DEBARTOLO GROUP, LP AND SIMON PROPERTY GROUP, LP
(PREDECESSOR TO SIMON DEBARTOLO GROUP, L.P.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, and all of the financial statements and notes thereto included
elsewhere herein.
GENERAL BACKGROUND
Historical results and percentage relationships set forth in Selected
Financial Data are not necessarily indicative of future financial position and
results of operations of Simon DeBartolo Group, L.P. or its predecessor, Simon
Property Group, L.P. All references herein to the Operating Partnership refer to
Simon DeBartolo Group, L.P., and its predecessor for financial reporting
purposes, Simon Property Group, L.P.
The financial statement results presented for the twelve-day period from
December 20, 1993 through December 31, 1993 are not indicative of the Operating
Partnership's performance on an annual basis. Similarly, the results presented
in the combined financial statements for the Simon Property Group (the
predecessor to SPG, L.P.) cover only 353 days of 1993, the period prior to the
date that the Operating Partnership acquired the assets and liabilities of the
Simon Property Group. Therefore, the discussion of and results of operations and
liquidity and capital resources for 1993 are presented on a combined basis to
compare to the full year 1994. Management believes presentation in this manner
provides a more meaningful discussion of year-to-year results.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Operating Partnership to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, which
will, among other things, affect demand for retail space or retail goods,
availability and creditworthiness of prospective tenants, lease rents and the
terms and availability of financing; adverse changes in the real estate markets
including, among other things, competition with other companies and technology;
risks or real estate development and acquisition; governmental actions and
initiatives; and environmental/safety requirements.
RESULTS OF OPERATIONS
The financial results reported reflect the results of Simon Property Group,
L.P. through August 9, 1996 and the combined Simon DeBartolo Group, L.P. for all
periods subsequent to the Merger completion on August 9, 1996 of a subsidiary of
Simon Property Group, Inc. and DeBartolo Realty Corporation. This is in
accordance with the purchase method of accounting utilized to record this Merger
transaction. This Merger resulted in an additional 50 regional malls and 11
community shopping centers to the portfolio, of which additions, 41 regional
malls and 10 community shopping centers are being accounted for on the
consolidated method of accounting. The effects of this increase in the portfolio
and the Merger integration costs are highlighted in the following discussion of
the interim period financial comparisons.
In addition to the Merger, three other transactions (the "Property
Transactions"), each resulting in the consolidation of a mall previously
accounted for using the equity method of accounting, occurred and had
significant effects on the comparison of the nine-month and three-month periods.
Effective July 31, 1995, the Operating Partnership acquired the remaining 50%
interest in Crossroads Mall. Effective September 25, 1995, the Operating
Partnership acquired the remaining 55% interest in East Towne Mall. On April 11,
1996, the Operating Partnership acquired the remaining 50% economic ownership
interest in Ross Park Mall.
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
VS. THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Total revenue increased by $64.4 million or 46.6% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily the result of the Merger ($56.0 million) and the Property
Transactions ($9.1 million).
Total operating expenses increased by $45.9 million, or 62.1%, for the
three months ended September 30, 1996, as compared to the same period in 1995.
This increase is primarily the result of the Merger ($36.3 million), the
Property Transactions ($4.1 million) and an increase in depreciation and
amortization ($5.0 million).
Interest expense increased by $19.7 million, or 54.1% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily as a result of the Merger ($15.0 million) and the Property
Transactions ($3.7 million).
Income from unconsolidated entities increased by $3.6 million for the three
months ended September 30, 1996, as compared to the same period in 1995. This is
primarily due to the Merger ($2.2 million) and an increase in the Operating
Partnership's pro rata share of income from M.S. Management Associates, Inc.
(together with its subsidiaries, the "Management Company") ($2.3 million),
partially offset by a decrease in the Operating Partnership's pro rata share of
income from the pre-Merger unconsolidated joint venture properties ($0.9
million).
Simon Property Group, Inc.'s (the "Company") preferred unit requirement was
$2.2 million in 1996 primarily as a result of $100 million in net proceeds
received in connection with the Company's issuance of 8 1/8% Series A
convertible preferred stock.
Net income available to unitholders was $24.1 million for the three months
ended September 30, 1996, as compared to $24.3 million for the same period in
1995, reflecting a net decrease of $0.2 million, after Merger integration costs
of $7.2 million and for the reasons described above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
VS. NINE MONTHS ENDED SEPTEMBER 30, 1995
Total revenue increased by $87.3 million or 21.9% for the nine months ended
September 30, 1996, as compared to the same period in 1995. Of this increase,
$56.0 million is a result of the Merger and $25.1 million is a result of the
Property Transactions. The remaining increase is primarily the result of
increases in minimum rent ($5.3 million), lease settlement income ($2.1
million), and a gain on the sale of a peripheral property ($2.6 million),
partially offset by a decrease in tenant reimbursements ($5.9 million).
Total operating expenses increased by $61.7 million, or 28.4%, for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of the Merger ($36.3 million), the Property
Transactions ($12.9 million) and an increase in depreciation and amortization
($10.2 million).
The gain on sale of an asset in the nine months ended September 30, 1995
($2.4 million) relates to the sale of a minority partnership interest in land
previously held for development in Denver, Colorado.
Interest expense increased by $23.2 million for the nine months ended
September 30, 1996, as compared to the same period in 1995. This increase was
primarily the result of the Merger ($15.0 million) and the Property Transactions
($9.5 million).
Income from unconsolidated entities increased by $4.2 million for the nine
months ended September 30, 1996, as compared to the same period in 1995. This is
primarily due to the Merger ($2.2 million) and an increase in the Operating
Partnership's pro rata share of income from the Management Company ($2.2
million).
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The Company's preferred unit requirement for the nine months ended
September 30, 1996 was $6.3 million, primarily as a result of $100 million in
net proceeds received in connection with the Company's issuance of 8 1/8% Series
A convertible preferred stock.
Net income available to unitholders was $67.6 million for the nine months
ended September 30, 1996, as compared to $69.8 million for the same period in
1995, reflecting a net decrease of $2.2 million including Merger integration
costs of $7.2 million, and for the reasons described above, and was allocated
first to the holders of the Preferred Units, then to the partners based on each
partner's ownership interest in the Operating Partnership during the period.
YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
During 1994 and 1995, the Operating Partnership acquired several new
properties through purchase, acquisition and merger, and, as a result of a
change in controlling interest, changed the way it accounted for several
properties (using either the consolidated method of accounting or the equity
method of accounting for non-controlled joint venture entities) (the "Property
Transactions"). The following is a listing of such transactions: The Operating
Partnership began including The Forum Shops at Caesars ("Forum") as a
consolidated property due to the Operating Partnership's ability to demonstrate
control effective April 1, 1994. On September 1, 1994, the Operating Partnership
consolidated 15 properties as a result of the merger of MSA Realty Corporation
into the Company (the "MSAR Merger"). During December 1994, the Operating
Partnership acquired a 100% interest in Independence Mall, Orange Park Mall,
Broadway Square and University Mall (Florida). On February 23, 1995, the
Operating Partnership acquired an additional 50% interest in White Oaks Mall and
is now accounting for the property using the consolidated method of accounting.
Effective July 1, 1995, the Operating Partnership relinquished its ability to
direct certain activities related to the control of North East Mall, and as a
result is now accounting for the property using the equity method of accounting.
On July 31, 1995, the Operating Partnership purchased the remaining 50%
ownership in Crossroads Mall and subsequently began accounting for the property
using the consolidated method of accounting. On September 25, 1995, the
Operating Partnership acquired the remaining 55% ownership in East Towne Mall
and subsequently began accounting for the property using the consolidated method
of accounting. (See the "Liquidity and Capital Resources" discussion for
additional information regarding these transactions.)
Total revenue increased by $80.0 million, or 16.9%, in 1995. Of this
increase, $72.8 million is attributable to the 1995 Property Transactions, and
the full-year impact in 1995 of the 1994 Property Transactions. The remaining
$7.2 million increase is primarily the result of an increase in revenue
resulting from increases of $1.25 and $0.18 in average base minimum rents per
square foot for regional mall stores and community shopping centers as evidenced
by leasing spreads for regional mall store and community shopping center leases
executed during 1995 over those leases expiring in 1995 of $5.38 and $1.22 per
square foot, respectively. These increases are partially offset by a decrease in
overage rent resulting primarily from static sales in the portfolio and a
decline of $1.8 million in overage rent at Texas border properties due to the
devaluation of the Mexican peso. Management expects these properties to return
to their prior performance level, as they have done historically after previous
peso devaluations.
Total operating expenses increased by $43.1 million, or 16.6%, in 1995. Of
this increase, $37.9 million, or 87.9%, is the result of the Property
Transactions. Other than increases from the Property Transactions, total
operating expenses experienced an increase of only 2.0% attributable to
increased depreciation and amortization derived from an increase in investment
properties.
Interest expense, excluding prior year non-recurring interest expense,
increased by a net of $27.2 million, or 22.2%, to $150.2 million for 1995 as
compared to $123.0 million for 1994. Of this increase, $26.5 million, or 97.4%
is the result of the Property Transactions. Partially offsetting this increase
is interest savings realized as a result of restructuring the Operating
Partnership's credit facilities, and from using the proceeds of the Company's
6,241,854 share add-on and over-allotment offerings to reduce the debt of the
Operating Partnership.
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The net gain on the sale of assets in 1995 resulted from a gain on the sale
of a minority partnership interest in land previously held for development in
Denver, Colorado ($2.4 million), partially offset by a loss on the sale of an
equity investment in Arborland Mall ($0.5 million).
Income (loss) from unconsolidated entities increased from a loss of $0.1
million in 1994 to income of $1.4 million in 1995 resulting from an increase in
the Operating Partnership's share of income from partnerships and joint
ventures, partially offset by an increase in its share of losses of the
Management Company. The Operating Partnership's share of income from
partnerships and joint ventures improved by $4.1 million from $1.0 million in
1994 to $5.1 million in 1995. This increase is primarily attributable to gains
from sales of peripheral property ($3.4 million) and the change, for North East
Mall, to the equity method of accounting ($1.7 million). The Operating
Partnership's share of the Management Company's results declined by $2.6 million
from an allocated net loss of $1.1 million for 1994 to an allocated net loss of
$3.7 million for 1995. This decrease is the result of the Management Company's
losses related to the settlement of a mortgage receivable and the liquidation of
a partnership investment in 1995, partially offset by a $1.6 million increase in
the Management Company's operating income.
Extraordinary items of $3.3 million in 1995 and $18.0 million in 1994
resulted from costs associated with the refinancing of debt.
Net income available to Unitholders increased from $42.3 million for 1994
to $96.7 million for 1995, an increase of $54.4 million, for the reasons
discussed above.
YEAR ENDED DECEMBER 31, 1994 VS. COMBINED YEAR ENDED DECEMBER 31, 1993
Total revenue increased by $49.4 million, or 11.6%, to $473.7 million for
1994, as compared to $424.3 million in 1993. This increase is the result of
increases in all components of revenue. The $28.2 million increase in minimum
rent is a result of an overall increase in occupancy levels and the replacement
of expiring tenant leases with renewal leases at higher minimum base rents ($7.2
million), the inclusion of Forum as a consolidated property ($10.3 million) and
the MSAR Merger ($8.7 million). The increase in overage rent of $5.4 million to
$25.5 million for 1994, as compared to $20.1 million in 1993, is attributable to
an overall increase in tenant sales volume ($0.9 million) and the inclusion of
Forum as a consolidated property ($4.2 million). Tenant reimbursements increased
$12.4 million as a result of the increased occupancy and overall tenant
recoverability of costs ($4.0 million), the inclusion of Forum as a consolidated
property ($4.0 million) and the MSAR Merger ($4.0 million). The $3.4 million
increase in other income is primarily attributable to the increase in interest
and dividend income from the Management Company ($9.7 million), the increase in
interest income from cash equivalents due to the increase in funds invested and
higher interest rates ($1.1 million), the consolidation of Forum ($1.4 million)
and the MSAR Merger ($1.1 million), offset in part by the sale of an anchor
store in March 1993 ($8.9 million).
Total operating expenses increased by $17.2 million, or 7.1%, to $259.4
million for 1994 as compared to $242.2 million for 1993. This increase is the
result of increases in depreciation and amortization, real estate taxes, repairs
and maintenance, and advertising and promotion, offset by decreases in property
operating expenses and other expenses. The increase in depreciation and
amortization of $13.7 million is attributable to the purchase of minority
partners' interest in the Predecessor with the application of the offering
proceeds ($5.5 million), the inclusion of Forum as a consolidated property ($3.5
million), the MSAR Merger ($1.8 million) and additional renovation and expansion
costs incurred in 1992 and 1993 at several Portfolio Properties. The increases
in real estate taxes ($3.7 million) and repairs and maintenance ($2.3 million)
are primarily attributable to the consolidation of Forum ($0.3 million and $1.0
million, respectively) and the MSAR Merger ($2.1 million and $0.5 million,
respectively). Tenant contributions funded a substantial portion of the $2.4
million increase in advertising and promotion campaigns. The $6.7 million
decrease in property operating expenses is the result of the reduction in the
costs related to the self-management of wholly owned properties ($5.9 million),
a decrease in insurance costs due to an overall reduction in premiums and loss
occurrences ($1.7 million) and the decrease in general and administrative
expenses ($3.0 million). These decreases in property operating expenses are
partially offset by the inclusion of Forum as a consolidated property ($3.6
million) and the MSAR Merger ($0.5 million). The $1.3 million increase in other
expenses is
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attributable to the inclusion of Forum as a consolidated property ($2.1 million)
and public company costs ($1.2 million), offset in part by the decrease in
ground rent relating to the buyout of various ground leases with the application
of the offering proceeds.
Interest expense, excluding non-recurring interest expense, decreased by
$37.5 million, or 23.4%, to $123.0 million for 1994 as compared to $160.5
million for 1993. This decrease is primarily the result of: (i) the application
of net proceeds of the offering and the concurrent financing to reduce
indebtedness ($34.4 million); and (ii) lower interest rates on debt ($12.1
million); offset by (iii) the inclusion of Forum as a consolidated property
($3.7 million), the MSAR Merger ($4.3 million) and an increase in amortization
of deferred financing costs related to the refinancings ($2.5 million).
On December 1, 1994, as part of a debt restructuring and the termination of
the lender's participation in future cash flow for one of the Portfolio
Properties, the Operating Partnership incurred a non-recurring interest expense
charge of $27.2 million. The Operating Partnership has reflected this item as a
separate line in the Consolidated Statements of Operations.
Minority interest in 1994 reflects the purchase of minority partners'
interest in the Predecessor with the application of the IPO proceeds and the
inclusion of the minority partner's interest in Forum.
Income (loss) from unconsolidated entities improved by $2.3 million. The
Operating Partnership's share of the Management Company's results improved from
an allocation of a net loss of $1.4 million for 1993 to a net loss of $1.1
million for 1994. The 1994 amount is after interest and preferred dividend
charges payable to the Operating Partnership of $9.1 million. There were no
similar charges in 1993. The Operating Partnership's share of income from
partnerships and joint ventures improved from a net loss of $1.0 million for
1993 to net income of $1.0 million for 1994. This increase is attributable to
the consolidation of Forum, the MSAR Merger and land sale activity.
The extraordinary items of $18.0 million in 1994 and $4.3 million in 1993
resulted from costs associated with the early extinguishment or refinancing of
debt.
Net income available to Unitholders increased from $11.3 million for 1993
to net income of $42.3 million for 1994, an increase of $31.0 million, for the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Operating Partnership's balance of cash and cash
equivalents was $92.6 million, not including its proportionate share of cash
held by the joint venture properties and the Management Company. In addition to
its cash reserves, the Operating Partnership had unused capacity under its
unsecured revolving credit facility totaling $427.0 million.
Offering. On September 6, 1996, the Operating Partnership filed a shelf
registration statement with the Securities and Exchange Commission to provide
for the offering, from time to time, of up to $750 million aggregate principal
amount of unsecured debt securities of the Operation Partnership. The Operating
Partnership intends to offer, immediately upon effectiveness, an aggregate of
$200 million in unsecured debt securities. The proceeds of such offering will be
used primarily to retire mortgage indebtedness and to paydown the unsecured
revolving credit facility.
Effective December 15, 1995, SPG, LP completed a shelf registration filing
for $500.0 million of non-convertible investment grade debt securities. As of
September 30, 1996 SPG, LP had not offered any of these debt securities.
DeBartolo Merger. As described in the footnotes to the financial
statements, on August 9, 1996 the Company assumed the outstanding consolidated
indebtedness of DeBartolo Realty Partnership, L.P. Reflected in the consolidated
financial statements of the Operating Partnership is $1,418.4 million from such
indebtedness.
Acquisitions. On April 11, 1996, the Operating Partnership drew an
additional $115.0 million on its then existing revolving credit facility
primarily to finance the acquisition of the remaining economic ownership
interest in Ross Park Mall ($44 million) and to retire a portion of the
property's debt ($54 million).
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In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996 for $12.5 million an
additional 20% limited partnership interest in North East Mall. At the same
time, the Operating Partnership exercised its option to acquire the remaining
30% limited partnership interest in North East Mall owned by the Simons in
exchange for 472,410 partnership units in the Operating Partnership, as well as
the Simons' 50% general partnership interest which the Operating Partnership
acquired for nominal consideration. The Simons had previously contributed to the
Operating Partnership in exchange for partnership units, the right to receive
distributions relating to its 50% general partnership interest. Therefore the
Operating Partnership, as a result of the transactions, owns 100% of North East
Mall and accounts for it using the consolidated method of accounting.
Financing and Refinancing. On February 23, 1996, the Operating Partnership
borrowed the initial $100.0 million tranche of a $184.0 million two-tranche loan
facility for The Forum Shops at Caesar's ("Forum") and retired the existing
$89.7 million mortgage debt for Forum. The initial funding bears interest at
LIBOR plus 100 basis points and matures in February 2000. The remaining proceeds
are being used to provide funds for the approximately 250,000-square-foot phase
II expansion of this property.
On June 28, 1996, the Operating Partnership obtained an additional $200
million unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points and would mature in August of 1998. Terms for the
facility were identical to those of the Operating Partnership's other $400
million credit facility.
On September 10, 1996, the Operating Partnership retired the DRC secured
line of credit, in the amount of $112.0 million, which bore interest at LIBOR
plus 175 basis points, with proceeds from SPG, LP's two unsecured credit
facilities, which bore interest at LIBOR plus 132.5 basis points.
On September 27, 1996, the Company completed a $200 million public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193
million. The Company contributed the proceeds of such offering to the Operating
Partnership in exchange for preferred units in the Operating Partnership, which
ultimately used the net proceeds to repay $142.8 million of outstanding mortgage
indebtedness, $34.4 million under SPG, LP's two unsecured credit facilities,
$12.5 million for the acquisition of the remaining ownership of North East Mall
in Hurst, Texas and the remainder for working capital.
On September 27, 1996, the Operating Partnership obtained a $750 million,
unsecured, three-year credit facility (the "Credit Facility"), with a one year
extension at the option of the Operating Partnership which initially bears
interest at LIBOR plus 90 basis points and retired the outstanding borrowings of
SPG, LP in the aggregate principal amount of $323 million under SPG, LP's two
unsecured credit facilities, which bore interest at LIBOR plus 132.5 basis
points. The Credit Facility increases the Operating Partnership's available
capital by $150 million.
Both the Operating Partnership and the Company anticipate in the future
issuing additional debt or equity securities on a public or private basis. The
Operating Partnership is currently contemplating an issuance of unsecured debt
in the near future in an amount currently expected not to exceed $100 million.
During the first nine months of 1996, the Operating Partnership drew an
additional $33.2 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55.6 million was
outstanding on this construction loan.
Development, Expansions and Renovations. The Operating Partnership is
involved in several development, expansion and renovation efforts.
The Operating Partnership is completing demolition of the existing Bakery
Centre in South Miami, Florida, in preparation for the $130 million development
of The Shops at Sunset Place. Pre-development efforts continue for this
75%-owned 500,000-square-foot retail and entertainment center.
Cottonwood Mall opened on July 31, 1996, in Albuquerque, New Mexico. This
1.0 million-square-foot regional mall is wholly-owned by the Operating
Partnership. Cottonwood Mall is anchored by Dillard's,
31
<PAGE> 69
Foley's, JCPenney, Mervyn's, Montgomery Ward, and a 76,000-square-foot United
Artists STARPORT entertainment complex, which is scheduled to open by the end of
1996.
Construction also continues on the following projects:
- A 250,000-square-foot phase II expansion of Forum, in which the
Operating Partnership has a 55% ownership interest, is scheduled to
open in the fall of 1997. The $90 million costs of the Forum project
are being funded with a portion of a $184 million two-tranche
financing facility which closed February 23, 1996.
- Ontario Mills, a 1.4 million-square-foot value-oriented regional mall
in Ontario, California, in which the Operating Partnership has a 25%
ownership interest, opens November 14, 1996. A $110 million
construction loan on this project has been obtained on this
approximately $168 million partnership venture with The Mills
Corporation. The Operating Partnership funded its $15.0 million equity
commitment for this project in July 1996.
- The Operating Partnership owns 50% of the Indian River Mall and a
related community center, Indian River Commons. These developments are
being financed with $22.0 million of partner's equity and a $52.0
million construction loan. At September 30, 1996 $36.1 million of the
loan was outstanding. The mall will open November 15, 1996 and the
community center in the spring of 1997.
- The Source, a 730,000-square-foot retail development project in
Westbury (Long Island), New York, is expected to open in August of
1997. This new $150 million development will adjoin an existing
Fortunoff store. The Operating Partnership has a total equity
requirement of $31.1 million for this project. Construction Financing
of $120 million closed on this property in July of 1996. The loan
carries interest at LIBOR plus 170 basis points and matures on July
16, 1999. The Operating Partnership has made a $21.7 million equity
investment in this 50%-owned joint venture development through
September 30, 1996.
- Arizona Mills, a 1,225,000-square-foot retail development project in
Tempe, Arizona, broke ground on August 1, 1996. This $183 million
development is expected to open in November of 1997. A commitment has
been obtained for a five-year $145 million construction loan with
interest at LIBOR plus 160 basis points. The Operating Partnership has
an $11.2 million equity investment and a 25% ownership interest in
this joint venture development.
- Grapevine Mills, a 1,450,000-square-foot retail development project in
Fort Worth, Texas, broke ground on July 10, 1996, and is expected to
open in October of 1997. A commitment has been obtained for a
four-year $140 million construction loan with interest at LIBOR plus
165 basis points. The Operating Partnership will have a $13.9 million
equity commitment on this $188 million development project. The
Operating Partnership owns 37.5% of this joint venture development.
- The Tower Shops in Las Vegas, Nevada, is an approximately $24 million,
60,000-square-foot retail development project in which the Operating
Partnership owns a 50% interest. This retail development is currently
under construction and is scheduled to open late in 1996. The
Operating Partnership contributed its $3.2 million equity commitment
in April of 1996.
Several renovation and expansion projects are currently under construction
and management continues to review additional projects. It is anticipated that
these projects will be financed principally with external borrowings, existing
corporate credit facilities and cash flows from operations.
Debt. At September 30, 1996, the Operating Partnership had consolidated
debt of $3,555.1 million, of which $2,481.6 million is fixed-rate debt and
$1,073.5 million is variable-rate debt. As of September 30, 1996, the Operating
Partnership had interest-rate protection agreements relating to $635.8 million
of the variable-rate debt, respectively. The agreements are generally in effect
until the related variable-rate debt matures.
32
<PAGE> 70
The Operating Partnership's ratio of consolidated debt-to-market
capitalization was approximately 45.2% at September 30, 1996.
Distributions. The Operating Partnership declared a distribution of
$0.4925 per Unit in each of the first three quarters of 1996. In addition, a
special distribution of $0.1515 per unit was declared on August 9, 1996 to align
the time periods of distributions for the Company and DeBartolo Realty
Corporation under the definitive merger agreement. Future distributions will be
determined based on actual results of operations and cash available for
distribution. Preferred distributions of $0.5078 per Series A Preferred Unit
were also declared per quarter.
Capital Resources. Management anticipates that cash generated from
operating performance will provide the necessary funds on a short- and long-term
basis for its operating expenses, interest expense on outstanding indebtedness,
recurring capital expenditures and distributions to holders of Preferred Units
and Units.
Management continues to actively review and evaluate property acquisition
opportunities. Management believes that funds on hand and amounts available
under the Credit Facility, together with the ability to issue shares of common
stock of the Company and/or Units, provide the means to finance certain
acquisitions. No assurance can be given that the Operating Partnership will not
be required to, or will not elect to, even if not required to, obtain funds from
outside sources, including through the sale of debt or equity securities, to
finance significant acquisitions, if any.
Investing and Financing Activities. Cash used in investing activities for
the nine months ended September 30, 1996 was $59.7 million. Cash used in
investing activities included approximately $44 million for the acquisition of
the remaining economic ownership interest in Ross Park Mall, tenant allowances,
capital expenditures and development related costs of $112.4 million including
$31.3 million, $11.7 million, $6.1 million and $4.7 million at Cottonwood Mall,
Forum, Muncie Mall and The Shops at Sunset Place, respectively; and advances to
unconsolidated joint ventures totaling approximately $54.4 million, including
$18.9 million, $15.0 million, $5.7 million and $3.2 million in equity
contributions made to The Source, Ontario Mills, Arizona Mills and The Tower
Shops, respectively, to fund development activity. Cash received in connection
with the Merger and consolidation of joint venture properties was $66.7 million.
Cash received from unconsolidated entities of $45.4 million included a $30.9
million return of equity from Smith Haven Mall. Additionally, a note repayment
was received from M.S. Management Associates ($38.6 million). Cash used in
investing activities for the nine months ended September 30, 1995 included $61.5
million for tenant allowances, capital expenditures and development related
costs, a $14.6 million equity investment in Rolling Oaks Mall, and $3.1 million
for the acquisition of a joint venture interest in a parcel of land to be held
for development in Little Rock, Arkansas and $18.6 million for the acquisition
of East Towne Mall, partially offset by $2.6 million of net proceeds from the
sale of a joint venture interest in land held for development, distributions
from unconsolidated entities ($4.3 million) and cash of $3.4 million included in
the acquisition of interest in White Oaks Mall.
Cash used in financing activities for the nine months ended September 30,
1996 was $6.8 million less than the nine months ended September 30, 1995. The
decrease in cash used in 1996 as compared to 1995 was primarily the result of
$193.5 million in partnership contributions from the sale of preferred stock in
1996 partially offset by an increase of $41.7 million in distributions to
Unitholders and proceeds from sales of common stock in 1995 of $142.1 million.
EBITDA-EARNINGS FROM OPERATING RESULTS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION
Management believes that there are several important factors that
contribute to the ability of the Operating Partnership to increase rent and
improve profitability of its shopping centers, including aggregate tenant sales
volume, sales per square foot, occupancy levels and tenant costs. Each of these
factors has a significant effect on EBITDA. Management believes that EBITDA is
an effective measure of shopping center operating performance because: (i) it is
industry practice to evaluate real estate properties based on operating income
before interest, taxes, depreciation and amortization, which is generally
equivalent to EBITDA; and (ii) EBITDA is unaffected by the debt and equity
structure of the property owner. EBITDA: (i) does not
33
<PAGE> 71
represent cash flow from operations as defined by generally accepted accounting
principles; (ii) should not be considered as an alternative to net income as a
measure of the Operating Partnership's operating performance; (iii) is not
indicative of cash flows from operating, investing and financing activities; and
(iv) is not an alternative to cash flows as a measure of the Operating
Partnership's liquidity.
Total EBITDA for the portfolio properties increased from $315.3 million for
the nine months ended September 30, 1995 to $390.2 million for the same period
in 1996, representing a growth rate of 24%. This increase is primarily
attributable to the malls opened or acquired during 1995. During this period,
operating profit margin decreased slightly from 63.1% to 61.4%.
FFO-FUNDS FROM OPERATIONS
FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), means the consolidated net income of the Operating
Partnership and its subsidiaries without giving effect to depreciation and
amortization, gains or losses from extraordinary items, gains or losses on sales
of real estate, gains or losses on investments in marketable securities and any
provision/benefit for income taxes for such period, plus the allocable portion,
based on the Operating Partnership's ownership interest, of funds from
operations of unconsolidated joint ventures, all determined on a consistent
basis in accordance with generally accepted accounting principles. Management
believes that FFO is an important and widely used measure of the operating
performance of REITs which provides a relevant basis for comparison among REITs.
FFO is presented to assist investors in analyzing the performance of the
Operating Partnership. FFO: (i) does not represent cash flow from operations as
defined by generally accepted accounting principles; (ii) should not be
considered as an alternative to net income as a measure of the Operating
Partnership's operating performance or to cash flows from operating, investing
and financing activities; and (iii) is not an alternative to cash flows as a
measure of the Operating Partnership's liquidity. In March, 1995, NAREIT
modified its definition of FFO. The modified definition provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
The modified definition was adopted by the Operating Partnership beginning in
1996. Additionally, the prior year FFO is being restated to reflect the new
definition in order to make the amounts comparative. Under the previous
definition, FFO for the three months and nine months ended September 30, 1995,
would have been $52.3 million and $145.4 million, respectively.
The following summarizes FFO and reconciles net income to FFO for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FFO......................................................... $ 74,270 $ 49,492 $ 173,482 $ 137,287
======== ======== ========= =========
Reconciliation:
Net Income.................................................. $ 24,085 $ 24,310 $ 67,558 $ 69,797
Plus:
Extraordinary items -- Losses on extinguishments of debt.... 2,530 2,636 2,689 2,884
Depreciation and amortization from consolidated 37,469 21,894 88,507 64,855
properties..............................................
The Operating Partnership's share of depreciation and 3,775 1,329 9,725 4,340
amortization from unconsolidated affiliates.............
Merger Integration Costs 7,236 N/A 7,236 --
Less:
Gain on sale of asset..................................... (88) (677) (88) (2,350)
Minority interest portion of depreciation, amortization (737) -- (2,145) (2,239)
and extraordinary items.................................
-------- -------- --------- ---------
FFO......................................................... $ 74,270 $ 49,492 $ 173,482 $ 137,287
======== ======== ========= =========
</TABLE>
34
<PAGE> 72
PORTFOLIO DATA
Operating statistics give effect to the merger of the Company and DeBartolo
Realty Corporation and are based upon the business and properties of the Company
and DRC on a combined basis.
Aggregate Tenant Sales Volume. For the nine months ended September 30,
1996 compared to the same period in 1995, total reported retail sales for mall
and freestanding stores at the regional malls and all stores at the community
shopping centers for GLA owned by the Operating Partnership ("Owned GLA")
increased 4.4% from $5,050 million to $5,331 million. Retail sales at Owned GLA
affect revenue and profitability levels because they determine the amount of
minimum rent that can be charged, the percentage rent realized, and the
recoverable expenses (common area maintenance, real estate taxes, etc.) the
tenants can afford to pay.
Occupancy Levels. Occupancy levels for regional malls were 84.3% at both
September 30, 1995 and September 30, 1996. Occupancy levels for community
shopping centers decreased from 94.0% at September 30, 1995 to 92.1% at
September 30, 1996. Total GLA has increased 3.0 million square feet from
September 30, 1995 to September 30, 1996, primarily as a result of the October
1995 opening of Lakeline Mall, the December 1995 acquisition of Smith Haven Mall
and the July 1996 opening of Cottonwood Mall.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 5.8%, from $19.08 to
$20.18 as of September 30, 1996 as compared to September 30, 1995. In community
shopping centers, average base rents per square foot of Owned GLA increased
3.2%, from $7.26 to $7.49 during this same period.
INFLATION
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the portfolio properties.
Nonetheless, substantially all of the tenants' leases contain provisions
designed to lessen the impact of inflation. Such provisions include clauses
enabling the Operating Partnership to receive percentage rentals based on
tenants' gross sales, which generally increase as prices rise, and/or escalation
clauses, which generally increase rental rates during the terms of the leases.
In addition, many of the leases are for terms of less than ten years, which may
enable the Operating Partnership to replace existing leases with new leases at
higher base and/or percentage rentals if rents of the existing leases are below
the then-existing market rate. Substantially all of the leases, other than those
for anchors, require the tenants to pay a proportionate share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the Operating Partnership's exposure to increases in costs and
operating expenses resulting from inflation.
However, inflation may have a negative impact on some of the Operating
Partnership's other operating items. Interest and general and administrative
expenses may be adversely affected by inflation as these specified costs could
increase at a rate higher than rents. Also, for tenant leases with stated rent
increases, inflation may have a negative effect as the stated rent increases in
these leases could be lower than the increase in inflation at any given time.
OTHER
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail sales
are typically at their highest levels. In addition, shopping malls achieve most
of their temporary tenant rents during the holiday season. As a result of the
above, earnings are generally highest in the fourth quarter of each year.
Management recognizes the retail industry is cyclical in nature and some
tenants continue to experience difficulties, which is reflected in sales trends
and in the bankruptcies and continued restructuring of several prominent retail
organizations. Continuation of these trends could impact future earnings
performance.
35
<PAGE> 73
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost................................... $ 5,226,532 $2,162,161
Less -- accumulated depreciation................................. (236,583) 152,817
---------- ----------
4,989,949 2,009,344
Cash and cash equivalents........................................ 92,575 62,721
Tenant receivables and accrued revenue, net...................... 150,954 144,400
Notes receivable and advances due from Management Company........ 54,128 102,522
Investment in partnerships and joint ventures, at equity......... 368,225 113,676
Deferred costs, net.............................................. 77,384 81,398
Other assets..................................................... 64,981 42,375
---------- ----------
Total assets.................................................. $ 5,798,196 $2,556,436
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable................................ $ 3,555,123 $1,980,759
Accounts payable and accrued expenses............................ 199,942 113,131
Accrued distributions............................................ 2,223 48,594
Cash distributions and losses in partnerships and joint ventures,
at equity..................................................... 16,796 54,120
Investment in Management Company................................. 13,415 20,612
Other liabilities................................................ 47,932 19,582
---------- ----------
Total liabilities............................................. 3,835,431 2,236,798
---------- ----------
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' EQUITY INTEREST, 60,501,640 and 37,282,628 units
outstanding at redemption value(Note 10)......................... 1,542,792 908,764
PARTNERS' EQUITY:
Series A Preferred units, 4,000,000 authorized, issued and
outstanding................................................... 99,923 99,923
Series B Preferred units, 8,000,000 authorized, issued and
outstanding................................................... 193,471 --
General Partner, 96,507,387 and 58,360,195 units outstanding at
September 30, 1996 and December 31, 1995, respectively........ 1,029,774 135,710
Adjustment to reflect limited partners' equity interest at
redemption value (Note 10).................................... (897,320) (822,072)
Unamortized restricted stock award............................... (5,875) (2,687)
---------- ----------
Total partners' equity (deficit).............................. 419,973 (589,126)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit)................................... $ 5,798,196 $2,556,436
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE> 74
SIMON DEBARTOLO GROUP L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent...................................... $117,375 $ 75,242 $277,313 $222,701
Overage rent...................................... 6,987 5,982 17,738 15,877
Tenant reimbursements............................. 63,511 50,536 157,738 140,030
Other income...................................... 14,563 6,282 32,851 19,689
-------- -------- -------- --------
Total revenue.................................. 202,436 138,042 485,640 398,297
-------- -------- -------- --------
EXPENSES:
Property operating................................ 35,089 26,647 85,608 72,623
Depreciation and amortization..................... 37,606 22,015 88,913 65,212
Real estate taxes................................. 19,676 13,321 48,040 39,854
Repairs and maintenance........................... 10,006 5,740 22,546 16,926
Advertising and promotion......................... 5,542 4,093 14,439 12,013
Merger integration costs.......................... 7,236 -- 7,236 --
Provision for doubtful accounts................... 1,116 (200) 2,867 2,203
Other............................................. 3,450 2,235 9,152 8,295
-------- -------- -------- --------
Total operating expenses....................... 119,721 73,851 278,801 217,126
-------- -------- -------- --------
OPERATING INCOME.................................... 82,715 64,191 206,839 181,171
INTEREST EXPENSE.................................... 56,212 36,468 135,346 112,125
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST..................... 26,503 27,723 71,493 69,046
MINORITY INTEREST................................... (1,219) (605) (2,394) (1,940)
GAIN ON SALE OF ASSET............................... 88 -- 88 2,350
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES............... 25,372 27,118 69,187 69,456
INCOME FROM UNCONSOLIDATED ENTITIES................. 3,467 (172) 7,452 3,225
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS................... 28,839 26,946 76,639 72,681
EXTRAORDINARY ITEMS -- Losses on extinguishments of
debt.............................................. (2,530) (2,636) (2,795) (2,884)
-------- -------- -------- --------
NET INCOME.......................................... 26,309 24,310 73,844 69,797
GENERAL PARTNER PREFERRED UNIT REQUIREMENT.......... (2,224) -- (6,286) --
-------- -------- -------- --------
NET INCOME AVAILABLE TO UNITHOLDERS................. $ 24,085 $ 24,310 $ 67,558 $ 69,797
======== ======== ======== ========
NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE TO:
General Partner................................ $ 14,784 $ 14,774 $ 41,350 $ 41,368
Limited Partners............................... 9,301 9,536 26,208 28,429
-------- -------- -------- --------
$ 24,085 $ 24,310 $ 67,558 $ 69,797
======== ======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items.............. $ 0.20 $ 0.28 $ 0.65 $ 0.79
Extraordinary items............................ (0.02) (0.03) (0.02) (0.03)
-------- -------- -------- --------
Net income..................................... $ 0.18 $ 0.25 $ 0.63 $ 0.76
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
37
<PAGE> 75
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR (NOTE 1)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 73,844 $ 69,797
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization.......................................... 94,976 71,761
Losses on extinguishments of debt...................................... 2,795 2,888
Gain on sale of asset.................................................. (88) (2,350)
Straight-line rent..................................................... 1,754 (1,237)
Minority interest...................................................... 2,394 1,940
Equity in income of unconsolidated entities............................ (7,452) (3,225)
Changes in assets and liabilities
Tenant receivables and accrued revenue................................. 9,034 3,727
Deferred costs and other assets........................................ (4,200) (9,420)
Accounts payable, accrued expenses and other liabilities............... (29,767) (4,337)
--------- ---------
Net cash provided by operating activities........................... 143,290 129,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions........................................................... (43,941) (31,155)
Capital expenditures................................................... (112,419) (61,510)
Cash from Merger and consolidation of joint ventures................... 66,736 4,346
Proceeds from sale of asset............................................ 399 2,550
Investments in unconsolidated entities................................. (54,442) (19,696)
Distributions from unconsolidated entities............................. 45,403 4,274
Loan repayment from Management Company................................. 38,553
--------- ---------
Net cash used in investing activities............................... (59,711) (101,191)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions.............................................. 195,205 142,130
Minority interest distributions........................................ (3,810) (2,823)
Partnership distributions.............................................. (171,346) (130,643)
Proceeds from borrowings, net of transaction costs..................... 272,945 359,338
Mortgage, bond and other payments...................................... (346,719) (428,511)
--------- ---------
Net cash used in financing activities............................... (53,725) (60,509)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 29,854 (32,156)
CASH AND CASH EQUIVALENTS, beginning of period........................... 62,721 105,139
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................................. $ 92,575 $ 72,983
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
38
<PAGE> 76
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION
On August 9, 1996, the merger and other related transactions pursuant to
the agreement and plan of merger among Simon Property Group, Inc. ("SPG"), an
acquisition subsidiary of SPG and DeBartolo Realty Corporation ("DRC") were
consummated (the "Merger"). Pursuant to the Merger, SPG acquired all the
outstanding shares of common stock of DRC (55,712,529 shares) through the
acquisition subsidiary, at an exchange ratio of 0.68 share of SPG common stock
for each share of DRC common stock (the "Exchange Ratio"). A total of 37,884,520
shares of SPG common stock were issued by SPG, through the acquisition
subsidiary, to the DRC shareholders. DRC and the acquisition subsidiary merged,
with DRC as the surviving entity and becoming a 99.9% subsidiary of SPG. This
portion of the transaction was valued at approximately $923.2 million, based
upon the number of DRC shares of common stock acquired (55,712,529 shares), the
Exchange Ratio and the last reported sales price per share of SPG's common stock
on August 9, 1996 ($24.375). In connection therewith, SPG changed its name to
Simon DeBartolo Group, Inc. (the "Company") and DRC changed its name to SD
Property Group, Inc. (the "Managing General Partner").
In connection with the Merger, the general and limited partners of the
operating partnership of SPG, Simon Property Group, L.P. ("SPG, LP"),
contributed 49.5% (47,442,212 units) of the total outstanding units of
partnership interest in SPG, LP to the operating partnership of DRC, DeBartolo
Realty Partnership, L.P. ("DRP, LP") in exchange for 47,442,212 units of
partnership interest in DRP, LP, whose name has since been changed to Simon
DeBartolo Group, L.P. ("SDG, LP"). The Company retained a 50.5% partnership
interest (48,400,641 units) in SPG, LP but assigned its rights to receive
distributions of profits on 49.5% (47,442,212 units) of the outstanding units of
partnership interest in SPG, LP to SDG, LP. The limited partners of DRP, LP
approved the contribution made by the partners of SPG, LP and simultaneously
exchanged their 38.0% (34,203,623 units) partnership interest in DRP, LP,
adjusted for the Exchange Ratio, for a smaller partnership interest in SDG, LP.
The exchange of the limited partners' 38.0% partnership interest in DRP, LP for
units of SDG, LP has been accounted for as an acquisition of minority interest
by the Company and is valued based on the estimated fair value of the
consideration issued (approximately $566.9 million). The units of SDG, LP may
under certain circumstances be exchangeable for stock of the Company on a
one-for-one basis. Therefore, the value of the acquisition of the DRP, LP
limited partners' interest acquired was based upon the number of DRP, LP units
exchanged (34,203,623 units), the Exchange Ratio and the last reported sales
price per share of SPG's common stock on August 9, 1996 ($24.375). The limited
partners of SPG, LP received a 23.7% partnership interest in SDG, LP (37,282,628
units) for the contribution of their 38.9% partnership interest in SPG, LP
(37,282,628 units) to SDG, LP. The interests transferred by the partners of SPG,
LP to DRP, LP have been appropriately reflected at historical costs.
Upon completion of the Merger, the Company became a general partner of SDG,
LP with 36.9% (57,605,796 units) of the outstanding partnership units in SDG, LP
and the Managing General Partner became the managing general partner of SDG, LP
with 24.3% (37,873,965 units in SPG, LP) of the outstanding partnership units in
SDG, LP. The Company remained the sole general partner of SPG, LP with 1% of the
outstanding partnership units (958,429 units) and 49.5% interest in the capital
of SPG, LP, and SDG, LP became a special limited partner in SPG, LP with 49.5%
(47,442,212 units) of the outstanding partnership units in SPG, LP and an
additional 49.5% interest in the profits of SPG, LP. SPG, LP did not acquire any
interest in SDG, LP. Upon completion of the Merger, the Company directly and
indirectly owned a controlling 61.2% (95,479,761 units) partnership interest in
SDG, LP.
For financial reporting purposes, the completion of the Merger resulted in
a reverse acquisition by the Company, using the purchase method of accounting,
directly or indirectly, of 100% of the net assets of DRP, LP for consideration
valued at $1.523 billion, including related transaction costs. The purchase
price has been allocated to the fair value of the assets and liabilities of DRP,
LP at September 30, 1996. Certain assumptions were made which management of the
General Partners believes are reasonable. Management expects to
39
<PAGE> 77
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
finalize the purchase price allocation during the fourth quarter of 1996. The
final allocation is not expected to differ materially from the allocation made
at September 30, 1996.
Although the Company was the accounting acquirer, SDG, LP (formerly DRP,
LP) became the primary operating partnership through which the future business
of the Company will be conducted, As a result of the Merger, the Company's
initial operating partnership, SPG, LP, became a subsidiary of SDG, LP, with 99%
of the profits allocable to SDG, LP and 1% of the profits allocable to the
Company. Cash flow allocable to the Company's 1% profit interest in SDG, LP will
be absorbed by public company cost and related expenses incurred by the Company.
However, because the Company was the accounting acquirer and upon completion of
the Merger acquired majority control of SDG, LP, SPG, LP is the predecessor to
SDG, LP for financial reporting purposes. Accordingly the financial statements
and ratios disclosed by SDG, LP for the post-merger periods will reflect the
reverse acquisition of DRP, LP by the Company using the purchase method of
accounting and for all pre-merger comparative periods, the financial statements
and ratios disclosed by SDG, LP will reflect the financial statements and ratios
of SPG, LP as the predecessor to SDG, LP for financial reporting purposes.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
SPG, LP. However, there can be no assurance that such reorganizational
transactions will be so effected. See "The Operating Partnership."
In connection with the Merger, M.S. Management Associates, Inc., a SPG
management company, purchased from The Edward J. DeBartolo Corporation all of
the voting stock (665 shares of common stock) of DeBartolo Properties
Management, Inc., a DRC management company, for $2.5 million in cash. SDG, LP
continues to hold substantially all of the economic interest in DeBartolo
Properties Management, Inc. The Company holds substantially all of the economic
interest in M.S. Management Associates, Inc., while the voting stock are held by
the Simons and their affiliates. M.S. Management Associates, Inc. is accounted
for using the equity method of accounting.
The following unaudited pro forma summary financial information for the
nine month period ended September 30, 1996 combines the consolidated results of
operations of the Operating Partnership as if the Merger had occurred on January
1, 1995 and was carried forward through September 30, 1996:
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 694,343 $ 645,398
========== ==========
Net Income.................................................. $ 107,383 $ 128,225
========== ==========
Net Income Attributable to:
General Partners.......................................... $ 65,933 $ 78,730
Limited Partners.......................................... 41,450 49,495
----------- -----------
$ 107,383 $ 128,225
========== ==========
Net Income per Unit......................................... $ 0.68 $ 0.84
========== ==========
Weighted Average Units Outstanding.......................... 156,925,688 152,806,432
========== ==========
</TABLE>
NOTE 2 -- BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited;
however, they have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
40
<PAGE> 78
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the consolidated
condensed financial statements for these interim periods have been included. The
results for the interim period ended September 30, 1996 are not necessarily
indicative of the results to be obtained for the full fiscal year. These
unaudited consolidated condensed financial statements should be read in
conjunction with the December 31, 1995 audited financial statements and notes
thereto included in the Simon Property Group, L.P. Annual Report on Form
10-K/A-1.
The accompanying unaudited consolidated condensed financial statements of
Simon DeBartolo Group, L.P. (the "Operating Partnership") include all the
accounts of the Operating Partnership and subsidiaries entities. Simon DeBartolo
Group, Inc. and affiliates (the "Company"), directly or indirectly owned 61.5%
and 61.0% of the Operating Partnership as of September 30, 1996 and December 31,
1995, respectively. Properties which are wholly owned or controlled by the
Operating Partnership have been consolidated. All significant intercompany
amounts have been eliminated.
The Operating Partnership's equity interests in certain partnerships and
joint ventures which represent noncontrolling 14.7% to 50.0% ownership interests
and the investment in M.S. Management Associates, Inc. (the "Management
Company" -- see Note 7) are accounted for under the equity method of accounting.
These investments are recorded initially at cost and subsequently adjusted for
net equity in income (loss) and cash contributions and distributions. An
additional 2% ownership in one property is accounted for using the cost method.
Net income is allocated to the partners based on each partner's preferred
unit preference and/or ownership interest in the Operating Partnership during
the period. The Company's weighted average ownership interest in the Operating
Partnership for the three months ended September 30, 1996 and 1995 was 61.3% and
60.8%, respectively. The Company's weighted average ownership interest for the
nine-month periods ended September 30, 1996 and 1995 was 61.2% and 59.3%,
respectively.
NOTE 3 -- RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1996 presentation.
NOTE 4 -- CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the nine months
ended September 30, 1996 was $127,464, as compared to $106,734 for the same
period in 1995. Accrued and unpaid distributions as of September 30, 1996 and
December 31, 1995 were $2,223, and $48,594, respectively, which includes accrued
and unpaid distributions on the units of partnership interest entitled to
preferential distribution of cash ("Preferred Units") of $2,223, and $1,490,
respectively.
As described in Note 1 the Operating Partnership issued units in connection
with the acquisition of DRC.
NOTE 5 -- PER UNIT DATA
Per unit data is based on the weighted average number of units of
partnership interest ("Units") of the Operating Partnership outstanding during
the period. As used herein, the term Units does not include Preferred Units. The
weighted average number of Units used in the computation for the three months
ended September 30, 1996 and 1995 was 131,056,267 and 95,196,569, respectively.
The weighted average number of Units used in the computation for the nine months
ended September 30, 1996 and 1995 was 107,607,202 and 91,663,449, respectively.
Units may be exchanged for shares of common stock of the Company on a one-for-
41
<PAGE> 79
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
one basis in certain circumstances. Additionally, Series A Preferred Units may
be converted into common stock of the Company beginning in October of 1997 at an
initial conversion ratio equal to 0.9524. The stock options outstanding under
the Stock Option Plans and the Preferred Units have not been included in the
computations of per Unit data, as they do not have a dilutive effect.
NOTE 6 -- ACQUISITION
Prior to April 11, 1996, the Operating Partnership held a 50% joint venture
interest in Ross Park Mall in Pittsburgh, Pennsylvania. On April 11, 1996, the
Operating Partnership acquired the remaining economic ownership interest. The
purchase price included approximately $44,000 cash and the assumption of the
joint venture partner's share of existing debt ($57,000). The purchase price in
excess of the net assets acquired of $49,015 was allocated to investment
properties. Effective April 11, 1996, the property is being accounted for using
the consolidated method of accounting. It was previously accounted for using the
equity method of accounting.
In connection with the settlement of certain outstanding litigation, the
Operating Partnership acquired on October 4, 1996 for cash an additional 20%
limited partnership interest in North East Mall. At the same time, the Operating
Partnership exercised its option to acquire the remaining 30% limited
partnership interest in North East Mall owned by the Simons in exchange for
472,410 units in the Operating Partnership, as well as the Simons' 50% general
partnership interest which the Operating Partnership acquired for nominal
consideration. The Simons had previously contributed to the Operating
Partnership in exchange for units, the right to receive distributions relating
to its 50% general partnership interest. Therefore, the Operating Partnership as
a result of these transactions owns 100% of North East Mall and accounts for it
using the consolidated method of accounting.
42
<PAGE> 80
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
Summary financial information of partnerships and joint ventures accounted
for using the equity method of accounting and a summary of the Operating
Partnership's investment in and share of income (loss) from such partnerships
and joint ventures follow:
<TABLE>
<CAPTION>
PARTNERSHIPS AND JOINT
VENTURES
------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
BALANCE SHEETS
ASSETS:
Investment properties at cost, net....................... $ 1,763,739 $1,156,066
Cash and cash equivalents................................ 63,298 52,624
Tenant receivables....................................... 50,356 35,306
Other assets............................................. 45,446 32,626
---------- ----------
Total assets..................................... 1,922,839 $1,276,622
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgage and other notes payable......................... $ 1,071,932 $ 410,652
Accounts payable, accrued expenses and other
liabilities........................................... 159,446 127,322
---------- ----------
Total liabilities..................................... 1,231,378 537,974
Partners' equity...................................... 691,461 738,648
---------- ----------
Total liabilities and partners' equity........... 1,922,839 $1,276,622
========== ==========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets..................................... $ 551,500 $ 290,802
========== ==========
PARTNERS' EQUITY:
Investment in partnerships and joint ventures, at
equity................................................ $ 368,225 $ 113,676
Cash distributions and losses in partnerships and joint
ventures, at equity................................... (16,796) (54,120)
---------- ----------
$ 351,429 $ 59,556
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PARTNERSHIPS AND JOINT VENTURES
--------------------------------------
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
----------------- ------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent......................................... $37,295 $19,755 $ 91,334 $57,606
Overage rent......................................... 2,057 548 3,746 1,678
Tenant reimbursements................................ 18,487 10,002 46,000 28,651
Other income......................................... 2,903 1,757 9,061 11,064
------ ------ ------ ------
Total revenue..................................... 60,742 32,062 150,141 98,999
OPERATING EXPENSES:
Operating expenses and other......................... 22,888 11,019 55,737 32,456
Depreciation and amortization........................ 12,273 5,310 32,859 15,961
------ ------ ------ ------
Total operating expenses.......................... 35,161 16,329 88,596 48,417
------ ------ ------ ------
OPERATING INCOME....................................... 25,581 15,733 61,545 50,582
INTEREST EXPENSE....................................... 14,555 6,648 28,689 21,282
EXTRAORDINARY ITEMS.................................... -- (9) -- (9)
------ ------ ------ ------
NET INCOME............................................. 11,026 9,076 32,856 29,291
THIRD PARTY INVESTORS' SHARE OF NET INCOME............. 8,892 8,254 27,590 26,060
------ ------ ------ ------
THE OPERATING PARTNERSHIP'S SHARE OF NET INCOME........ $ 2,141 $ 822 $ 5,275 $ 3,231
====== ====== ====== ======
</TABLE>
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these
43
<PAGE> 81
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
agreements are not always consistent with the ownership interest held by each
general or limited partner or joint venturer, primarily due to partner
preferences.
Summary financial information of the Management Company accounted for using
the equity method of accounting and a summary of the Operating Partnership's
investment in and share of income from the Management Company follow:
<TABLE>
<CAPTION>
MANAGEMENT COMPANY
----------------------------
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEETS 1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Current assets......................................... $ 62,874 $ 40,964
Undeveloped land and mortgage notes.................... 18,245 45,769
Other assets........................................... 24,889 13,813
-------- --------
Total assets................................... $ 106,008 $100,546
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities.................................... $ 52,584 $ 18,435
Notes payable and advances due to the Operating
Partnership at 11%, due 2008........................ 71,028 102,522
-------- --------
Total liabilities................................... 123,612 120,957
Shareholders' deficit............................... (17,604) (20,411)
-------- --------
Total liabilities and shareholders' deficit.... $ 106,008 $100,546
======== ========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets................................... $ 94,639 $ 80,437
======== ========
Shareholders' deficit.......................... $ (18,415) $(20,612)
======== ========
</TABLE>
44
<PAGE> 82
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANAGEMENT COMPANY
-------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Management fees................... $ 4,952 $ 4,158 $15,122 $15,113
Development and leasing fees...... 6,480 6,747 10,928 13,140
Cost-sharing income and other..... 1,935 1,706 7,237 5,221
------- ------- ------- -------
Total revenue.................. 13,367 12,611 33,287 33,474
EXPENSES:
Operating expenses................ 7,953 10,747 21,744 24,983
Depreciation...................... 693 579 1,947 1,679
Interest.......................... 1,539 1,999 4,690 5,691
------- ------- ------- -------
Total expenses................. 10,185 13,325 28,381 32,353
------- ------- ------- -------
NET INCOME (LOSS)................... 3,182 (714) 4,906 1,121
INTER-COMPANY PROFITS............... (1,232) -- (1,232) --
------- ------- ------- -------
NET INCOME (LOSS) AFTER
INTER-COMPANY ELIMINATION......... 1,950 (714) 3,674 1,121
PREFERRED DIVIDENDS................. 350 350 1,050 1,015
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE FOR
COMMON SHAREHOLDERS............... $ 1,600 $(1,064) $ 2,624 $ 106
======= ======= ======= =======
THE OPERATING PARTNERSHIP'S SHARE OF
NET INCOME (LOSS)................. $ 1,326 $ (994) $ 2,177 $ (6)
======= ======= ======= =======
</TABLE>
The management, development and leasing activities related to the
non-wholly owned and other third-party properties are conducted by the
Management Company.
The Operating Partnership's share of allocated common costs were $7,524 and
$5,685, respectively, for the three-month periods and $21,949 and $17,704,
respectively, for the nine-month periods ended September 30, 1996 and 1995.
NOTE 8 -- DEBT
On February 23, 1996, the Operating Partnership borrowed the initial
$100,000 tranche of a $184,000 two-tranche loan facility for the Forum Shops at
Caesar's ("Forum") and retired the existing $89,701 mortgage debt for Forum. The
initial funding bears interest at LIBOR plus 100 basis points and matures in
February 2000. The remaining proceeds of the initial $100,000 tranche are being
used to provide funds for the approximately 250,000-square-foot phase II
expansion of this property.
On April 11, 1996, the Operating Partnership borrowed an additional
$115,000 on its then existing revolving credit facility. The funds were used
primarily to acquire the remaining economic ownership interest in Ross Park Mall
($44,000), and to retire a portion ($54,000) of the existing debt on Ross Park
Mall.
On June 28, 1996, the Operating Partnership obtained an additional $200,000
unsecured, revolving credit facility. The facility bore interest at LIBOR plus
132.5 basis points and would mature in August of 1998. Terms for the facility
were identical to those of the Operating Partnership's other $400,000 facility
obtained in August of 1995.
45
<PAGE> 83
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
During the first nine months of 1996, the Operating Partnership drew an
additional $33,246 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55,645 million
was outstanding on the loan.
On September 10, 1996, the Operating Partnership retired the DRC secured
line of credit, which bore interest at LIBOR plus 175 basis points, with
proceeds from SPG, LP's two unsecured credit facilities, which bore interest at
LIBOR plus 132.5 basis points.
On September 27, 1996, the Company completed a $200,000 public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193,000.
The Company contributed the proceeds of such offering to the Operating
Partnership in exchange for preferred units in the Operating Partnership, which
used the net proceeds to repay $142,800 of outstanding mortgage indebtedness and
$50,200 under SPG, LP's two unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750,000,
unsecured, three-year credit facility (the "Credit Facility"), which will
initially bear interest at LIBOR plus 90 basis points, and retired the
outstanding borrowing of SPG, LP in the aggregate principal amount of $323,000
under SPG, LP's two unsecured credit facilities, which bore interest at LIBOR
plus 132.5 basis points. The Credit Facility increases the Operating
Partnership's available capital by $150,000.
On September 6, 1996, the Operating Partnership filed a shelf registration
statement with the Securities and Exchange Commission to provide for the
offering, from time to time, of up to $750,000 aggregate principal amount of
unsecured debt securities of the Operating Partnership. The Operating
Partnership is currently preparing to offer an aggregate of $200,000 in
unsecured debt securities for sale to the public, the proceeds of which will be
used primarily to retire mortgage indebtedness and to paydown the unsecured,
revolving credit facility.
At September 30, 1996, the Operating Partnership had consolidated debt of
$3,555,123, of which $2,481,639 was fixed-rate debt and $1,073,484 was
variable-rate debt. As of September 30, 1996 and December 31, 1995, the
Operating Partnership had interest-rate protection agreements related to
$635,807 and $551,196 of variable-rate debt, respectively. The agreements are
generally in effect until the related variable-rate debt matures. As a result of
the various interest rate protection agreements, interest savings were $654 and
$693 for the three months ended September 30, 1996 and 1995, respectively, and
$1,935 and $2,617 for the nine months ended September 30, 1996 and 1995,
respectively. The Operating Partnership's pro rata share of indebtedness of the
unconsolidated joint venture properties as of September 30, 1996 and December
31, 1995 was $431,181 and $167,644, respectively.
46
<PAGE> 84
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- PARTNERS' EQUITY
The following table summarizes the change in the general partner and
limited partners' equity in the Operating Partnership since December 31, 1995.
<TABLE>
<CAPTION>
GENERAL PARTNER
---------------------------------------------- UNAMORTIZED LIMITED PARTNERS
PREFERRED RESTRICTED -----------------------
UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD TOTAL UNITS AMOUNTS(1)
---------- -------- ---------- --------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 4,000,000 $99,923 58,360,195 $(686,362) $(2,687) $(589,126) 37,282,628 $ 908,764
Stock Incentive Program... -- -- 200,030 4,751 (4,751) -- -- --
Amortization of stock
incentive............... -- -- -- -- 1,563 1,563 -- --
Preferred unit
contributions, net...... 8,000,000 193,471 -- -- -- 193,471 -- --
Adjustment to allocate net
equity of the Operating
Partnership............. -- -- -- (9,496) -- (9,496) -- 9,496
Adjustment to reflect
limited partners' equity
interest at redemption
value (Note 10)......... -- -- -- (75,248) -- (75,248) -- 75,248
Other..................... -- -- -- (62) -- (62) -- --
Partner contributions..... -- -- 37,947,162 924,075 -- 924,075 23,219,012 565,448
Distributions............. -- (6,286) -- (66,554) -- (72,840) -- (42,372)
Net Income................ -- 6,286 -- 41,350 -- 47,636 -- 26,208
---------- -------- ---------- --------- ---------- ---------- ------- ---------
Balance at September 30,
1996.................... 12,000,000 $293,394 96,507,387 $ 132,454 $(5,875) $ 419,973 60,501,640 $1,542,792
========== ======== ========== ========= ========== ========== ======= =========
</TABLE>
- ---------------
(1) At redemption value.
STOCK INCENTIVE PROGRAM
Two stock incentive programs are currently in effect for SDG LP.
Under the terms of the Simon Stock Incentive Program, on March 22, 1995, an
aggregate of 1,000,000 shares of restricted stock was awarded to 50 executives,
subject to certain performance standards and other terms of the plan. On March
22, 1995 and 1996, the board of directors of the Company approved the issuances
of 144,196 and 200,030 shares of common stock, respectively to eligible
executives. The value of these shares is being amortized pro-rata over the
respective four year vesting period. Approximately $1,563 and $525 have been
amortized for the nine-month periods ended September 30, 1996 and 1995,
respectively.
Under the terms of the DeBartolo stock incentive plan, 2,108,000 shares of
common stock are available for grant, subject to certain performance standards
and other terms of the plan. A total of 1,865,240 shares of common stock have
been approved by the compensation committee.
It is management's intent to merge the existing plans into a single plan
for key employees of SDG LP.
NOTE 10 -- LIMITED PARTNERS' INTEREST
Because the Operating Partnership does not control whether cash will be
used to settle the limited partners' exchange rights, the limited partners'
equity has not been included in partners' equity. The consolidated condensed
balance sheets reflect the limited partners' interest in the Operating
Partnership, measured at redemption value.
47
<PAGE> 85
SIMON DEBARTOLO GROUP, L.P. AND PREDECESSOR
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On November 13, 1996, an agreement was reached between the Company and the
Operating Partnership which restricts the Company's ability to cause the
Operating Partnership to redeem for cash the limited partners' units without
contributing cash to the Operating Partnership as partners' equity sufficient to
effect the redemption. If sufficient cash is not contributed, the Company will
be deemed to have elected to acquire the limited partners' units for shares of
the Company's common stock. Accordingly, prospectively the limited partners'
interest in SDG LP will be reflected in the consolidated balance sheet of the
SDG LP as partners' equity at historical carrying value.
NOTE 11 COMMITMENTS AND CONTINGENCIES
On October 16, 1996, a complaint was filed in the Court of Common Pleas of
Mahoning County, Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty
Corp. et al. The named defendants are the Managing General Partner and DeBartolo
Properties Management, Inc., and the plaintiffs are 24 former employees of the
defendants. In the complaint, the number of plaintiffs allege that they were
recipients of deferred stock grants under the DRC 1994 Stock Incentive Plan (the
"Plan") and that these grants immediately vested under the Plan's "change in
control" provision as a result of the Merger. Plaintiffs assert that the
defendants' refusal to issue them approximately 579,000 shares of DRC common
stock, which is equivalent to approximately 394,000 shares of common stock of
the Company computed at the .68 exchange ratio used in the Merger, constitutes a
breach of contract and a breach of the implied covenant of good faith and fair
dealing under Ohio law. Plaintiffs seek damages equal to such number of shares
of DRC common stock, or cash in lieu thereof, equal to all deferred stock ever
granted to them under the Plan, dividends on such stock from the time of the
grants, compensatory damages for breach of the implied covenant of good faith
and fair dealing, and punitive damages.
The complaint was served on the defendants on October 28, 1996, and
pre-trial proceedings have not yet commenced. The Company is of the opinion that
it has meritorious defenses and accordingly intends to defend this action
vigorously. While it is difficult for the Company to predict the outcome of this
litigation at this stage, based on the information known to the Company to date,
the Company does not expect this action will have a material adverse effect on
the Company.
48
<PAGE> 86
CERTAIN INFORMATION WITH RESPECT
TO SIMON PROPERTY GROUP, L.P.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Selected Financial and Operating Data.............................................. 50
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 52
Simon Property Group, L.P. Consolidated Condensed Balance Sheets as of September
30, 1996 and December 31, 1995 (unaudited)....................................... 61
Simon Property Group, L.P. Consolidated Condensed Statements of Operations for the
three and nine month periods ended September 30, 1996 and 1995 (unaudited)....... 62
Simon Property Group, L.P. Consolidated Condensed Statements of Cash Flows for the
nine month periods ended September 30, 1996 and 1995 (unaudited)................. 63
Notes to Financial Statements...................................................... 64
Report of Independent Public Accountants........................................... 72
Simon Property Group, L.P. Consolidated Balance Sheets as of December 31, 1995 and
1994............................................................................. 73
Simon Property Group, L.P. Consolidated Statements of Operations for the years
ended December 31, 1995 and 1994 and for the period from inception of operations
(December 20, 1993) to December 31, 1993 and Simon Property Group (the
Predecessor to Simon Property Group, L.P.) Combined Statement of Operations for
the period from January 1, 1993 to December 31, 1993............................. 74
Simon Property Group, L.P. Consolidated Statements of Changes in Partners' Equity
and Owners' Deficit for the years ended December 31, 1995 and 1994 and for the
period from inception of operations (December 20, 1993) to December 31, 1993 and
Simon Property Group Combined Statement of Changes in Partners' Equity and
Owners' Deficit for the period from January 1, 1993 to December 31, 1993......... 75
Simon Property Group, L.P. Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and 1994 and for the period from inception of operations
(December 20, 1993) to December 31, 1993 and Simon Property Group Combined
Statement of Cash Flows for the period from January 1, 1993, to December 19,
1993............................................................................. 76
Notes to Financial Statements...................................................... 77
Report of Independent Public Accountants on Schedule III........................... 102
Schedule III -- Schedule of Real Estate and Accumulated Depreciation............... 103
Notes to Schedule III.............................................................. 107
</TABLE>
49
<PAGE> 87
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth certain selected financial and operating
data on a historical basis for SPG, LP, the Predecessor, for financial reporting
purposes, of SDG, LP and for Simon Property Group the Predecessor of SPG, LP for
the respective periods presented. The historical financial information should be
read in conjunction with the financial statements and notes thereto included
herein.
<TABLE>
<CAPTION>
SIMON PROPERTY GROUP, L.P.
(SPG, LP, THE PREDECESSOR OF SDG, LP)
----------------------------------------------------------------------
FOR THE
FOR THE FOR THE PERIOD FROM
NINE MONTHS NINE MONTHS FOR THE FOR THE DECEMBER 20
ENDED ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------- ------------- ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER UNIT DATA, PORTFOLIO PROPERTY DATA AND
RATIOS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenue..................................... $ 429,600 $ 398,297 $ 553,657 $ 473,676 $ 18,424
Expenses:
Operating Expenses............................... 164,562 151,914 209,782 183,433 4,095
Depreciation and Amortization.................... 77,913 65,212 92,739 75,945 2,051
Interest Expense(1).............................. 120,370 112,125 150,224 150,164 3,548
Income (Loss) before Extraordinary Items......... 70,229 72,681 101,505 60,308 8,707
Net Income (Loss)................................ $ 67,434 $ 69,797 $ 98,220 $ 42,328 $ (21,774)
Preferred Unit Distributions...................... 6,094 -- 1,490 -- --
Net Income (Loss) available to unit holders....... 61,340 69,797 96,730 42,328 (21,774)
Net Income per unit before extraordinary items... $ .73 $ 0.79 $ 1.08 $ 0.71 $ 0.11
Net Income per unit(2)........................... $ .70 $ 0.76 $ 1.04 $ 0.50 $ (0.28)
Distributions per unit........................... $ 1.14 $ 1.48 $ 1.97 $ 1.90 --
Weighted average units outstanding................ 95,784 91,663 92,666 84,510 78,447
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net................... $ 2,179,373 $ 1,985,841 $2,009,344 $1,829,111 $1,350,360
Cash and cash equivalents........................ 44,635 72,983 62,721 105,139 110,625
Total Assets..................................... 2,683,384 2,407,499 2,556,436 2,316,860 1,793,654
Total Debt(3).................................... 2,136,651 1,986,072 1,980,759 1,938,091 1,455,884
Limited Partners' Interest....................... -- 949,126 908,764 909,306 848,373
Owner's Equity (Deficit)......................... $ 273,553 $ (709,583) $ (589,126) $ (807,613) $ (791,820)
OTHER DATA:
Cash flow provided by (used in):
Operating activities........................... $ 146,641 $ 129,544 $ 194,336 $ 128,023 N/A
Investing activities........................... (116,449) (101,191) (222,679) (266,772) N/A
Financing activities........................... (48,278) (60,509) (14,075) 133,263 N/A
Restated Funds from Operations (FFO) (4)......... $ 148,189 $ 137,287 $ 197,909 $ 167,761 N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE
DEFICIT(5)....................................... 1.53x 1.64x 1.67x 1.43x 3.36x
PORTFOLIO DATA (as of end of period):
Total EBITDA(6).................................. $ 346,200 $ 315,276 $ 437,548 $ 386,835 $ 346,679(7)
EBITDA After Minority Interest(6)................ 285,975 258,185 357,158 307,372 256,169(7)
Number of Portfolio Properties................... 122 120 122 119 114
Total GLA (thousands of square feet)............. 63,360 59,644 62,232 58,200 54,042
-------- -------- -------- -------- -------
<CAPTION>
SIMON PROPERTY GROUP
(THE PREDECESSOR OF SPG, LP)
----------------------------------------
FOR THE FOR THE FOR THE
PERIOD FROM YEAR YEAR
JANUARY 1 TO ENDED ENDED
DECEMBER 19, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING DATA:
Total Revenue..................................... $ 405,869 $ 400,852 $ 378,029
Expenses:
Operating Expenses............................... 175,801 176,682 173,923
Depreciation and Amortization.................... 60,243 58,104 56,033
Interest Expense(1).............................. 156,909 178,075 159,798
Income (Loss) before Extraordinary Items......... 6,912 (11,692) (15,865)
Net Income (Loss)................................ $ 33,101 $ (11,692) $ (15,865)
Preferred Unit Distributions...................... -- -- --
Net Income (Loss) available to unit holders....... 33,101 (11,692) (15,865)
Net Income per unit before extraordinary items... N/A N/A N/A
Net Income per unit(2)........................... N/A N/A N/A
Distributions per unit........................... N/A N/A N/A
Weighted average units outstanding................ N/A N/A N/A
BALANCE SHEET DATA (as of end of period):
Investment in Real Estate, net................... N/A $1,156,009 $1,143,050
Cash and cash equivalents........................ N/A 42,682 31,840
Total Assets..................................... N/A 1,494,289 1,432,028
Total Debt(3).................................... N/A 1,711,778 1,548,292
Limited Partners' Interest....................... N/A N/A N/A
Owner's Equity (Deficit)......................... N/A $ (565,566) $ (418,697)
OTHER DATA:
Cash flow provided by (used in):
Operating activities........................... N/A N/A N/A
Investing activities........................... N/A N/A N/A
Financing activities........................... N/A N/A N/A
Restated Funds from Operations (FFO) (4)......... N/A N/A N/A
RATIO OF EARNINGS TO FIXED CHARGES OR COVERAGE
DEFICIT(5)....................................... 1.11x $ (12,821) $ (18,719)
PORTFOLIO DATA (as of end of period):
Total EBITDA(6).................................. N/A $ 316,535 $ 282,326
EBITDA After Minority Interest(6)................ N/A 227,931 210,634
Number of Portfolio Properties................... N/A 110 108
Total GLA (thousands of square feet)............. N/A 52,404 51,375
-------- -------- --------
</TABLE>
- ---------------
(1) Interest expense for the year ended December 31, 1994 includes $27.2
million of additional non-recurring contingent interest paid in connection
with the refinancing of a Portfolio Property. The property lender was
entitled to participate in the appreciated market value of the Portfolio
Property upon refinancing. Management does not presently expect to enter
into financing arrangements with similar participation features in the
future. Accordingly, management considers the payment made to the lender
unusual in nature. As explained in footnote (4) below, unusual or
extraordinary items are excluded for purposes of computing FFO.
Accordingly, this item has been excluded from FFO in this table and
elsewhere herein.
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<PAGE> 88
(2) Per unit data are reflected only for the periods from December 20, 1993
through September 30, 1996. Per unit data are not relevant for the
historical combined financial statements of Simon Property Group, the
Predecessor to SPG, LP, since such financial statements are a combined
presentation of partnerships and corporations.
(3) Historical debt of SPG, LP as of September 30, 1996 and 1995 and December
31, 1995 includes $1,813.7 million, $1,778.1 million and $1,784.8 million,
respectively, of mortgage indebtedness and $323.0 million, $208.0 million
and $196.0 million, respectively, of outstanding indebtedness under credit
facilities, respectively.
(4) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means combined net income SGP, LP
without giving effect to depreciation and amortization, gains or losses
from extraordinary items, gains or losses on sales of real estate, gains or
losses on investments in marketable securities and any provision/benefit
for income taxes for such period, plus the allocable portion, based on
ownership interest of SGP, LP, of FFO of unconsolidated joint ventures, all
determined on a consistent basis in accordance with generally accepted
accounting principles. Management believes that FFO is an important and
widely used measure of the operating performance of REITs which provides a
relevant basis for comparison among REITs. FFO is presented to assist
investors in analyzing the performance of SGP, LP. SGP, LP's method of
calculating FFO may be different from the methods used by other REITs. FFO
(i) does not represent cash flows from operations as defined by generally
accepted accounting principles, (ii) should not be considered as an
alternative to net income as a measure of operating performance or to cash
flows from operating, investing and financing activities and (iii) is not
an alternative to cash flows as a measure of liquidity. In March 1995,
NAREIT modified its definition of FFO. The modified definition provides
that amortization of deferred financing costs and depreciation of nonrental
real estate assets are no longer to be added back to net income in arriving
at FFO. The modified definition was adopted by SGP, LP beginning in 1996.
Additionally the FFO for prior periods have been restated to reflect the
new definition in order to make the amounts comparative.
(5) For purposes of computing the Ratio of Earnings to Fixed Charges, earnings
have been calculated by adding fixed charges, excluding capitalized
interest, to income (loss) from continuing operations including income from
minority interests which have fixed charges, and including distributed
operating income from unconsolidated joint ventures instead of income from
unconsolidated joint ventures. Fixed Charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense
and amortization of debt issuance costs.
(6) Total EBITDA represents earnings before interest, taxes, depreciation and
amortization for all properties. EBITDA After Minority Interest represents
earnings before interest, taxes, depreciation and amortization for all
properties after distribution to the third-party joint venture partners.
EBITDA (i) does not represent cash flow from operations as defined by
generally accepted accounting principles, (ii) should not be considered as
an alternative to net income as a measure of operating performance or to
cash flows from operating, investing and financing activities; and (iii) is
not an alternative to cash flows as a measure of liquidity. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measurement for assessing the operating performance of
an equity REIT because, together with net income and cash flows, EBITDA
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. To evaluate EBITDA and the trends it depicts, the components
of EBITDA, such as revenues and operating expenses, should be considered.
SGP, LP's method of calculating EBITDA may be different from the methods
used by other REITs. The Company's weighted average ownership interest in
the operating results of SGP, LP for the nine months ended September 30,
1996 and 1995 was 61.1% and 59.3%, respectively, and was 60.3%, 55.2% and
52.2% in 1995, 1994 and 1993, respectively. The Company's ownership interest
in SPG, LP was 61.1% and 60.9% at September 30, 1996 and 1995, respectively,
and was 61.0% and 56.4% at December 31, 1995 and 1994, respectively.
(7) Represents the combined EBITDA and EBITDA After Minority Interest of the
properties for the full year ended December 31, 1993.
51
<PAGE> 89
SIMON PROPERTY GROUP L.P. AND SIMON PROPERTY GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, and all of the financial statements and notes thereto included
elsewhere herein.
GENERAL BACKGROUND
Simon Property Group L.P. ("SPG, LP" or the "Simon Operating Partnership")
was formed in connection with the initial public offering of Simon Property
Group, Inc. As a result of the merger between a subsidiary of Simon Property
Group, Inc. and DeBartolo Realty Corporation ("DRC"), the Simon Operating
Partnership became a subsidiary of Simon DeBartolo Group, L.P. ("SDG, LP"). The
accompanying financial statements reflect the operations of the Simon Operating
Partnership on a stand alone basis.
Historical results and percentage relationships set forth in Selected
Financial Data are not necessarily indicative of future financial position and
results of operations of the Simon Operating Partnership.
The financial statement results presented for the twelve-day period from
December 20, 1993 through December 31, 1993 are not indicative of the Simon
Operating Partnership's performance on an annual basis. Similarly, the results
presented in the combined financial statements for the Predecessor of the Simon
Operating Partnership cover only 353 days of 1993, the period prior to the date
that the Simon Operating Partnership acquired the assets and liabilities of the
Predecessor of the Simon Operating Partnership. Therefore, the discussion of and
results of operations and liquidity and capital resources for 1993 are presented
on a combined basis to compare to the full year 1994. Management believes
presentation in this manner provides a more meaningful discussion of
year-to-year results.
RESULTS OF OPERATIONS
Three property ownership changes (the "Property Transactions") affect the
comparison of the three-month and nine-month periods. Effective July 31, 1995,
the Simon Operating Partnership acquired the remaining 50% interest in
Crossroads Mall and subsequently began including Crossroads in the financial
statements using the consolidated method of accounting. Effective September 25,
1995, the Simon Operating Partnership acquired the remaining 55% interest in
East Towne Mall and subsequently began including East Towne in the financial
statements using the consolidated method of accounting. And finally, on April
11, 1996, the Simon Operating Partnership acquired the remaining 50% economic
interest in Ross Park Mall and subsequently began including Ross Park in the
financial statements using the consolidated method of accounting.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenue increased by $8.4 million or 6.1% for the three months ended
September 30, 1996, as compared to the same period in 1995. This increase is
primarily the result of the Property Transactions ($9.1) million, an increase in
minimum rent ($2.4 million), and a gain on the sale of a peripheral property
($2.6 million), partially offset by a decrease in tenant reimbursements ($4.6
million).
Total operating expenses increased by $9.5 million, or 12.9%, for the three
months ended September 30, 1996 as compared to the same period in 1995. This
increase is primarily a result of the Property Transactions ($4.1 million) and
an increase in depreciation and amortization ($5.0 million).
Interest expense increased by $4.8 million, or 13.1% for the three months
ended September 30, 1996, as compared to the same period in 1995. This increase
is primarily as a result of the Property Transactions ($3.7 million).
Income from unconsolidated entities increased by $1.5 million for the three
months ended September 30, 1996, as compared to the same period in 1995. This
increase is the result of an increase in the Simon Operating Partnership's pro
rata share of income from M.S. Management Associates, Inc. (together with its
subsidiaries, "the Management Company") ($2.3 million), partially offset by a
decrease in income allocated from the nonconsolidated joint venture properties
($0.8 million).
52
<PAGE> 90
The Company's preferred unit requirement was $2.0 million in 1996 primarily
as a result of $100 million in net proceeds received in connection with the
Company's issuance of 8 1/8% Series A convertible preferred stock.
Net income available to unitholders was $17.9 million for the three months
ended September 30, 1996 as compared to $24.3 million for the same period in
1995, reflecting a decrease of $6.4 million, for the reasons discussed above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenue increased by $31.3 million or 7.9% for the nine months ended
September 30, 1996, as compared to the same period in 1995. Of this increase,
$25.1 million is a result of the Property Transactions. The remaining increase
is primarily the result of increases in minimum rent ($5.3 million), lease
settlement income ($2.1 million), and a gain on the sale of peripheral property
($2.6 million), partially offset by a decrease in tenant reimbursements ($5.9
million).
Total operating expenses increased by $25.3 million, or 11.7%, for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of the Property Transactions ($13.8) and an
increase in depreciation and amortization ($8.4 million).
The gain on sale of an asset in the nine months ended September 30, 1995
($2.4 million) relates to the sale of a minority partnership interest in land
previously held for development in Denver, Colorado.
Interest expense increased by $8.2 million or 7.4% for the nine months
ended September 30, 1996, as compared to the same period in 1995. This increase
was primarily the result of the Property Transactions ($9.5 million), partially
offset by interest savings resulting from debt payments made with proceeds
obtained from the Company's secondary common stock offering in April 1995 and
the sale of preferred stock in October 1995.
Income from unconsolidated entities increased by $2.0 million for the nine
months ended September 30, 1996, as compared to the same period in 1995. This
increase is primarily the result of an increase in the Simon Operating
Partnership's pro rata share of income from the Management Company ($2.2
million).
The Company's preferred unit requirement increased by $6.1 million as a
result of $100 million in net proceeds received in connection with the Company's
issuance of 8 1/8% Series A convertible preferred stock.
Net income available to Shareholders was $61.3 million for the nine months
ended September 30, 1996, as compared to $69.8 million for the same period in
1995, reflecting a decrease of $8.5 million, for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
During 1994 and 1995, the Simon Operating Partnership acquired several new
properties through purchase, acquisition and merger, and, as a result of a
change in controlling interest, changed the way it accounted for several
properties (using either the consolidated method of accounting or the equity
method of accounting for non-controlled joint venture entities) (the "Property
Transactions"). The following is a listing of such transactions: The Simon
Operating Partnership began including The Forum Shops at Caesars ("Forum") as a
consolidated property due to the Simon Operating Partnership's ability to
demonstrate control effective April 1, 1994. On September 1, 1994, the Simon
Operating Partnership consolidated 15 properties as a result of the merger of
MSA Realty Corporation into the Company (the "MSAR Merger"). During December
1994, the Simon Operating Partnership acquired a 100% interest in Independence
Mall, Orange Park Mall, Broadway Square and University Mall (Florida). On
February 23, 1995, the Simon Operating Partnership acquired an additional 50%
interest in White Oaks Mall and is now accounting for the property using the
consolidated method of accounting. Effective July 1, 1995, the Simon Operating
Partnership relinquished its ability to direct certain activities related to the
control of North East Mall, and as a result is now accounting for the property
using the equity method of accounting. On July 31, 1995, the Simon Operating
Partnership purchased the remaining 50% ownership in Crossroads Mall and
subsequently began accounting for the property using the consolidated method of
accounting. On September 25, 1995, the Simon Operating Partnership acquired the
remaining 55% ownership in East Towne Mall and subsequently began
53
<PAGE> 91
accounting for the property using the consolidated method of accounting. (See
the "Liquidity and Capital Resources" discussion for additional information
regarding these transactions.)
Total revenue by increased $80.0 million, or 16.9%, in 1995. Of this
increase, $72.8 million is attributable to the 1995 Property Transactions, and
the full-year impact in 1995 of the 1994 Property Transactions. The remaining
$7.2 million increase is primarily the result of an increase in revenue
resulting from increases of $1.25 and $0.18 in average base minimum rents per
square foot for regional mall stores and community shopping centers as evidenced
by leasing spreads for regional mall store and community shopping center leases
executed during 1995 over those leases expiring in 1995 of $5.38 and $1.22 per
square foot, respectively. These increases are partially offset by a decrease in
overage rent resulting primarily from static sales in the portfolio and a
decline of $1.8 million in overage rent at Texas border properties due to the
devaluation of the Mexican peso. Management expects these properties to return
to their prior performance level, as they have done historically after previous
peso devaluations.
Total operating expenses increased by $43.1 million, or 16.6%, in 1995. Of
this increase, $37.9 million, or 87.9%, is the result of the Property
Transactions. Other than increases from the Property Transactions, total
operating expenses experienced an increase of only 2.0% attributable to
increased depreciation and amortization derived from an increase in investment
properties.
Interest expense, excluding prior year non-recurring interest expense,
increased by a net of $27.2 million, or 22.2%, to $150.2 million for 1995 as
compared to $123.0 million for 1994. Of this increase, $26.5 million, or 97.4%
is the result of the Property Transactions. Partially offsetting this increase
is interest savings realized as a result of restructuring the Simon Operating
Partnership's credit facilities, and from using the proceeds of the Company's
add-on offering of 6,241,854 shares of common stock and over-allotment offerings
to reduce the outstanding indebtedness of SPG, LP.
The net gain on the sale of assets in 1995 resulted from a gain on the sale
of a minority partnership interest in land previously held for development in
Denver, Colorado ($2.4 million), partially offset by a loss on the sale of an
equity investment in Arborland Mall ($0.5 million).
Income (loss) from unconsolidated entities increased from a loss of $0.1
million in 1994 to income of $1.4 million in 1995 resulting from an increase in
the Simon Operating Partnership's share of income from partnerships and joint
ventures, partially offset by an increase in its share of losses of the
Management Company. The Simon Operating Partnership's share of income from
partnerships and joint ventures improved $4.1 million from $1.0 million in 1994
to $5.1 million in 1995. This increase is primarily attributable to gains from
sales of peripheral property ($3.4 million) and the change to accounting for
North East Mall using the equity method of accounting ($1.7 million). The Simon
Operating Partnership's share of the Management Company's results declined $2.6
million from an allocated net loss of $1.1 million for 1994 to an allocated net
loss of $3.7 million for 1995. This decrease is the result of the Management
Company's losses related to the settlement of a mortgage receivable and the
liquidation of a partnership investment in 1995, partially offset by a $1.6
million increase in the Management Company's operating income.
Extraordinary items of $3.3 million in 1995 and $18.0 million in 1994
result from costs associated with the refinancing of debt.
Net income available to Unitholders increased from $42.3 million for 1994
to $96.7 million for 1995, an increase of $54.4 million, for the reasons
discussed above.
COMPARISON OF CONSOLIDATED OPERATING RESULTS FOR THE
YEAR ENDED DECEMBER 31, 1994 TO THE COMBINED YEAR ENDED DECEMBER 31, 1993
Total revenue increased by $49.4 million, or 11.6%, to $473.7 million for
1994, as compared to $424.3 million in 1993. This increase is the result of
increases in all components of revenue. The $28.2 million increase in minimum
rent is a result of an overall increase in occupancy levels and the replacement
of expiring tenant leases with renewal leases at higher minimum base rents ($7.2
million), the inclusion of Forum as a consolidated property ($10.3 million) and
the MSAR Merger ($8.7 million). The increase in overage rent of $5.4 million to
$25.5 million for 1994, as compared to $20.1 million in 1993, is attributable to
an overall increase in tenant sales volume ($0.9 million) and the inclusion of
Forum as a consolidated property ($4.2 million). Tenant reimbursements increased
$12.4 million as a result of the increased occupancy and overall
54
<PAGE> 92
tenant recoverability of costs ($4.0 million), the inclusion of Forum as a
consolidated property ($4.0 million) and the MSAR Merger ($4.0 million). The
$3.4 million increase in other income is primarily attributable to the increase
in interest and dividend income from the Management Company ($9.7 million), the
increase in interest income from cash equivalents due to the increase in funds
invested and higher interest rates ($1.1 million), the consolidation of Forum
($1.4 million) and the MSAR Merger ($1.1 million), offset in part by the sale of
an anchor store in March 1993 ($8.9 million).
Total operating expenses increased by $17.2 million, or 7.1%, to $259.4
million for 1994 as compared to $242.2 million for 1993. This increase is the
result of increases in depreciation and amortization, real estate taxes, repairs
and maintenance, and advertising and promotion, offset by decreases in property
operating expenses and other expenses. The increase in depreciation and
amortization of $13.7 million is attributable to the purchase of minority
partners' interest in the Predecessor of SPG,LP with the application of the
offering proceeds ($5.5 million), the inclusion of Forum as a consolidated
property ($3.5 million), the MSAR Merger ($1.8 million) and additional
renovation and expansion costs incurred in 1992 and 1993 at several Portfolio
Properties. The increases in real estate taxes ($3.7 million) and repairs and
maintenance ($2.3 million) are primarily attributable to the consolidation of
Forum ($0.3 million and $1.0 million, respectively) and the MSAR Merger ($2.1
million and $0.5 million, respectively). Tenant contributions funded a
substantial portion of the $2.4 million increase in advertising and promotion
campaigns. The $6.7 million decrease in property operating expenses is the
result of the reduction in the costs related to the self-management of wholly
owned properties ($5.9 million), a decrease in insurance costs due to an overall
reduction in premiums and loss occurrences ($1.7 million) and the decrease in
general and administrative expenses ($3.0 million). These decreases in property
operating expenses are partially offset by the inclusion of Forum as a
consolidated property ($3.6 million) and the MSAR Merger ($0.5 million). The
$1.3 million increase in other expenses is attributable to the inclusion of
Forum as a consolidated property ($2.1 million) and public company costs ($1.2
million), offset in part by the decrease in ground rent relating to the buyout
of various ground leases with the application of the offering proceeds.
Interest expense, excluding non-recurring interest expense, decreased by
$37.5 million, or 23.4%, to $123.0 million for 1994 as compared to $160.5
million for 1993. This decrease is primarily the result of: (i) the application
of net proceeds of the offering and the concurrent financing to reduce
indebtedness ($34.4 million); and (ii) lower interest rates on debt ($12.1
million); offset by (iii) the inclusion of Forum as a consolidated property
($3.7 million), the MSAR Merger ($4.3 million) and an increase in amortization
of deferred financing costs related to the refinancings ($2.5 million).
On December 1, 1994, as part of a debt restructuring and the termination of
the lender's participation in future cash flow for one of the Portfolio
Properties, the Simon Operating Partnership incurred a non-recurring interest
expense charge of $27.2 million. The Simon Operating Partnership has reflected
this item as a separate line in the Consolidated Statements of Operations.
Minority interest in 1994 reflects the purchase of minority partners'
interest in the Predecessor of SPG,LP with the application of the IPO proceeds
and the inclusion of the minority partner's interest in Forum.
Income (loss) from unconsolidated entities improved $2.3 million. The Simon
Operating Partnership's share of the Management Company's results improved from
an allocation of a net loss of $1.4 million for 1993 to a net loss of $1.1
million for 1994. The 1994 amount is after interest and preferred dividend
charges payable to the Simon Operating Partnership of $9.1 million. There were
no similar charges in 1993. The Simon Operating Partnership's share of income
from partnerships and joint ventures improved from a net loss of $1.0 million
for 1993 to net income of $1.0 million for 1994. This increase is attributable
to the consolidation of Forum, the MSAR Merger and land sale activity.
The extraordinary items of $18.0 million in 1994 and $4.3 million in 1993
resulted from costs associated with the early extinguishment or refinancing of
debt.
Net income available to Unitholders increased from $11.3 million for 1993
to net income of $42.3 million for 1994, an increase of $31.0 million, for the
reasons discussed above.
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<PAGE> 93
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Simon Operating Partnership's balance of cash
and cash equivalents was $44.6 million, not including its proportionate share of
cash held by the joint venture properties and the Management Company. In
addition to its cash reserves, the Simon Operating Partnership, as a co-borrower
with SDG, LP, had unused capacity under its unsecured revolving credit facility
totaling $427 million.
In December 1995, a shelf registration statement for $500 million of
non-convertible investment grade debt securities of SPG, LP became effective. As
of September 30, 1996, no securities have been issued from this registration
statement.
On September 6, 1996, Simon DeBartolo Group, L.P. ("SDG, LP") filed a shelf
registration statement with the Securities and Exchange Commission to provide
for the offering from time to time of up to $750 million aggregate principal
amount of unsecured debt securities of SDG, LP. SDG, LP intends to offer,
immediately upon effectiveness, an aggregate of $200 million in unsecured debt
securities. The proceeds of which will be used primarily to retire mortgage
indebtedness and to paydown the unsecured, revolving credit facility. SPG, LP
will guarantee the due and punctual payment of the principal of, premium, if
any, interest on, and any other amounts payable with respect to the unsecured
debt securities.
Acquisitions. On April 11, 1996, the Simon Operating Partnership drew an
additional $115.0 million on its other existing revolving credit facility
primarily to finance the acquisition of the remaining economic ownership
interest in Ross Park Mall ($44 million) and to retire a portion of the
property's debt ($54 million).
Financing and Refinancing. On February 23, 1996, the Simon Operating
Partnership borrowed the initial $100.0 million tranche of a $184.0 million
two-tranche loan facility for The Forum Shops at Caesar's ("Forum") and retired
the existing $89.7 million mortgage debt for Forum. The initial funding bears
interest at LIBOR plus 100 basis points and matures in February 2000. The
remaining proceeds are being used to provide funds for the approximately
250,000-square-foot phase II expansion of this property.
On June 28, 1996, the Simon Operating Partnership obtained an additional
$200 million unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points. Terms for the facility were identical to those of
the Simon Operating Partnership's other $400 million credit facility.
On September 10, 1996, the Simon Operating Partnership loaned $112 million
to SDG, LP to retire the DeBartolo secured line of credit. The DeBartolo line
bore interest at LIBOR plus 175 basis points.
On September 27, 1996, the Company completed a $200 million public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193
million. The Company contributed the proceeds of such offering to SDG, LP in
exchange for preferred units in SDG, LP, which used the net proceeds to repay
$142.8 million of outstanding indebtedness, $12.5 million to purchase an
additional ownership interest in the North East Mall and loaned $34.4 million to
the Simon Operating Partnership which used such amounts to reduce amounts
outstanding under its former unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750 million,
unsecured, three-year credit facility (the "Credit Facility"), which initially
bears interest at LIBOR plus 90 basis points, The Operating Partnership borrowed
$323 million under this facility and loaned the proceeds to the Simon Operating
Partnership to retire the outstanding borrowing under two unsecured credit
facilities, which bore interest at LIBOR plus 132.5 basis points.
During the first nine months of 1996, the Simon Operating Partnership drew
an additional $33.2 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55.6 million was
outstanding on this construction loan.
Development, Expansions and Renovations. The Simon Operating Partnership
is involved in several development, expansion and renovation efforts.
Groundbreaking has occurred on two new retail development projects.
Grapevine Mills, a 1,450,000-square-foot retail development project in Fort
Worth, Texas, broke ground on July 10, 1996, and is
56
<PAGE> 94
expected to open in November of 1997. A commitment has been obtained for a
four-year $140 million construction loan with interest at LIBOR plus 165 basis
points. The Simon Operating Partnership will have a $13.9 million equity
commitment on this $188 million development project. The Simon Operating
Partnership owns 37.5% of this joint venture development. Arizona Mills, a
1,225,000-square-foot retail development project in Tempe, Arizona, broke ground
on August 1, 1996. This $183 million development opens in November of 1997. The
Simon Operating Partnership has a $11.2 million equity investment and a 25%
ownership interest in this joint venture development.
The Simon Operating Partnership is completing demolition of the existing
Bakery Centre in South Miami, Florida, in preparation for the $130 million
development of The Shops at Sunset Place. Pre-development efforts continue for
this 75%-owned proposed 500,000-square-foot retail and entertainment center.
Cottonwood Mall opened on July 31, 1996, in Albuquerque, New Mexico. This
one million-square-foot regional mall is wholly-owned by the Simon Operating
Partnership. Cottonwood Mall is anchored by Dillard's, Foley's, JCPenney,
Mervyn's and Montgomery Ward, and a 76,000-square foot United Artists STARPORT
entertainment complex, which is scheduled to open by the end of 1996.
Construction also continues on the following projects:
- A 250,000-square-foot phase II expansion of Forum, in which the Simon
Operating Partnership has a 55% ownership interest, is scheduled to
open in the fall of 1997. The $90 million costs of the Forum project
are being funded with a portion of a $184 million two-tranche
financing facility which closed February 23, 1996.
- Ontario Mills, a 1.4 million-square-foot value-oriented regional mall
in Ontario, California, in which the Simon Operating Partnership has a
25% ownership interest, is scheduled to open in November of 1996. A
$110 million construction loan on this project has been obtained on
this approximately $168 million partnership venture with The Mills
Corporation. The Simon Operating Partnership funded its $15.0 million
equity commitment for this project in July 1996.
- The Source, a 730,000-square-foot retail development project in
Westbury (Long Island), New York, is expected to open in August of
1997. This new $151 million development will adjoin an existing
Fortunoff store. The Simon Operating Partnership has a total equity
requirement of $31.1 million for this project. Construction Financing
of $120 million closed on this property in July of 1996. The loan
carries interest at LIBOR plus 170 basis points and matures on July
16, 1999. The Simon Operating Partnership has made a $21.7 million
equity investment in this 50%-owned joint venture development through
September 30, 1993.
- The Tower Shops in Las Vegas, Nevada, is an approximately $25 million,
89,000-square-foot retail development project in which the Simon
Operating Partnership owns a 50% interest. This retail development is
scheduled to open late in the fall of 1996. The Simon Operating
Partnership contributed its $3.2 million equity commitment in April of
1996.
Management is also considering renovation and expansion projects at various
other properties. It is anticipated that these projects will be financed
principally with external borrowings, existing corporate credit facilities and
cash flows from operations.
Debt. At September 30, 1996, the Simon Operating Partnership had
consolidated debt of $2,136.7 million, of which $1,287.0 million is fixed-rate
debt and $849.7 million is variable-rate debt. As of September 30, 1996 and
1995, the Simon Operating Partnership had interest-rate protection agreements
relating to $488,958 and $551,196 of variable-rate debt, respectively. The
agreements are generally in effect until the related variable-rate debt matures.
The Simon Operating Partnership's ratio of consolidated debt-to-market
capitalization was approximately 45.6% at September 30, 1996.
57
<PAGE> 95
Distributions. The Simon Operating Partnership declared a distribution of
$0.4925 per Unit for the first three quarters of 1996. In addition, a special
distribution of $0.1515 per unit was declared on August 9, 1996 to align the
time periods of distributions for the Company and DeBartolo Realty Corporation
under the definitive merger agreement. Future distributions will be determined
based on actual results of operations and cash available for distribution.
Preferred distributions of $0.5078 per Preferred Unit were also declared per
quarter during this period.
Capital Resources. Management anticipates that cash generated from
operating performance will provide the necessary funds on a short- and long-term
basis for its operating expenses, interest expense on outstanding indebtedness,
recurring capital expenditures and distributions to holders of Preferred Units
and Units.
Management continues to actively review and evaluate property acquisition
opportunities. Management believes that funds on hand and amounts available
under the Operating Partnership's unsecured revolving credit facility, together
with the ability to issue shares of common stock of the Company and/or Units,
provide the means to finance certain acquisitions. No assurance can be given
that the Simon Operating Partnership will not be required to, or will not elect
to, even if not required to, obtain funds from outside sources, including
through the sale of debt or equity securities, to finance significant
acquisitions, if any.
Investing and Financing Activities. Cash used in investing activities for
the nine months ended September 30, 1996 was $116.5 million. Cash used in
investing activities included approximately $44 million for the acquisition of
the remaining economic ownership interest in Ross Park Mall, tenant allowances,
capital expenditures and development related costs of $95.7 million including
$31.3 million, $11.7 million and $4.3 million at Cottonwood Mall, Forum, and The
Shops at Sunset Place, respectively; and advances to unconsolidated joint
ventures totaling approximately $51.9 million, including $18.9 million, $15.0
million, $5.7 million and $3.2 million in equity contributions made to The
Source, Ontario Mills, Arizona Mills and The Tower Shops, respectively, to fund
development activity. Cash received from unconsolidated entities of $34.5
million included a $30.9 million return of equity from Smith Haven Mall, a note
repayment was received from M.S. Management Associates, Inc, ($38.6 million).
Cash used in investing activities for the nine months ended September 30, 1995
included $61.5 million for tenant allowances, capital expenditures and
development related costs, a $14.6 million equity investment in Rolling Oaks
Mall and $3.1 million for the acquisition of a joint venture interest in a
parcel of land to be held for development in Little Rock, Arkansas, partially
offset by $2.6 million of net proceeds from the sale of a joint venture interest
in land held for development, distributions from unconsolidated entities ($4.3
million) and cash of $3.4 million included in the acquisition of interest in
White Oaks Mall.
Cash used in financing activities for the nine months ended September 30,
1996 was $12.2 million less than the nine months ended September 30, 1995. The
decrease in cash used in 1996 as compared to 1995 was primarily the result of an
increase in net mortgage borrowings of $109.8 million and an advance from SDG,
LP ($77.2 million), partially offset by an increase of $30.9 million in
distributions to Unitholders (including $5.5 million paid to the holder of the
Preferred Units representing distributions from October 27, 1995 to September
30, 1996) and proceeds from sales of common stock in 1995 of $142.1 million.
EBITDA-EARNINGS FROM OPERATING RESULTS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION
Management believes that there are several important factors that
contribute to the ability of the Simon Operating Partnership to increase rent
and improve profitability of its shopping centers, including aggregate tenant
sales volume, sales per square foot, occupancy levels and tenant costs. Each of
these factors has a significant effect on EBITDA. Management believes that
EBITDA is an effective measure of shopping center operating performance because:
(i) it is industry practice to evaluate real estate properties based on
operating income before interest, taxes, depreciation and amortization, which is
generally equivalent to EBITDA; and (ii) EBITDA is unaffected by the debt and
equity structure of the property owner. EBITDA: (i) does not represent cash flow
from operations as defined by generally accepted accounting principles; (ii)
should not be considered as an alternative to net income as a measure of the
Simon Operating Partnership's operating
58
<PAGE> 96
performance; (iii) is not indicative of cash flows from operating, investing and
financing activities; and (iv) is not an alternative to cash flows as a measure
of the Simon Operating Partnership's liquidity.
Total EBITDA for the portfolio properties increased from $315.3 million for
the nine months ended September 30, 1995 to $346.2 million for the same period
in 1996, representing a growth rate of 9.8%. This increase is primarily
attributable to the malls opened or acquired during 1995 and 1996. During this
period, operating profit margin decreased from 63.1% to 61.9%.
FFO-FUNDS FROM OPERATIONS
FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), means the combined net income of the Simon Operating
Partnership and its subsidiaries without giving effect to depreciation and
amortization, gains or losses from extraordinary items, gains or losses on sales
of real estate, gains or losses on investments in marketable securities and any
provision/benefit for income taxes for such period, plus the allocable portion,
based on the Simon Operating Partnership's ownership interest, of funds from
operations of unconsolidated joint ventures, all determined on a consistent
basis in accordance with generally accepted accounting principles. Management
believes that FFO is an important and widely used measure of the operating
performance of REITs which provides a relevant basis for comparison among REITs.
FFO is presented to assist investors in analyzing the performance of the
Operating Partnership. FFO: (i) does not represent cash flow from operations as
defined by generally accepted accounting principles; (ii) should not be
considered as an alternative to net income as a measure of the Simon Operating
Partnership's operating performance or to cash flows from operating, investing
and financing activities; and (iii) is not an alternative to cash flows as a
measure of the Simon Operating Partnership's liquidity. In March, 1995, NAREIT
modified its definition of FFO. The modified definition provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
The modified definition was adopted by the Simon Operating Partnership beginning
in 1996. Additionally, the prior year FFO is being restated to reflect the new
definition in order to make the amounts comparative. Under the previous
definition, FFO for the three months and nine months ended September 30, 1995,
would have been $52.3 million and $145.4 million, respectively.
The following summarizes FFO and reconciles net income to FFO for the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands)
FFO......................................................... $ 48,977 $ 49,492 $ 148,189 $ 137,287
======== ======== ========= =========
Reconciliation:
Net Income.................................................. $ 19,898 $ 24,310 $ 67,434 $ 69,797
Plus:
Extraordinary items -- Losses on extinguishments of debt.... 2,424 2,636 2,689 2,884
Depreciation and amortization from consolidated
properties.............................................. 26,469 21,894 77,507 64,855
The Simon Operating Partnership's share of depreciation
and amortization from unconsolidated affiliates......... 2,784 1,329 8,733 4,340
Less:
Gain on sale of asset..................................... (88) N/A (88) (2,350)
Minority interest portion of depreciation and
amortization............................................ (478) (677) (1,992) (2,239)
Preferred distributions..................................... (2,032) -- (6,094) --
-------- -------- --------- ---------
FFO......................................................... $ 48,977 $ 49,492 $ 148,189 $ 137,287
======== ======== ========= =========
</TABLE>
PORTFOLIO DATA
Aggregate Tenant Sales Volume. For the nine months ended September 30,
1995 compared to the same period in 1996, total reported retail sales for mall
and freestanding stores at the regional malls and all stores at
59
<PAGE> 97
the community shopping centers for GLA owned by the Simon Operating Partnership
("Owned GLA") increased 8.2% from $3,010 million to $3,256 million. Retail sales
at Owned GLA affect revenue and profitability levels because they determine the
amount of minimum rent that can be charged, the percentage rent realized, and
the recoverable expenses (common area maintenance, real estate taxes, etc.) the
tenants can afford to pay.
Occupancy Levels. Occupancy levels for regional malls increased from 85.2%
at September 30, 1995 to 85.6% at September 30, 1996. Occupancy levels for
community shopping centers decreased from 94.8% at September 30, 1995 to 93.1%
at September 30, 1996. These decreases are the result of store closings by
several retailers which filed bankruptcy in 1995 and the de-leasing efforts at
two malls in anticipation of de-malling these properties. Total GLA has
increased 3.7 million square feet from September 30, 1995 to September 30, 1996,
primarily as a result of the 1995 opening of three new regional malls, the
acquisition of Smith Haven Mall and the opening of Cottonwood Mall.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 6.3%, from $18.51 to
$19.68 as of September 30, 1996 as compared to September 30, 1995. In community
shopping centers, average base rents per square foot of Owned GLA increased
3.3%, from $7.25 to $7.49 during this same period.
INFLATION
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the portfolio properties.
Nonetheless, substantially all of the tenants' leases contain provisions
designed to lessen the impact of inflation. Such provisions include clauses
enabling the Simon Operating Partnership to receive percentage rentals based on
tenants' gross sales, which generally increase as prices rise, and/or escalation
clauses, which generally increase rental rates during the terms of the leases.
In addition, many of the leases are for terms of less than ten years, which may
enable the Simon Operating Partnership to replace existing leases with new
leases at higher base and/or percentage rentals if rents of the existing leases
are below the then-existing market rate. Substantially all of the leases, other
than those for anchors, require the tenants to pay a proportionate share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Simon Operating Partnership's exposure to
increases in costs and operating expenses resulting from inflation.
However, inflation may have a negative impact on some of the Simon
Operating Partnership's other operating items. Interest and general and
administrative expenses may be adversely affected by inflation as these
specified costs could increase at a rate higher than rents. Also, for tenant
leases with stated rent increases, inflation may have a negative effect as the
stated rent increases in these leases could be lower than the increase in
inflation at any given time.
OTHER
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail sales
are typically at their highest levels. In addition, shopping malls achieve most
of their temporary tenant rents during the holiday season. As a result of the
above, earnings are generally highest in the fourth quarter of each year.
Management recognizes the retail industry is cyclical in nature and some
tenants continue to experience difficulties, which is reflected in sales trends
and in the bankruptcies and continued restructuring of several prominent retail
organizations. Continuation of these trends could impact future earnings
performance.
60
<PAGE> 98
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost................................... $ 2,392,124 $2,162,161
Less -- accumulated depreciation................................. 212,751 152,817
---------- ----------
2,179,373 2,009,344
Cash and cash equivalents........................................ 44,635 62,721
Tenant receivables and accrued revenue, net...................... 143,095 144,400
Notes receivable and advances due from Management Company........ 63,978 102,522
Investment in partnerships and joint ventures, at equity......... 136,099 113,676
Deferred costs, net.............................................. 75,531 81,398
Other assets..................................................... 40,673 42,375
---------- ----------
Total assets.................................................. $ 2,683,384 $2,556,436
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other notes payable................................ $ 2,136,651 $1,980,759
Accounts payable and accrued expenses............................ 117,330 113,131
Advance from affiliate........................................... 77,153 --
Accrued distributions............................................ 2,031 48,594
Cash distributions and losses in partnerships and joint ventures,
at equity..................................................... 16,796 54,120
Investment in Management Company................................. 18,415 20,612
Other liabilities................................................ 41,455 19,582
---------- ----------
Total liabilities............................................. 2,409,831 2,236,798
---------- ----------
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' EQUITY INTEREST, 37,282,628 units outstanding at
redemption value (Note 9)........................................ -- 908,764
PARTNERS' EQUITY:
Preferred units, 4,000,000 authorized, issued and outstanding.... 99,923 99,923
General Partner, 958,429 and 58,360,195 units outstanding,
respectively.................................................. 1,795 135,710
Special Limited Partners' Interest, 94,884,424 units
outstanding................................................... 177,710 --
Adjustment to reflect Limited Partners' equity interest at
redemption value
(Note 9)...................................................... -- (822,072)
Unamortized restricted stock award............................... (5,875) (2,687)
---------- ----------
Total partners' equity (deficit).............................. 273,553 (589,126)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit)................................... $ 2,683,384 $2,556,436
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
61
<PAGE> 99
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent...................................... $ 83,109 $ 75,242 $243,047 $222,701
Overage rent...................................... 5,169 5,982 15,920 15,877
Tenant reimbursements............................. 49,368 50,536 143,594 140,030
Other income...................................... 8,750 6,282 27,039 19,689
-------- -------- -------- --------
Total revenue.................................. 146,396 138,042 429,600 398,297
-------- -------- -------- --------
EXPENSES:
Property operating................................ 28,406 26,647 79,012 72,623
Depreciation and amortization..................... 26,606 22,015 77,913 65,212
Real estate taxes................................. 14,662 13,321 43,026 39,854
Repairs and maintenance........................... 5,725 5,740 18,265 16,926
Advertising and promotion......................... 4,366 4,093 13,264 12,013
Provision for doubtful accounts................... 845 (200) 2,596 2,203
Other............................................. 2,785 2,235 8,399 8,295
-------- -------- -------- --------
Total operating expenses....................... 83,395 73,851 242,475 217,126
-------- -------- -------- --------
OPERATING INCOME.................................... 63,001 64,191 187,125 181,171
INTEREST EXPENSE.................................... 41,236 36,468 120,370 112,125
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST..................... 21,765 27,723 66,755 69,046
MINORITY INTEREST................................... (709) (605) (1,884) (1,940)
GAIN ON SALE OF ASSET............................... 88 -- 88 2,350
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES............... 21,144 27,118 64,959 69,456
INCOME FROM UNCONSOLIDATED ENTITIES................. 1,284 (172) 5,270 3,225
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS................... 22,428 26,946 70,229 72,681
EXTRAORDINARY ITEMS -- Losses on extinguishments of
debt.............................................. (2,530) (2,636) (2,795) (2,884)
-------- -------- -------- --------
NET INCOME.......................................... 19,898 24,310 67,434 69,797
GENERAL PARTNER PREFERRED UNIT REQUIREMENT.......... (2,032) -- (6,094) --
-------- -------- -------- --------
NET INCOME AVAILABLE TO UNITHOLDERS................. $ 17,866 $ 24,310 $ 61,340 $ 69,797
======== ======== ======== ========
NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE TO:
General Partner................................ $ 4,559 $ 14,774 $ 31,125 $ 41,368
Limited Partners............................... 13,307 9,536 30,215 28,429
-------- -------- -------- --------
$ 17,866 $ 24,310 $ 61,340 $ 69,797
======== ======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items.............. $ 0.23 $ 0.28 $ 0.73 $ 0.79
Extraordinary items............................ (0.02) (0.03) (0.03) (0.03)
-------- -------- -------- --------
Net income..................................... $ 0.21 $ 0.25 $ 0.70 $ 0.76
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
62
<PAGE> 100
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30 1996
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 67,434 $ 69,797
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation and amortization...................................... 83,976 71,761
Losses on extinguishments of debt.................................. 2,795 2,888
Gain on sale of asset.............................................. (88) (2,350)
Straight-line rent................................................. 534 (1,237)
Minority interest.................................................. 1,884 1,940
Equity in income of unconsolidated entities........................ (5,270) (3,225)
Changes in assets and liabilities
Tenant receivables and accrued revenue............................. (4,380) 3,727
Deferred costs and other assets.................................... (4,405) (9,420)
Accounts payable, accrued expenses and other liabilities........... (5,197) (4,337)
--------- ---------
Net cash provided by operating activities....................... 146,641 129,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions....................................................... (43,941) (31,155)
Capital expenditures............................................... (95,741) (61,510)
Cash of consolidated joint ventures................................ 1,695 4,346
Proceeds from sale of asset........................................ 399 2,550
Investments in unconsolidated entities............................. (51,907) (19,696)
Distributions from unconsolidated entities......................... 34,493 4,274
Loan repayment from Management Company............................. 38,553 --
--------- ---------
Net cash used in investing activities........................... (116,449) (101,191)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions.......................................... (62) 142,130
Minority interest distributions.................................... (3,610) (2,823)
Partnership distributions.......................................... (161,582) (130,643)
Advances from SDG, L.P............................................. 77,153 --
Proceeds from borrowings, net of transaction costs................. 266,048 359,338
Mortgage, bond and other payments.................................. (226,225) (428,511)
--------- ---------
Net cash used in financing activities........................... (48,278) (60,509)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (18,086) (32,156)
CASH AND CASH EQUIVALENTS, beginning of period....................... 62,721 105,139
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................. $ 44,635 $ 72,983
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
63
<PAGE> 101
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited;
however, they have been prepared in accordance with generally accepted
accounting principles for interim financial information and in conjunction with
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the consolidated condensed financial
statements for these interim periods have been included. The results for the
interim period ended September 30, 1996 are not necessarily indicative of the
results to be obtained for the full fiscal year. These unaudited consolidated
condensed financial statements should be read in conjunction with the December
31, 1995 audited financial statements and notes thereto included in the Simon
Property Group, L.P. Annual Report on Form 10-K/A-1.
The accompanying unaudited consolidated condensed financial statements of
Simon Property Group, L.P. (the "Simon Operating Partnership" or "SPG,LP")
include all the accounts of the Simon Operating Partnership and subsidiaries
entities. Properties which are wholly owned or controlled by the Simon Operating
Partnership have been consolidated. All significant intercompany amounts have
been eliminated.
The Simon Operating Partnership's equity interests in certain partnerships
and joint ventures which represent noncontrolling 14.7% to 50.0% ownership
interests and the investment in M.S. Management Associates, Inc. (together with
its subsidiaries, the "Management Company" -- see Note 7) are accounted for
under the equity method of accounting. These investments are recorded initially
at cost and subsequently adjusted for net equity in income (loss) and cash
contributions and distributions.
Net income is allocated to the partners based on each partner's preferred
unit preference and/or percentage profit interest in the Simon Operating
Partnership during the periods.
NOTE 2 -- MERGER
On August 9, 1996, the merger and other related transactions pursuant to
the agreement and plan of merger among Simon DeBartolo Group, Inc. (the
"Company" or "SDG"), an acquisition subsidiary of the Company and DeBartlolo
Realty Corporation ("DRC") were consummated (the "Merger"). Pursuant to the
Merger, the Company acquired all the outstanding shares of common stock of DRC
(55,712,529 shares) through the acquisition subsidiary, at an exchange ratio of
0.68 share of Company common stock for each share of DRC common stock (the
"Exchange Ratio"). DRC and the acquisition subsidiary merged, with DRC as the
surviving entity and becoming a 99.9% subsidiary of the Company. This portion of
the transaction was valued at approximately $923.4 million, based upon the
number of DRC shares of common stock acquired (55,712,529 shares), the Exchange
Ratio and the last reported sales price per share of the Company's common stock
on August 9, 1996 ($24.375). In connection therewith, the Company changed its
name to SDG.
In connection with the Merger, the general and limited partners of the
Simon Operating Partnership, contributed 49.5% (47,442,212 units) of the total
outstanding units of partnership interest in the Simon Operating Partnership, to
the operating partnership of DRC, DeBartolo Realty Partnership, L.P. ("DRP, LP")
in exchange for 47,442,212 units of partnership interest in DRP, LP, whose name
has since been changed to Simon DeBartolo Group, L.P. ("SDG, LP"). SDG retained
a 50.5% partnership interest (48,400,614 units) in the Simon Operating
Partnership, but assigned its rights to receive distributions of profits on
49.5% (47,442,212 units) of the outstanding units of partnership interest in the
Simon Operating Partnership, to SDG, LP. The limited partners of the Simon
Operating Partnership received a 23.7% partnership interest in SDG, LP
(37,282,628 units) for the contribution of their 38.9% partnership interest in
64
<PAGE> 102
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the Simon Operating Partnership (37,282,628 units) to SDG, LP. The interests
transferred by the partners of the Simon Operating Partnership to DRP, LP have
been appropriately reflected at historical costs.
Upon completion of the Merger, SDG became a general partner of SDG, LP and
remained the sole general partner of the Simon Operating Partnership with 1% of
the outstanding partnership units (958,429 units) and 49.5% interest in the
capital of the Simon Operating Partnership, and SDG, LP became a special limited
partner in the Simon Operating Partnership with 49.5% (47,442,212 units) of the
outstanding partnership units in the Simon Operating Partnership and an
additional 49.5% interest in the profits of the Simon Operating Partnership. As
a result of the Merger, the Simon Operating Partnership became a subsidiary of
SDG, LP, with 99% of the profits allocable to SDG, LP and 1% of the profits
allocable to the Company. Cash flow allocable to the Company's 1% profit
interest in SDG, LP will be absorbed by public company costs and related
expenses incurred by the Company. The accompanying financial statements reflect
the operation of the Simon Operating Partnership on a stand alone basis.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
the Simon Operating Partnership. However, there can be no assurance that such
reorganizational transactions will be so affected.
In connection with the Merger, the Management Company purchased from The
Edward J. DeBartolo Corporation all of the voting stock (665 shares of common
stock) of DeBartolo Properties Management, Inc., a DRC management company, for
$2.5 million in cash. SDG, LP continues to hold substantially all of the
economic interest in DeBartolo Properties Management, Inc. SDG holds
substantially all of the economic interest in M.S. Management Associates, Inc.,
while the voting stock are held by the Simons and their affiliates. The Simon
Operating Partnership accounts for its interest in the Management Company
utilizing the equity method.
NOTE 3 -- RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1996 presentation.
NOTE 4 -- CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the nine months
ended September 30, 1996 was $114,811, as compared to $106,734 for the same
period in 1995. Accrued and unpaid distributions as of September 30, 1996 and
December 31, 1995 were $2,031, and $48,594, respectively, which includes accrued
and unpaid distributions on the units of partnership interest entitled to
preferential distribution of cash ("Preferred Units") of $2,031, and $1,490,
respectively.
NOTE 5 -- PER UNIT DATA
Per unit data is based on the weighted average number of units of
partnership interest ("Units") of the Simon Operating Partnership outstanding
during the period. As used herein, the term Units does not include Preferred
Units. The weighted average number of Units used in the computation for the
three months ended September 30, 1996 and 1995 was 95,842,853 and 95,196,569,
respectively. The weighted average number of Units used in the computation for
the nine months ended September 30, 1996 and 1995 was 95,783,720 and 91,663,449,
respectively. Additionally, Preferred Units may be converted into common stock
of the Company beginning in October of 1997 at an initial conversion ratio equal
to 0.9524. The Preferred Units outstanding have not been included in the
computations of per Unit data, as they do not have a dilutive effect.
65
<PAGE> 103
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- ACQUISITION
Prior to April 11, 1996, the Simon Operating Partnership held a 50% joint
venture interest in Ross Park Mall in Pittsburgh, Pennsylvania. On April 11,
1996, the Simon Operating Partnership acquired the remaining economic ownership
interest. The purchase price included approximately $44,000 cash and the
assumption of the joint venture partner's share of existing debt ($57,000). The
purchase price in excess of the net assets acquired of $49,015 was allocated to
investment properties. Effective April 11, 1996, the property is being accounted
for using the consolidated method of accounting. It was previously accounted for
using the equity method of accounting.
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
Summary financial information of partnerships and joint ventures accounted
for using the equity method of accounting and a summary of the Simon Operating
Partnership's investment in and share of income (loss) from such partnerships
and joint ventures follow:
<TABLE>
<CAPTION>
PARTNERSHIPS AND JOINT
VENTURES
------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
BALANCE SHEETS
ASSETS:
Investment properties at cost, net....................... $ 1,232,388 $1,156,066
Cash and cash equivalents................................ 36,729 52,624
Tenant receivables....................................... 35,978 35,306
Other assets............................................. 31,650 32,626
---------- ----------
Total assets..................................... $ 1,336,745 $1,276,622
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgage and other notes payable......................... $ 540,606 $ 410,652
Accounts payable, accrued expenses and other
liabilities........................................... 97,056 127,322
---------- ----------
Total liabilities..................................... 637,662 537,974
Partners' equity...................................... 699,083 738,648
---------- ----------
Total liabilities and partners' equity........... $ 1,336,745 $1,276,622
========== ==========
THE SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets..................................... $ 304,383 $ 290,802
========== ==========
PARTNERS' EQUITY:
Investment in partnerships and joint ventures, at
equity................................................ 136,099 $ 113,676
Cash distributions and losses in partnerships and joint
ventures, at equity................................... (16,796) (54,120)
---------- ----------
$ 119,303 $ 59,556
========== ==========
</TABLE>
66
<PAGE> 104
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERSHIPS AND JOINT VENTURES
-------------------------------------
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
----------------- -----------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent.......................................... $25,742 $19,755 $79,781 $57,606
Overage rent.......................................... 1,064 548 2,753 1,678
Tenant reimbursements................................. 12,569 10,002 40,082 28,651
Other income.......................................... 1,170 1,757 7,328 11,064
------ ------ ------ ------
Total revenue...................................... 40,545 32,062 129,944 98,999
OPERATING EXPENSES:
Operating expenses and other.......................... 15,934 11,019 48,782 32,456
Depreciation and amortization......................... 9,852 5,310 30,438 15,961
------ ------ ------ ------
Total operating expenses........................... 25,786 16,329 79,220 48,417
------ ------ ------ ------
OPERATING INCOME........................................ 14,759 15,733 50,724 50,582
INTEREST EXPENSE........................................ 8,184 6,648 22,318 21,282
INCOME BEFORE EXTRAORDINARY ITEMS....................... 6,575 9,085 28,406 29,300
EXTRAORDINARY ITEMS..................................... -- (9) -- (9)
------ ------ ------ ------
NET INCOME.............................................. 6,575 9,076 28,406 29,291
THIRD PARTY INVESTORS' SHARE OF NET INCOME.............. 6,615 8,254 25,313 26,060
------ ------ ------ ------
SIMON OPERATING PARTNERSHIP'S SHARE OF NET INCOME....... $ (42) $ 822 $ 3,093 $ 3,231
====== ====== ====== ======
</TABLE>
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these agreements are not
always consistent with the ownership interest held by each general or limited
partner or joint venturer, primarily due to partner preferences.
67
<PAGE> 105
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Summary financial information of the Management Company accounted for using
the equity method of accounting and a summary of the Simon Operating
Partnership's investment in and share of income from the Management Company
follow:
<TABLE>
<CAPTION>
MANAGEMENT COMPANY
----------------------------
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEETS 1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Current assets......................................... $ 62,874 $ 40,964
Undeveloped land and mortgage notes.................... 18,245 45,769
Other assets........................................... 24,889 13,813
-------- --------
Total assets................................... $ 106,008 $100,546
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities.................................... $ 52,584 $ 18,435
Notes payable and advances due to the Simon Operating
Partnership at 11%, due 2008........................ 71,028 102,522
-------- --------
Total liabilities................................... 123,612 120,957
Shareholders' deficit............................... (17,604) (20,411)
-------- --------
Total liabilities and shareholders' deficit.... $ 106,008 $100,546
======== ========
SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets................................... $ 94,639 $ 80,437
======== ========
Shareholders' deficit.......................... $ (18,145) $(20,612)
======== ========
</TABLE>
68
<PAGE> 106
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANAGEMENT COMPANY
-------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
STATEMENTS OF OPERATIONS 1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Management fees................... $ 4,952 $ 4,158 $15,122 $15,113
Development and leasing fees...... 6,480 6,747 10,928 13,140
Cost-sharing income and other..... 1,935 1,706 7,237 5,221
------- ------- ------- -------
Total revenue.................. 13,367 12,611 33,287 33,474
EXPENSES:
Operating expenses................ 7,953 10,747 21,744 24,983
Depreciation...................... 693 579 1,947 1,679
Interest.......................... 1,539 1,999 4,690 5,691
------- ------- ------- -------
Total expenses................. 10,185 13,325 28,381 32,353
------- ------- ------- -------
NET INCOME (LOSS)................... 3,182 (714) 4,906 1,121
INTERCOMPANY PROFITS................ (1,232) -- (1,232) --
------- ------- ------- -------
NET INCOME (LOSS) AFTER INTERCOMPANY
ELIMINATION....................... 1,950 (714) 3,674 1,121
PREFERRED DIVIDENDS................. 350 350 1,050 1,015
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE FOR
COMMON SHAREHOLDERS............... $ 1,600 $(1,064) $ 2,624 $ 106
======= ======= ======= =======
SIMON OPERATING PARTNERSHIP'S SHARE
OF NET INCOME (LOSS).............. $ 1,326 $ (994) $ 2,177 $ (6)
======= ======= ======= =======
</TABLE>
The management, development and leasing activities related to the
non-wholly owned and other third-party properties are conducted by the
Management Company.
The Simon Operating Partnership's share of allocated common costs were
$7,524 and $5,685, respectively, for the three-month periods and $21,949 and
$17,704, respectively, for the nine-month periods ended September 30, 1996 and
1995.
NOTE 8 -- DEBT
On February 23, 1996, the Simon Operating Partnership borrowed the initial
$100,000 tranche of a $184,000 two-tranche loan facility for the Forum Shops at
Caesar's ("Forum") and retired the existing $89,701 mortgage debt for Forum. The
initial funding bears interest at LIBOR plus 100 basis points and matures in
February 2000. The remaining proceeds of the initial $100,000 tranche are being
used to provide funds for the approximately 250,000-square-foot phase II
expansion of this property.
On April 11, 1996, the Simon Operating Partnership borrowed an additional
$115,000 on its then existing revolving credit facility. The funds were used
primarily to acquire the remaining economic ownership interest in Ross Park Mall
($44,000), and to retire a portion ($54,000) of the existing debt on Ross Park
Mall.
On June 28, 1996, the Simon Operating Partnership obtained an additional
$200,000 unsecured, revolving credit facility. The facility bore interest at
LIBOR plus 132.5 basis points. Terms for the facility were identical to those of
the Simon Operating Partnership's former $400,000 facility.
On September 10, 1996, the Simon Operating Partnership loaned $112 million
to SDG, LP to retire the DRC secured line of credit. The DRC line bore interest
at LIBOR plus 175 basis points.
69
<PAGE> 107
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
On September 27, 1996, the Company completed a $200,000 public offering
(the "Preferred Offering") of 8,000,000 shares of 8 3/4% Series B Cumulative
Redeemable Preferred Stock, generating net proceeds of approximately $193,000.
The Company contributed the proceeds of such offering to SDG, LP in exchange for
preferred units in the Operating Partnership, SDG, LP, which used the net
proceeds to repay $142.8 million of outstanding mortgage indebtedness $12.5
million to acquire additional ownership interest in North East Mall and loaned
$34.4 million to the Simon Operating Partnership which used the proceeds to
reduce amounts outstanding under its former unsecured credit facilities.
On September 27, 1996, the Operating Partnership obtained a $750,000,
unsecured, three-year credit facility (the "Credit Facility"), which will
initially bear interest at LIBOR plus 90 basis points. The Operating Partnership
borrowed $323 million under this Facility and loaned the proceeds to the Simon
Operating Partnership to retire the outstanding borrowings under its two former
unsecured credit facilities, which bore interest at LIBOR plus 132.5 basis
points.
During the first nine months of 1996, the Simon Operating Partnership drew
an additional $33,246 on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of September 30, 1996, a total of $55,645 was
outstanding on the loan.
On September 6, 1996, SDG, LP filed a shelf registration statement with the
Securities and Exchange Commission to provide for the offering, from time to
time, of up to $750,000 aggregate principal amount of unsecured debt securities
of the Operating Partnership. The Operating Partnership is currently preparing
to offer an aggregate of $200,000 in unsecured debt securities for sale to the
public. The proceeds of which will be used primarily to retire mortgage
indebtedness and to paydown the unsecured, revolving credit facility. The Simon
Operating Partnership will guarantee the due and punctual payment of the
principal of, premium, if any, interest on, and any other amounts payable with
respect to the unsecured debt securities. In December 1995 a shelf registration
statement for $500,000 of non-convertible investment grade debt securities of
SPG,LP became effective. As of September 30, 1996, no securities have been
issued from this registration statement.
At September 30, 1996, the Simon Operating Partnership had consolidated
debt of $2,136,651, of which $1,286,966 was fixed-rate debt and $849,685 was
variable-rate debt. As of September 30, 1996 and December 31, 1995, the Simon
Operating Partnership had interest-rate protection agreements related to
$488,958 and $551,196 of variable-rate debt, respectively. The agreements are
generally in effect until the related variable-rate debt matures. As a result of
the various interest rate protection agreements, interest savings were $415 and
$693 for the three months ended September 30, 1996 and 1995, respectively, and
$1,227 and $2,617 for the nine months ended September 30, 1996 and 1995,
respectively. The Simon Operating Partnership's pro rata share of indebtedness
of the unconsolidated joint venture properties as of September 30, 1996 and
December 31, 1995 was $186,823 and $167,644, respectively.
NOTE 9 -- PARTNERS' EQUITY
In connection with the Merger, the general and limited partners of the
Simon Operating Partnership, contributed 49.5% (47,442,212 units) of the total
outstanding units of partnership interest in the Simon Operating Partnership, to
the operating partnership of SDG, L.P. -- the Special Limited Partner in
exchange for 47,442,212 units of partnership interest in SDG, LP. The Company
retained a 50.5% partnership interest (48,400,641 units) in the Simon Operating
Partnership, but assigned its rights to receive distributions of profits on
49.5% (47,442,212 units) of the outstanding units of partnership interest in the
Simon Operating Partnership, to SDG, LP.
70
<PAGE> 108
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The following table summarizes the change in the Simon Operating
Partnership's partners' equity since December 31, 1995.
<TABLE>
<CAPTION>
SPECIAL LIMITED GENERAL PARTNER
PARTNERS' INTEREST --------------------------------------------- UNAMORTIZED
-------------------- PREFERRED RESTRICTED
UNITS AMOUNTS UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD
---------- ------- --------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ -- -- 4,000,000 $99,923 58,360,195 $(686,362) $(2,687)
Stock Incentive Program................. -- -- -- -- 200,030 4,751 (4,751)
Amortization of stock incentive......... -- -- -- -- -- -- 1,563
Adjustment to eliminate limited
partners' equity interest at
redemption value...................... -- -- -- -- -- 822,072 --
Adjustment to allocate net equity of the
Operating Partnership................. 94,884,424 167,304 -- -- (57,601,796) (103,175) --
Other................................... -- -- -- -- -- (62) --
Distributions........................... -- -- -- (6,094) -- (66,554) --
Net Income.............................. -- 10,406 -- 6,094 -- 31,125 --
---------- ------- --------- ------- ----------- --------- -------
Balance at September 30, 1996........... 94,884,424 177,710 4,000,000 $99,923 958,429 $ 1,795 $(5,875)
========== ======= ========= ======= =========== ========= =======
<CAPTION>
LIMITED PARTNERS
----------------------
TOTAL UNITS AMOUNTS
--------- ----------- --------
<S> <C> <C> <C>
Balance at December 31, 1995............ $(589,126) 37,282,628 $908,764
Stock Incentive Program................. -- -- --
Amortization of stock incentive......... 1,563 -- --
Adjustment to eliminate limited
partners' equity interest at
redemption value...................... 822,072 -- (822,072)
Adjustment to allocate net equity of the
Operating Partnership................. 64,129 (37,282,628) (64,129)
Other................................... (62) -- --
Distributions........................... (72,648) -- (42,372)
Net Income.............................. 47,625 -- 19,809
--------- ----------- --------
Balance at September 30, 1996........... $ 273,553 -- $ --
========= =========== ========
</TABLE>
Because the Simon Operating Partnership does not control whether cash will
be used to settle the limited partners' exchange rights, the limited partners'
equity has not been included in partners' equity. The consolidated condensed
balance sheets reflect the limited partners' interest in the Simon Operating
Partnership measured at redemption value. Accordingly, the accompanying
consolidated condensed balance sheet at December 31, 1995 has been retroactively
reclassified to reflect the limited partners' interest in the Simon Operating
Partnership, measured at redemption value. This reclassification results in a
charge to partners' equity of $908,764 as of December 31, 1995.
In connection with the merger of the Company and DRC which was completed
August 9, 1996, the Simon Operating Partnership agreement was amended
eliminating the exchange rights provision. As a result of the elimination of the
exchange right provision in connection with the Merger transaction, effective
August 9, 1996, the limited partners' interest, now special limited partner
interest in the Simon Operating Partnership, in the Simon Operating Partnership
have been reflected as partners' equity.
STOCK INCENTIVE PROGRAM
On March 22, 1995, an aggregate of 1,000,000 shares of restricted stock was
awarded to 50 executives, subject to the performance standards and other terms
of the Stock Incentive Program. On March 22, 1995 and 1996 the board of
directors of the Company approved the issuances of 144,196 and 200,030 shares of
common stock of the Company, respectively, to the eligible executives. The value
of these shares is being amortized pro-rata over the respective four-year
vesting period. Approximately $1,563 and $525 have been amortized for the
nine-month periods ended September 30, 1996 and 1995, respectively.
71
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simon Property Group, Inc.:
We have audited the accompanying consolidated balance sheets of SIMON PROPERTY
GROUP, L.P. (a Delaware limited partnership) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, partners'
equity and cash flows for the years ended December 31, 1995 and 1994, and for
the period from inception of operations (December 20, 1993) to December 31, 1993
and the combined statements of operations, owners' deficit and cash flows of
SIMON PROPERTY GROUP (the Predecessor) for the period from January 1, 1993 to
December 19, 1993. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Simon Property
Group, L.P. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1995 and 1994, and for the period from inception of
operations (December 20, 1993) to December 31, 1993, and the combined results of
operations and cash flows of the Predecessor for the period from January 1, 1993
to December 19, 1993, in conformity with generally accepted accounting
principles.
As explained in Note 12 to the financial statements, Simon Property Group, L.P.
has given retroactive effect to reclassify the limited partners' interest in
Simon Property Group, L.P.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
November 13, 1996
72
<PAGE> 110
BALANCE SHEETS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS:
Investment properties, at cost.................................... $2,162,161 $1,900,027
Less -- accumulated depreciation.................................. 152,817 70,916
---------- ----------
2,009,344 1,829,111
Cash and cash equivalents......................................... 62,721 105,139
Tenant receivables and accrued revenue, net....................... 144,400 146,555
Notes receivable and advances due from Management Company......... 102,522 75,405
Investment in partnerships and joint ventures, at equity.......... 117,332 39,632
Deferred costs, net............................................... 81,398 85,878
Other assets...................................................... 30,985 27,174
Minority interest................................................. 7,734 7,966
---------- ----------
Total assets.............................................. $2,556,436 $2,316,860
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgages and other notes payable................................. $1,980,759 $1,938,091
Accounts payable and accrued expenses............................. 113,131 102,750
Accrued distributions............................................. 48,594 40,807
Cash distributions and losses in partnerships and joint ventures,
at equity...................................................... 54,120 96,696
Investment in Management Company.................................. 20,612 16,875
Other liabilities................................................. 19,582 19,948
---------- ----------
Total liabilities.............................................. 2,236,798 2,215,167
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 15)
LIMITED PARTNERS' EQUITY INTEREST, 37,282,628 and 37,497,150 units
outstanding, respectively, at redemption value (Note 12).......... 908,764 909,306
---------- ----------
PARTNERS' EQUITY:
Preferred units, 4,000,000 authorized, issued and outstanding..... 99,923 --
General Partner, 58,360,195 and 48,412,445 units outstanding,
respectively................................................... 135,710 57,307
Adjustment to reflect Limited Partners' equity interest at
redemption value (Note 12)..................................... (822,072) (864,920)
Unamortized restricted stock award................................ (2,687) --
---------- ----------
Total partners' equity (deficit)............................... (589,126) (807,613)
---------- ----------
Total liabilities, limited partners' equity interest and
partners' equity (deficit).............................. $2,556,436 $2,316,860
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
73
<PAGE> 111
STATEMENTS OF OPERATIONS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
SIMON PROPERTY SIMON
GROUP, L.P. PROPERTY
--------------------------------------- GROUP
-----------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD
ENDED DECEMBER 31, FROM DECEMBER 20, FROM JANUARY 1,
------------------- 1993 TO 1993 TO
1995 1994 DECEMBER 31, 1993 DECEMBER 19, 1993
-------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent............................................ $307,849 $255,721 $ 9,041 $ 218,492
Overage rent............................................ 23,278 25,463 638 19,442
Tenant reimbursements................................... 191,535 162,706 4,800 145,484
Other income............................................ 30,995 29,786 3,945 22,451
-------- -------- -------- --------
Total revenue......................................... 553,657 473,676 18,424 405,869
-------- -------- -------- --------
EXPENSES:
Property operating...................................... 102,624 91,792 1,781 96,682
Depreciation and amortization........................... 92,739 75,945 2,051 60,243
Real estate taxes....................................... 53,766 44,403 1,335 39,333
Repairs and maintenance................................. 27,633 23,430 447 20,722
Advertising and promotion............................... 13,519 12,633 336 9,868
Provision for credit losses............................. 2,939 4,238 -- 3,741
Other................................................... 9,301 6,937 196 5,455
-------- -------- -------- --------
Total operating expenses.............................. 302,521 259,378 6,146 236,044
-------- -------- -------- --------
OPERATING INCOME.......................................... 251,136 214,298 12,278 169,825
INTEREST EXPENSE.......................................... 150,224 122,980 3,548 156,909
NON-RECURRING INTEREST EXPENSE............................ -- 27,184 -- --
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST........................... 100,912 64,134 8,730 12,916
MINORITY INTEREST......................................... (2,681) (3,759) (58) (3,558)
GAIN ON SALE OF ASSETS, NET............................... 1,871 -- -- --
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES..................... 100,102 60,375 8,672 9,358
INCOME (LOSS) FROM UNCONSOLIDATED ENTITIES................ 1,403 (67) 35 (2,446)
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS......................... 101,505 60,308 8,707 6,912
EXTRAORDINARY ITEMS....................................... (3,285) (17,980) (30,481) 26,189
-------- -------- -------- --------
NET INCOME (LOSS)......................................... 98,220 42,328 (21,774) 33,101
PREFERRED UNIT REQUIREMENT................................ 1,490 -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE TO UNITHOLDERS................ $ 96,730 $ 42,328 $ (21,774) $ 33,101
======== ======== ======== ========
NET INCOME (LOSS) AVAILABLE TO UNITHOLDERS ATTRIBUTABLE
TO:
General Partner......................................... $ 57,781 $ 23,377 $ (11,366)
Limited Partners........................................ 38,949 18,951 (10,408)
-------- -------- --------
$ 96,730 $ 42,328 $ (21,774)
======== ======== ========
EARNINGS PER UNIT:
Income before extraordinary items..................... $ 1.08 $ 0.71 $ 0.11
Extraordinary items................................... (0.04) (0.21) (0.39)
-------- -------- --------
Net income (loss)..................................... $ 1.04 $ 0.50 $ (0.28)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
74
<PAGE> 112
STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND OWNERS' DEFICIT
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS)
SIMON PROPERTY GROUP
<TABLE>
<S> <C>
Owners' deficit, December 31, 1992........................................................ $ (565,566)
Contributions............................................................................. 13,913
Distributions............................................................................. (170,877)
Net income................................................................................ 33,101
---------
Owners' deficit, December 19, 1993........................................................ $ (689,429)
=========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED UNITS GENERAL PARTNER UNAMORTIZED LIMITED PARTNER
-------------------- ---------------------- RESTRICTED ----------------------
UNITS AMOUNTS UNITS AMOUNTS STOCK AWARD TOTAL UNITS AMOUNTS
---------- ------- ---------- --------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIMON PROPERTY GROUP, L.P.
Balance at inception........... -- $ -- -- $ -- $ -- $ -- -- $ --
Limited Partners'
contributions................ -- -- -- -- -- -- 37,497,150 (689,429)
General Partner
contributions................ -- -- 40,950,000 767,756 -- 767,756 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (726,869) -- (726,869) -- 726,869
Adjustment to reflect limited
partners' equity interest at
Redemption Value (Note 12)... -- -- -- (821,341) -- (821,341) -- 821,341
Net loss, inception of
operations (December 20,
1993) to December 31, 1993... -- -- -- (11,366) -- (11,366) -- (10,408)
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1993... -- -- 40,950,000 $(791,820) $ -- $(791,820) 37,497,150 $ 848,373
--------- ------- ---------- --------- ------- --------- ---------- ---------
General Partner
contributions................ -- -- 7,462,445 164,334 -- 164,334 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (69,650) -- (69,650) -- 69,650
Adjustment to reflect limited
partners' equity interest at
redemption value (Note 12)... -- -- -- (43,579) -- (43,579) -- 43,579
Distributions.................. -- -- -- (90,275) -- (90,275) -- (71,247)
Net income..................... -- -- -- 23,377 -- 23,377 -- 18,951
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1994... -- $ -- 48,412,445 $(807,613) $ -- $(807,613) 37,497,150 $ 909,306
--------- ------- ---------- --------- ------- --------- ---------- ---------
Preferred unit contributions,
net.......................... 4,000,000.. 99,923 -- -- -- 99,923 -- --
General Partner
contributions................ -- -- 9,470,977 216,545 -- 216,545 -- --
Limited Partners'
contributions................ -- -- -- -- -- -- 120,000 (16,869)
Acquisition of Limited
Partners' interest and
other........................ -- -- 333,462 5,036 -- 5,036 (334,522) (301)
Stock incentive program........ -- -- 143,311 3,608 (3,605) 3 -- --
Amortization of stock incentive
program...................... -- -- -- -- 918 918 -- --
Adjustment to allocate net
equity of the Operating
Partnership.................. -- -- -- (94,035) -- (94,035) -- 94,035
Adjustment to reflect limited
partners' equity interest at
redemption value (Note 12)... -- -- -- 42,848 -- 42,848 -- (42,848)
Distributions.................. -- -- -- (110,532) -- 110,532 -- (73,508)
Net income..................... -- -- -- 57,781 -- 57,781 -- 38,949
--------- ------- ---------- --------- ------- --------- ---------- ---------
Balance at December 31, 1995... 4,000,000 $99,923 58,360,195 $(686,362) $(2,687) $(589,126) 37,282,628 $ 908,764
========= ======= ========== ========= ======= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
75
<PAGE> 113
STATEMENTS OF CASH FLOWS
SIMON PROPERTY GROUP, L.P. CONSOLIDATED
SIMON PROPERTY GROUP COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIMON PROPERTY
GROUP, L.P. SIMON PROPERTY
------------------------------------------ GROUP
-----------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD
ENDED DECEMBER 31, FROM DECEMBER 20, FROM JANUARY 1,
--------------------- 1993 TO 1993 TO
1995 1994 DECEMBER 31, 1993 DECEMBER 19, 1993
--------- --------- ------------------ -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 98,220 $ 42,328 $ (21,774) $ 33,101
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization........................ 101,262 83,196 2,139 64,160
(Gain) loss on extinguishments of debt............... 3,285 17,980 30,481 (26,189)
Gain on sale of assets, net.......................... (1,871) -- -- (8,885)
Straight-line rent................................... (1,126) (4,326) (159) (4,721)
Minority interest.................................... 2,681 3,759 58 3,558
Equity in income of unconsolidated entities.......... (1,403) 67 (35) 2,446
Changes in assets and liabilities --
Tenant receivables and accrued revenue............... 5,502 (3,908) (6,323) 6,187
Deferred costs and other assets...................... (14,290) 1,099 (16,351) (22,096)
Accounts payable, accrued expenses and other
liabilities........................................ 2,076 (12,172) 18,993 9,630
--------- --------- --------- ---------
Net cash provided by operating activities............ 194,336 128,023 7,029 57,191
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions........................................... (32,547) (227,312) (225,894) --
Capital expenditures................................... (98,220) (42,765) -- (46,677)
Cash of consolidated joint ventures.................... 4,346 8,924 -- --
Proceeds from sale of assets........................... 2,550 -- -- 12,218
Investments in unconsolidated entities................. (77,905) (1,056) -- (1,508)
Distributions from unconsolidated entities............. 6,214 5,842 -- 46,119
Investments in and advances to Management Company...... (27,117) (10,405) (3,500) --
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities......................................... (222,679) (266,772) (229,394) 10,152
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority interest contributions........................ -- -- -- 1,937
Minority interest distributions........................ (3,680) (2,148) -- (44,165)
Partnership contributions.............................. 242,377 106,773 767,756 12,406
Partnership distributions.............................. (177,726) (120,711) -- (137,126)
Mortgage and other note proceeds, net of transaction
costs................................................ 456,520 405,430 259,000 148,687
Mortgage and other note principal payments............. (531,566) (256,081) (588,876) (74,943)
Due (to) from affiliates and other repayments.......... -- -- (144,298) 22,587
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities......................................... (14,075) 133,263 293,582 (70,617)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (42,418) (5,486) 71,217 (3,274)
CASH AND CASH EQUIVALENTS, beginning of period........... 105,139 110,625 39,408 42,682
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 62,721 $ 105,139 $ 110,625 $ 39,408
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
76
<PAGE> 114
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT/SHARE AMOUNTS)
1. ORGANIZATION
Simon Property Group, L.P. (the "Simon Operating Partnership") was formed
as a Delaware limited partnership in 1993 in connection with Simon Property
Group, Inc.'s (the "Company") initial public offering (the "IPO"). On December
20, 1993, the Company raised $767,756 in net proceeds through the Company's IPO
and debt of $259,000 was issued in a concurrent private financing transaction.
The proceeds were contributed to the Simon Operating Partnership in exchange for
40,950,000 units of partnership interest ("Units") representing a 52.2%
partnership interest. As the sole general partner of the Simon Operating
Partnership, the Company has full, exclusive and complete responsibility and
discretion in the management and control of the Simon Operating Partnership. The
Simon Operating Partnership was formed prior to consummation of the Company's
IPO and is the successor entity to Simon Property Group (the "Predecessor").
Simultaneously with the offering, Melvin Simon and Herbert Simon and
certain of their affiliates (collectively, the "Simons"), along with certain
third-party investors' interests (collectively, "Simon Property Group"),
exchanged, directly or indirectly, fee and partnership interests in certain
properties and the management, development and leasing activities related to the
properties for limited partnership interests in the Simon Operating Partnership.
The Simon Operating Partnership also acquired certain third-party investors'
interests in Simon Property Group properties for cash (collectively, the
"Business Combination"). Purchase accounting was applied to the acquisition of
all third-party investors' interests for which cash consideration was paid.
Assets and liabilities related to interests acquired from the Simons and all
third-party investors receiving Units were recorded at their predecessor cost.
As used herein, the term Units does not include units of partnership
interests entitled to preferential distribution of cash ("Preferred Units") (See
Note 3).
The Simon Operating Partnership is engaged primarily in the ownership,
operation, management, leasing, acquisition, expansion and development of real
estate properties, primarily regional malls and community shopping centers. As
of December 31, 1995, the Simon Operating Partnership owns or holds an interest
in 122 income-producing properties, which consist of 62 regional malls, 55
community shopping centers, two specialty retail centers and three mixed-use
properties (the "Properties"). The Simon Operating Partnership also owns
interests in two regional malls and one specialty retail center currently under
construction and seven parcels of land held for future development.
The Simon Operating Partnership is subject to risks incident to the
ownership and operation of commercial real estate. These include, among others,
the risks normally associated with changes in the general economic climate,
trends in the retail industry, creditworthiness of tenants, competition for
tenants, changes in tax laws, interest rate levels, the availability of
financing, and potential liability under environmental and other laws. Like most
retail properties, the Simon Operating Partnership's regional malls and
community shopping centers rely heavily upon anchor tenants. As of December 31,
1995, 126 of the approximately 396 anchor stores in the Properties were occupied
by JCPenney, Inc., Sears Roebuck & Co. and Dillard Department Stores, Inc. An
affiliate of JCPenney, Inc. is a limited partner in the Simon Operating
Partnership.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Simon Operating
Partnership include the accounts of all entities owned or controlled by the
Simon Operating Partnership. All significant intercompany amounts have been
eliminated. These financial statements have been prepared in accordance with
generally accepted accounting principles, and accordingly contain certain
estimates by management in determining the Simon Operating Partnership's assets,
liabilities, revenues and expenses.
77
<PAGE> 115
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying financial statements of the Predecessor have been
presented on a combined historical cost basis because of the affiliated
ownership and common management and because the related Properties were
contributed to the Simon Operating Partnership as a part of the Business
Combination described above. The Simons have operations which were not
contributed to the Simon Operating Partnership and, therefore, the financial
statements are not intended to represent the financial position and results of
operations of the Simons. In management's opinion, the combined financial
statements include the assets, liabilities, revenues and expenses associated
with the operations of the Properties transferred to the Simon Operating
Partnership. Minority interests were provided in the accompanying combined
financial statements for those partners' interests which were not exchanged for
Units or which were purchased for cash in connection with the Business
Combination.
Properties which are wholly owned ("Wholly Owned Properties") or owned less
than 100% and are controlled by the Simon Operating Partnership ("Minority
Interest Properties") have been consolidated. Control is demonstrated by the
ability of the general partner to manage day-to-day operations, refinance debt
and sell the assets of the partnership without the consent of the limited
partner and the inability of the limited partner to replace the general partner.
Investments in partnerships and joint ventures which represent non-controlling
14.7% to 50.0% ownership interests ("Joint Venture Properties") and the
investment in the Management Company (see Note 8) are accounted for using the
equity method of accounting. These investments are recorded initially at cost
and subsequently adjusted for net equity in income (loss) and cash contributions
and distributions.
Effective April 1, 1994, the Simon Operating Partnership demonstrated its
ability to control the operating activities of The Forum Shops at Caesars
("Forum"). Subsequent to April 1, 1994, Forum is included in the accompanying
financial statements using the consolidated method of accounting. Prior to the
demonstration of control, Forum was reflected in the accompanying financial
statements using the equity method of accounting.
Effective July 1, 1995, the Simon Operating Partnership relinquished its
ability to solely direct certain activities related to the control of North East
Mall. As a result, the Property is no longer being consolidated, and is now
accounted for using the equity method of accounting.
Net operating results of the Simon Operating Partnership are allocated
after the preferred distribution (see Note 3) based on its partners' ownership
interests. The Company's weighted average ownership interest in the Simon
Operating Partnership during 1995 and 1994 was 60.3% and 55.2%, respectively. At
December 31, 1995 and 1994, the Company's ownership interest was 61.0% and
56.4%, respectively.
78
<PAGE> 116
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule identifies each Property included in the
accompanying consolidated financial statements and the method of accounting
utilized for each Property as of December 31, 1995:
<TABLE>
<S> <C> <C>
CONSOLIDATED METHOD:
Regional Malls
Alton Square Greenwood Park Mall North Towne Square
Amigoland Mall Heritage Park Mall Northwoods Mall
Anderson Mall Hutchinson Mall Orange Park Mall
Barton Creek Square Independence Center Prien Lake Mall
Battlefield Mall Ingram Park Mall St. Charles Towne Center
Broadway Square Irving Mall South Park Mall
Century Consumer Mall Jefferson Valley Mall Southgate Mall
Charles Towne Square LaPlaza Mall Southtown Mall
Cielo Vista Mall Lincolnwood Town Center Sunland Park Mall
College Mall Longview Mall Tippecanoe Mall
Crossroads Mall Machesney Park Mall Towne East Square
East Towne Mall Markland Mall Towne West Square
Eastgate Consumer Mall McCain Mall University Mall (Arkansas)
Eastland Mall Memorial Mall University Mall (Florida)
Forest Mall Midland Park Mall Valle Vista Mall
Forest Village Park Mall Miller Hill Mall West Ridge Mall
Fremont Mall Mounds Mall White Oaks Mall
Golden Ring Mall Muncie Mall Wichita Mall
Windsor Park Mall
Community Centers
Arvada Plaza Fox River Plaza Mounds Mall Cinema
Aurora Plaza Greenwood Plus New Castle Plaza
Bloomingdale Court Griffith Park Plaza North Ridge Plaza
Bridgeview Court Hammond Square North Riverside Park Plaza
Brightwood Plaza Ingram Plaza Northland Plaza
Bristol Plaza Lake Plaza Northwood Plaza
Buffalo Grove Towne Center Lake View Plaza Park Plaza
Celina Plaza Lincoln Crossing Regency Plaza
Cohoes Commons Maplewood Square St. Charles Towne Plaza
Cook's Discount Department Store Markland Plaza Teal Plaza
Countryside Plaza Martinsville Plaza Tippecanoe Plaza
East Towne Commons Marwood Plaza Wabash Village
Eastland Plaza Matteson Plaza West Ridge Plaza
Forest Plaza Memorial Plaza White Oaks Plaza
Wood Plaza
Specialty Retail Centers Mixed-Use Properties
The Forum Shops at Caesars O'Hare International Center
Trolley Square Riverway
</TABLE>
79
<PAGE> 117
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C>
EQUITY METHOD:
Regional Malls Community Centers Mixed-Use Property
Circle Centre Cobblestone Court The Fashion Centre at Pentagon City
Lakeline Mall Crystal Court
North East Mall Fairfax Court
Rolling Oaks Mall Gaitway Plaza
Ross Park Mall Ridgewood Court
Seminole Towne Center Royal Eagle Plaza
Smith Haven Mall The Plaza at Buckland Hills
The Yards Plaza
Village Park Plaza
West Town Corners
Westland Park Plaza
Willow Knolls Court
</TABLE>
The deficit minority interest balance in the accompanying Consolidated
Balance Sheets represents outside partners' interests in the net equity of
certain investment properties. Deficit minority interests were recorded when a
partnership agreement provided for the settlement of deficit capital accounts
before distributing the proceeds from the sale of partnership assets and/or from
the intent (legal or otherwise) and ability of the partner to fund additional
capital contributions.
3. FORMATION AND SIGNIFICANT OWNERSHIP TRANSACTIONS
On December 20, 1993, the Company completed the Business Combination and
the IPO of 37,750,000 shares of its common stock. The net proceeds of the
offering ($767,756) and a concurrent borrowing of $259,000 were used to acquire
the sole general partner's interest in the Simon Operating Partnership.
Proceeds from the offering and concurrent borrowing were used by the Simon
Operating Partnership as follows:
1. To pay $727,905 of mortgage and other indebtedness of the
Properties, including $144,298 of loans made by the Simons in lieu of
third-party financings.
2. To pay costs related to significant modification of debt terms and
prepayment penalties related to the early extinguishment of debt of
$40,512. An extraordinary loss of $30,481 was generated during the period
from December 20, 1993 to December 31, 1993 relating to the early
extinguishment of debt.
3. To purchase certain interest-rate protection agreements totaling
$4,687.
4. To acquire certain third-party investors' interest in the
Properties for $135,894.
5. To invest $19,500 in the Management Company, of which $16,000 was
used to repay debt. The debt repayment is included in item 1 above.
6. To acquire fee and partnership interests in twelve parcels of
undeveloped land and two mortgage notes related to two parcels of
undeveloped land for $90,000, of which $37,009 was paid to the Simons to
repay loans made by the Simons related to the parcels in lieu of
third-party financing. Certain parcels of undeveloped land and two mortgage
notes were transferred to the Management Company in exchange for a $48,000
note receivable.
7. To pay transfer taxes and other expenses associated with the
transfer of the Properties ($5,200) and the purchase of ground leases
($1,116).
8. To acquire certain property equipment for $2,861 and to pay
organization costs of $1,785.
80
<PAGE> 118
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. To establish $13,296 of working capital.
On January 14, 1994, the Company sold an additional 5,662,500 shares of
common stock, generating net proceeds of $118,235 as a result of the
underwriters' exercising the over-allotment option granted to them in connection
with the IPO. The net proceeds were contributed to the Simon Operating
Partnership in exchange for 5,662,500 Units and the Company's ownership of the
Simon Operating Partnership by 3.2% to 55.4%. The majority of the proceeds were
added to operating cash with a portion ($40,900) used to repay debt (including
related costs).
On January 31, 1995, the Company filed a shelf registration with the
Securities and Exchange Commission covering 15,000,000 shares of common stock of
the Company. On April 19, 1995, 6,000,000 of these shares were sold in an
underwritten offering. On May 17, 1995, the underwriters closed on a portion
(241,854 shares) of the over-allotment option granted them in connection with
the above offering. Proceeds from these transactions were contributed to the
Simon Operating Partnership in exchange for 6,241,854 Units and subsequently
used to repay debt. These transactions increased the Company's ownership of the
Simon Operating Partnership 2.8% to 60.5%.
On February 10, 1995, one of the limited partners in the Simon Operating
Partnership exchanged 212,114 Units for 212,114 shares of common stock of the
Company. The issuance of the additional shares increased the Company's ownership
of the Simon Operating Partnership by 0.2% to 56.6%.
On July 31, 1995, the Company filed a shelf registration statement that
became effective October 17, 1995 for 4,205,438 shares of common stock of the
Company. The shares relate to the shares issuable upon conversion of Units held
by existing limited partners of the Simon Operating Partnership (3,005,438
shares) and to the 1,200,000 shares of common stock issued in connection with
the Crossroads Mall transaction.
On October 27, 1995, the Company completed a $100,000 private placement of
4,000,000 shares of Series A preferred stock. Dividends on the preferred stock
are paid quarterly at the greater of 8.125% per annum or the dividend rate
payable under the underlying common stock of the Company. The holders of the
preferred stock have the right to convert the preferred stock into common stock
after two years at an initial conversion ratio equal to 0.9524. The Company may
redeem the preferred stock after five years upon payment of premiums that
decline to $25.00 per share over the following seven years. The holders of the
preferred stock are entitled to vote on all matters submitted to a vote of
holders of common stock of the Company, based on the number of shares of common
stock into which the preferred stock can be converted. The Company contributed
the proceeds of the private placement to the Simon Operating Partnership in
exchange for 4,000,000 Preferred Units. The Simon Operating Partnership will pay
preferred distributions to the Company equal to the dividends paid on the
preferred stock.
On December 21, 1995, one of the limited partners in the Simon Operating
Partnership exchanged 121,348 Units for 121,348 shares of common stock of the
Company. The issuance of the additional shares increased the Company's ownership
of the Simon Operating Partnership by 0.1% to 61.0%.
4. ACQUISITIONS AND REAL ESTATE INVESTMENT ACTIVITY
MSA Realty Corporation ("MSAR")
On September 1, 1994, the Company issued an additional 1,799,945 shares of
common stock in conjunction with the merger of MSAR. Each outstanding share of
MSAR common stock as of August 31, 1994 was converted into 0.31 shares of the
Company's common stock. The acquisition price, including related transaction
costs, was $48,031. The Company's investment in MSAR was contributed to the
Simon Operating Partnership for 1,799,945 Units, which increased the Company's
ownership of the Simon Operating Partnership by 1.0% to 56.4%. As a result of
the acquisition, the Simon Operating Partnership now owns 100% of fourteen
centers in which it previously held a 50% interest and substantially all of the
ownership interest in
81
<PAGE> 119
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
one community shopping center in which it held a minority interest. In addition,
the Simon Operating Partnership obtained a non-controlling 50% interest in a
regional mall. The MSAR transaction was accounted for using the purchase method
of accounting. The purchase price in excess of the net assets acquired of
$26,507 was allocated to investment properties. The Simon Operating
Partnership's interest in the assets and liabilities of these centers prior to
this transaction is reflected at predecessor cost. Subsequent to September 1,
1994, each of the Properties involved in this merger was accounted for using the
consolidated method of accounting.
Simultaneous with the merger, a debt restructuring with Metropolitan Life
Insurance Company related to the fourteen centers was completed resulting in the
repayment of approximately $45,000 of loan principal and discharging the
mortgages on four of the centers. In addition, the interest rate was reduced
from 9.98% to 8.75% on the remaining debt of approximately $145,000. A
prepayment penalty of $5,000 was incurred in conjunction with this activity and
has been classified as an extraordinary item in the Consolidated Statements of
Operations.
Independence Center
On December 1, 1994, the Simon Operating Partnership acquired Independence
Center in Independence, Missouri. Included in the purchase are approximately 47
acres of undeveloped land adjacent to the mall. Under the terms of the sale, the
Simon Operating Partnership paid $51,413 including transaction costs, funded
through the use of the Simon Operating Partnership's credit facilities.
Broadway Square, Orange Park Mall and University Mall
On December 29, 1994, the Simon Operating Partnership acquired Broadway
Square in Tyler, Texas; Orange Park Mall in Jacksonville, Florida; and
University Mall in Pensacola, Florida. Under the terms of the sale, the Simon
Operating Partnership paid $153,874, including transaction costs, funded through
the use of the Simon Operating Partnership's credit facilities. Included in the
purchase price were approximately 14 acres and 10 acres of undeveloped land
adjacent to Orange Park Mall and University Mall, respectively.
White Oaks Mall
At the time of the IPO, the Teacher's Retirement System of the State of
Illinois ("TRS") held an option to put its 50% general and limited partnership
interests in White Oaks Mall in Springfield, Illinois, to the Simon Operating
Partnership. TRS exercised this option on January 23, 1995, and the purchase
closed February 23, 1995. The Units which TRS received upon exercise of the
options were exchanged for 2,022,247 shares of common stock of the Company. The
Simon Operating Partnership now owns 77% of White Oaks Mall. The issuance of the
additional shares increased the Company's ownership interest in the Simon
Operating Partnership by 1.0% to 57.6%. The White Oaks Mall transaction, valued
at $45,000, was accounted for using the purchase method of accounting. The
purchase price in excess of the net assets acquired of $10,905 was allocated to
investment properties. The Simon Operating Partnership's interest in the assets
and liabilities of this Property prior to this transaction is reflected at
predecessor cost. Effective February 23, 1995, White Oaks Mall was being
accounted for in the accompanying consolidated financial statements using the
consolidated method of accounting. It was previously accounted for using the
equity method of accounting.
Crossroads Mall
Prior to July 31, 1995, the Simon Operating Partnership held a 50% joint
venture interest in Crossroads Mall in Omaha, Nebraska. On July 31, 1995, the
Simon Operating Partnership acquired the remaining 50% ownership in the Property
from the Simons in exchange for 120,000 Units. The acquisition was reflected at
predecessor cost. Concurrent with the acquisition, a debt restructuring was
completed which included the issuance of 1,200,000 shares of common stock of the
Company to the lender (New York State Teachers'
82
<PAGE> 120
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retirement System) in exchange for a $30,000 reduction of the outstanding loan
balance which included accrued interest. In addition, the effective interest
rate on the remaining balance of $41,400 was reduced from 10.5% to 7.75%. As a
result of this transaction, the Simon Operating Partnership issued 1,200,000
Units to the Company. As a result of these transactions, the Company's ownership
interest in the Simon Operating Partnership increased by 0.4% to 60.9%. The loan
matures on July 31, 2002. Effective July 31, 1995, Crossroads Mall was included
in the accompanying consolidated financial statements using the consolidated
method of accounting. It was previously accounted for using the equity method of
accounting.
The Shops at Sunset Place
On August 15, 1995, the Simon Operating Partnership acquired for $11,406, a
controlling 75% joint venture interest in The Shops at Sunset Place in South
Miami, Florida. The joint venture is formulating plans to redevelop the site
into a specialty retail center. The acquisition was financed using borrowings
from the Simon Operating Partnership's unsecured revolving credit facility. This
site is included in the accompanying consolidated financial statements using the
consolidated method of accounting.
East Towne Mall
Prior to September 25, 1995, the Simon Operating Partnership held a 45.0%
joint venture interest in East Towne Mall in Knoxville, Tennessee. On September
25, 1995, the Simon Operating Partnership acquired the remaining interest for
$18,500 and the assumption of 55% of the $75,000 of existing mortgage debt. In
connection with the transaction, the Simon Operating Partnership refinanced the
$75,000 mortgage. These transactions were funded through a new loan of $55,000
and $38,500 in borrowings from the Simon Operating Partnership's unsecured
revolving credit facility. The transaction was accounted for using the purchase
method of accounting. The purchase price in excess of the net assets acquired of
$21,982 was allocated to investment properties. Effective September 25, 1995,
East Towne Mall was included in the accompanying consolidated financial
statements using the consolidated method of accounting. It was previously
accounted for using the equity method of accounting.
The Source
On December 22, 1995, a joint venture, in which the Simon Operating
Partnership has a non-controlling 50% joint venture interest, acquired a
development project located in Westbury (Long Island), New York, for $30,253.
This acquisition was financed using borrowings from the Simon Operating
Partnership's unsecured revolving credit facility. The joint venture will
develop a 730,000-square-foot value-oriented retail center, which commenced
construction in February 1996 and is expected to open in the fall of 1997. This
joint venture is being accounted for using the equity method of accounting.
Smith Haven Mall
On December 28, 1995, a joint venture in which the Simon Operating
Partnership owns a non-controlling 25% interest, purchased Smith Haven Mall, a
1.3 million square-foot regional mall located in Lake Grove (Long Island), New
York, for $221,000. The Simon Operating Partnership's share of the purchase
price ($55,725) was financed using borrowings from the Simon Operating
Partnership's unsecured revolving credit facility. This joint venture is being
accounted for using the equity method of accounting.
Mills Developments
On December 29, 1995, the Simon Operating Partnership entered into
arrangements with The Mills Corporation to develop value-oriented regional malls
in Ontario (Los Angeles), California; Grapevine (Dallas), Texas; and Chandler
(Phoenix), Arizona. The Ontario, California project consists of a 1.4 million
square-foot regional mall under construction and is expected to open in the fall
of 1996. The remaining sites
83
<PAGE> 121
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are in the preconstruction stages of development. These projects are being
accounted for using the equity method of accounting.
Arborland Mall
Effective September 30, 1995, the Simon Operating Partnership sold its 1%
ownership in Arborland Mall to its existing partner. Arborland was accounted for
using the equity method of accounting.
Pro Forma
The following unaudited pro forma summary financial information combines
the consolidated results of operations of the Simon Operating Partnership as if
the IPO and Business Combination (excluding the over-allotment option), the
acquisitions of MSAR, Independence Center, Broadway Square, Orange Park Mall,
University Mall, White Oaks Mall, Crossroads Mall, East Towne Mall, and Smith
Haven Mall, the consolidation of Forum, the deconsolidation of North East Mall,
and the add-on offering of common stock had occurred as of January 1, 1995, 1994
and 1993, after giving effect to certain adjustments, including interest and
related expenses associated with debt incurred to finance the acquisitions,
depreciation expense related to the Properties acquired, general and
administrative costs to manage the Properties acquired and the additional
contingent interest paid of $27,184 in connection with the refinancing of one of
the Properties as described in Note 9. Preparation of the pro forma summary
information was based upon assumptions deemed appropriate by the Simon Operating
Partnership. The pro forma summary information is not necessarily indicative of
the results which actually would have occurred if the transactions discussed
above had been consummated at the beginning of the periods presented, nor does
it purport to represent the future financial position and results of operations
for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Total Revenue.......................................... $ 565,706 $ 555,152 $ 531,657
========== ========== ==========
Net income available to Unitholders.................... 102,648 95,488 68,409
========== ========== ==========
Net Income available to Unitholders attributed to:
General Partner........................................ 62,513 57,789 39,746
========== ========== ==========
Limited Partners....................................... 40,135 37,699 28,663
========== ========== ==========
Net income per Unit.................................... $ 1.07 $ 1.00 $ 0.76
========== ========== ==========
Weighted average number of Units outstanding........... 95,609,354 95,272,018 89,831,696
========== ========== ==========
</TABLE>
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Properties
Investment operating Properties are recorded at the lower of cost
(Predecessor cost for Properties acquired from promoters in connection with the
Business Combination) or net realizable value. Net realizable value of
investment properties for financial reporting purposes is reviewed for
impairment on a Property-by-Property basis whenever events or changes in
circumstances indicate that the carrying amount of investment properties may not
be recoverable. Impairment of investment properties is recognized when estimated
undiscounted operating income is less than the carrying value of the Property.
To the extent an impairment has occurred, the excess of carrying value of the
Property over its estimated net realizable value will be charged to income. The
Simon Operating Partnership will adopt SFAS No. 121 (Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of) on January 1,
1996, and believes that the adoption will not have a material impact upon its
financial statements. Investment properties include costs of
84
<PAGE> 122
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
acquisition, development, construction, tenant improvements, interest and real
estate taxes incurred during construction, certain capitalized improvements and
replacements, and certain allocated overhead.
Depreciation on buildings and improvements is provided utilizing the
straight-line method over an estimated original useful life of 10 to 45 years,
resulting in an average composite life of approximately 30 years. Depreciation
on tenant improvements is provided utilizing the straight-line method over the
life of the related lease.
Certain improvements and replacements are capitalized when they extend the
useful life, increase capacity, or improve the efficiency of the asset. All
other repair and maintenance items are expensed as incurred.
Capitalized Interest
Interest is capitalized on projects during periods of construction.
Interest capitalized by the Simon Operating Partnership for the years ended
December 31, 1995 and 1994 was $1,515 and $1,586 respectively; for the period
from December 20, 1993 to December 31, 1993, capitalized interest was not
significant. Interest capitalized by the Predecessor for the period from January
1, 1993 to December 19, 1993 was $86.
Deferred Costs
Deferred costs consist primarily of financing fees incurred to obtain
long-term financing, costs of interest-rate protection agreements, and internal
and external leasing commissions and related costs. Deferred financing costs,
including interest-rate protection agreements, are amortized on a straight-line
basis over the terms of the respective loans or agreements. Deferred leasing
costs are amortized on a straight-line basis over the terms of the related
leases. At December 31, 1995 and 1994, deferred costs consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred financing costs....................................... $ 68,042 $ 60,568
Leasing costs and other........................................ 88,094 88,467
-------- --------
156,136 149,035
Less-accumulated amortization.................................. 74,738 63,157
-------- --------
Deferred costs, net.................................. $ 81,398 $ 85,878
======== ========
</TABLE>
Included in interest expense in the accompanying Consolidated Statements of
Operations of the Simon Operating Partnership is amortization of deferred
financing costs of $8,523 and $7,251 for the years ended December 31, 1995 and
1994, respectively, and $88 for the period from December 20, 1993 to December
31, 1993. Included in interest expense in the accompanying Combined Statement of
Operations of the Predecessor is amortization of deferred financing costs of
$3,917 for the period from January 1, 1993 to December 19, 1993.
Revenue Recognition
The Simon Operating Partnership, as a lessor, has retained substantially
all of the risks and benefits of ownership of the investment properties and
accounts for its leases as operating leases. Minimum rents are accrued on a
straight-line basis over the terms of their respective leases. Overage rents are
recognized when earned.
Reimbursements from tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenditures are incurred.
85
<PAGE> 123
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Credit Losses
A provision for credit losses is recorded based on management's judgment of
tenant creditworthiness. The activity in the allowance for credit losses of the
Simon Operating Partnership for the years ended December 31, 1995 and 1994, and
for the period from December 20, 1993 to December 31, 1993, and for the
Predecessor for the period from January 1, 1993 to December 19, 1993 was as
follows:
<TABLE>
<CAPTION>
BALANCE AT PROVISION ACCOUNTS BALANCE AT
BEGINNING FOR CREDIT WRITTEN END OF
PERIOD ENDED OF PERIOD LOSSES OFF PERIOD
------------------------------------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
December 31, 1995......................... $2,943 $2,939 (1,623) $$4,259
====== ====== ======= ======
December 31, 1994......................... $ -- $4,238 (1,295) $$2,943
====== ====== ======= ======
December 20, 1993 to December 31, 1993.... $ -- $ -- $ -- $ --
====== ====== ======= ======
January 1, 1993 to December 19, 1993...... $4,318 $3,741 (4,086) $$3,973
====== ====== ======= ======
</TABLE>
Income Taxes
As a partnership, the allocated share of income or loss for each year is
included in the income tax returns of the partners, accordingly, no accounting
for income taxes is required in the accompanying consolidated financial
statements. State and local taxes are not material.
Prior to the Business Combination, substantially all of the Properties were
owned by partnerships and joint ventures whose partners were required to include
their respective share of profits and losses in their individual tax returns.
Certain of the Properties were held by corporations which were subject to
federal and state income taxes. These corporations were included in the
consolidated tax returns filed by Melvin Simon & Associates, Inc. ("MSA") for
which no federal income taxes were due. Accordingly, no federal income tax
provision (benefit) was reflected in the accompanying Combined Statement of
Operations. State income taxes were not significant.
Taxable income of the Simon Operating Partnership for the year ended
December 31, 1995 is estimated to be $122,127, and was $44,683 for the year
ended December 31, 1994. Reconciling differences between book income and tax
income primarily result from timing differences consisting of (i) depreciation
expense, (ii) prepaid rental income and (iii) straight-line rent. Furthermore,
the Simon Operating Partnership's share of income or loss from the affiliated
Management Company is excluded from the tax return of the Simon Operating
Partnership.
Per Unit Data
The net income (loss) per Unit is based on the weighted average number of
Units outstanding during the period. The weighted average number of Units used
in the computation for 1995, 1994 and 1993 was 92,666,469; 84,509,597; and
78,447,150, respectively. Units held by limited partners in the Simon Operating
Partnership may be exchanged for shares of common stock of the Company on a
one-for-one basis in certain circumstances (see Note 12). The stock options
outstanding under the Stock Option Plans (See Note 11) and the Preferred Units
have not been considered in the computations of per Unit data, as they did not
have a dilutive effect.
86
<PAGE> 124
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Simon Operating Partnership declared distributions per Unit of $1.97
and $1.90 in 1995 and 1994, respectively. The following is a summary of
distributions per Unit which represent a return of capital measured using
generally accepted accounting principles:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
----------------------------
DISTRIBUTIONS PER UNIT 1995 1994
------------------------------------------- ------ ------
<S> <C> <C>
From book net income....................... $ 1.04 $ 0.50
Representing return of capital............. .93 1.40
----- -----
Total Distributions........................ $ 1.97 $ 1.90
===== =====
</TABLE>
On a federal income tax basis, 25% of the 1995 distributions and 55% of the
1994 distributions represented return of capital.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, all highly liquid investments
purchased with an original maturity of 90 days or less are considered as cash
and cash equivalents. Cash equivalents are carried at cost, which approximates
market. Cash equivalents consist of commercial paper, bankers acceptances,
Eurodollars, repurchase agreements and Dutch auction securities.
Cash paid for interest by the Simon Operating Partnership, net of any
amounts capitalized, for the year ended December 31, 1995 was $142,345. Cash
paid for interest by the Simon Operating Partnership, net of any amounts
capitalized, for the year ended December 31, 1994 was $140,106, including a
$27,184 non-recurring interest charge; and for the period from December 20, 1993
to December 31, 1993, was $3,316. Cash paid for interest by the Predecessor, net
of any amounts capitalized, for the period from January 1, 1993 to December 19,
1993 was $157,387.
Net working capital generated by the Properties as of December 19, 1993 was
retained by the investors in the Properties at that time. The unpaid amount of
working capital was $4,072 as of December 31, 1994, and is included in accounts
payable in the accompanying Consolidated Balance Sheet. At December 31, 1995,
all working capital amounts had been repaid.
Non-Cash Transactions
The following is a summary of significant non-cash transactions.
As described in Note 2, effective April 1, 1994, the Simon Operating
Partnership reflected Forum using the consolidated method of accounting.
As described in Note 4, on September 1, 1994, the Simon Operating
Partnership issued 1,799,945 Units in conjunction with the merger of MSAR. On
February 23, 1995, the Simon Operating Partnership issued 2,022,247 Units in
connection with the acquisition of an additional joint venture interest in White
Oaks Mall. On July 31, 1995, the Simon Operating Partnership issued 120,000
Units in exchange for the Simons' 50% interest in Crossroads Mall. The Simon
Operating Partnership issued 1,200,000 Units of common stock in connection with
the reduction of the outstanding loan and accrued interest at Crossroads Mall.
Accrued and unpaid distributions as of December 31, 1995 and 1994 were
$47,104 and $40,807, respectively. Accrued and unpaid distributions on Preferred
Units as of December 31, 1995 were $1,490. There were no Preferred Units in 1994
and, therefore, no Preferred Unit distributions were declared or outstanding in
1994.
87
<PAGE> 125
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to the prior-year financial
statements to conform to the current-year presentation. These reclassifications
have no impact on net operating results previously reported.
6. INVESTMENT PROPERTIES
Investment properties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Land........................................................ $ 283,722 $ 267,213
Buildings and improvements.................................. 1,860,203 1,619,909
---------- ----------
Total land, buildings and improvements................. 2,143,925 1,887,122
Furniture, fixtures and equipment........................... 18,236 12,905
---------- ----------
Investment properties at cost.......................... 2,162,161 1,900,027
Less -- accumulated depreciation............................ 152,817 70,916
---------- ----------
Investment properties at cost, net..................... $2,009,344 $1,829,111
========== ==========
</TABLE>
Building and improvements include $40,676 and $8,377 of construction in
process at December 31, 1995 and 1994, respectively.
7. INVESTMENT IN PARTNERSHIPS AND JOINT VENTURES
Summary financial information of partnerships and joint ventures accounted
for using the equity method, and a summary of the Simon Operating Partnership's
or Simon Property Group's investment in and share of income (loss) from such
partnerships and joint ventures follows. See Notes 2 and 4 for a discussion of
certain acquisition and real estate investing activities which impact the
financial information of the Joint Venture Properties. This information also
reflects the openings of Circle Centre, Seminole Towne Center and Lakeline Mall
during 1995.
88
<PAGE> 126
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
BALANCE SHEETS 1995 1994
- -------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
ASSETS:
$1,156,066 $ 741,900
Investment properties at cost, net................................
52,624 65,547
Cash and cash equivalents.........................................
35,306 39,332
Tenant receivables................................................
32,626 13,161
Other assets......................................................
---------- ----------
$1,276,622 $ 859,940
Total assets..............................................
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
$ 410,652 $ 366,926
Mortgages and other notes payable.................................
127,322 76,663
Accounts payable, accrued expenses and other liabilities..........
---------- ----------
537,974 443,589
Total liabilities..............................................
738,648 416,351
Partners' equity..................................................
---------- ----------
$1,276,622 $ 859,940
Total liabilities and partners' equity....................
========== ==========
SIMON OPERATING PARTNERSHIP'S SHARE OF:
$ 290,802 $ 152,797
Total assets..............................................
========== ==========
$ 63,212 $ (57,064)
Partners' equity (deficit)................................
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE YEAR ENDED DECEMBER 20, JANUARY 1,
DECEMBER 31, 1993 TO 1993 TO
--------------------- DECEMBER 31, DECEMBER 19,
STATEMENTS OF OPERATIONS 1995 1994 1993 1993
- ---------------------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent.......................... $ 83,905 $92,380 $3,584 $ 96,518
Overage rent.......................... 2,754 3,655 197 5,804
Tenant reimbursements................. 39,500 45,440 1,905 50,378
Other income.......................... 13,980 10,131 87 6,433
-------- ------- ------ --------
Total revenue...................... 140,139 151,606 5,773 159,133
OPERATING EXPENSES:
Operating expenses and other.......... 46,466 55,949 2,218 60,407
Depreciation and amortization......... 26,409 26,409 985 28,918
-------- ------- ------ --------
Total operating expenses........... 72,875 82,358 3,203 89,325
-------- ------- ------ --------
OPERATING INCOME........................ 67,264 69,248 2,570 69,808
INTEREST EXPENSE........................ 28,685 38,124 1,446 44,280
EXTRAORDINARY ITEMS..................... (2,687) -- -- --
-------- ------- ------ --------
NET INCOME.............................. 35,892 31,124 1,124 25,528
THIRD-PARTY INVESTORS' SHARE OF NET
INCOME................................ 30,752 30,090 1,081 26,619
-------- ------- ------ --------
SIMON OPERATING PARTNERSHIP'S OR SIMON
PROPERTY GROUP'S SHARE OF NET INCOME
(LOSS)................................ $ 5,140 $ 1,034 $ 43 $ (1,091)
======== ======= ====== ========
</TABLE>
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these
89
<PAGE> 127
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements are not always consistent with the ownership interest held by each
general or limited partner or joint venturer, primarily due to partner
preferences.
8. INVESTMENT IN MANAGEMENT COMPANY
M.S. Management Associates (Indiana), Inc., ("M.S. Management"), a wholly
owned subsidiary of MSA, an affiliate of the Simons, provided management,
development and leasing services to the Predecessor and other properties. In
connection with the Business Combination, MSA, indirectly, exchanged the
management, development and leasing contracts related to the Simon Operating
Partnership's Wholly Owned Properties and certain assets for Class B common
stock of the Company. The management, development and leasing activities related
to the non-wholly owned and other third-party properties are now conducted by
M.S. Management Associates, Inc., a Delaware corporation, (the "Management
Company"), which, through a series of transactions in connection with the
Business Combination, became the parent company of M.S. Management.
The Simon Operating Partnership's initial investment in the Management
Company was evidenced by $2,000 in common stock (representing 80% of the
outstanding common stock of the Management Company including 5% of the
outstanding voting common stock), $17,500 of participating 8% preferred stock
and a $22,000 note receivable. The remaining 20% of the outstanding common stock
of the Management Company (representing 95% of the voting common stock) is owned
directly by the Simons. The Simon Operating Partnership also sold to the
Management Company four parcels of undeveloped land and two mortgage notes
related to two parcels of undeveloped land in exchange for a note receivable in
the amount of $48,000. The Simon Operating Partnership was granted options, at
no cost, by the Management Company to reacquire the four parcels of undeveloped
land at a price equal to the actual cost incurred by the Management Company to
acquire and carry such parcels to the exercise date of the respective option.
The option agreements expire in December 2003 and carry rights of first refusal.
The net assets of M.S. Management acquired in the Business Combination are
recorded at predecessor cost, which resulted in a carryover-basis adjustment to
equity of $35,219. Because the Simon Operating Partnership exercises significant
influence over the financial and operating policies of the Management Company,
it is reflected in the accompanying statements using the equity method of
accounting.
During 1994, the Simon Operating Partnership advanced the Management
Company $10,405, which bears interest at 11%. The Management Company repaid
$5,000 by transferring a financial instrument to the Simon Operating
Partnership. During 1995, the Simon Operating Partnership advanced a net of
$27,500 to the Management Company which bears interest at 11%. The proceeds were
used to acquire a $27,500 mortgage note due from The Source, in which the Simon
Operating Partnership has a noncontrolling 50% interest. The mortgage bears
interest at 11% and will be repaid by the partnership's construction financing
scheduled to close in the first quarter of 1996. The Management Company also
liquidated in 1995 its interest in a certain partnership investment which held a
9.8-acre parcel of land in Rosemont, Illinois. The sale of that parcel resulted
in a loss of $958 to the Management Company. Further, an undeveloped two-acre
parcel of land in Washington, D.C., for which the Management Company held a
mortgage, was sold in December 1995. The Management Company recorded a loss in
connection with this transaction of $3,949.
At December 31, 1995 and 1994, total notes receivable and advances due from
the Management Company were $102,522 and $75,405, respectively. Unpaid interest
income receivable from the Management Company at December 31, 1995 and 1994 was
$84 and $2,826, respectively. Unpaid preferred dividends receivable from the
Management Company at December 31, 1995 and 1994 were $0 and $350, respectively.
These interest and preferred dividend receivables are reflected in tenant
receivables and accrued revenue in the accompanying Consolidated Balance Sheets.
90
<PAGE> 128
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information of the Management Company accounted for
using the equity method, and a summary of the Simon Operating Partnership's
investment in and share of income (loss) from the Management Company follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
BALANCE SHEETS 1995 1994
- --------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS:
Current assets................................................................. $ 40,964 $ 16,841
Undeveloped land and mortgage notes............................................ 45,769 43,000
Other assets................................................................... 13,813 12,577
-------- --------
Total assets............................................................ $100,546 $ 72,418
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities............................................................ $ 18,435 $ 13,103
Notes payable and advances due to the Simon Operating Partnership at 11%, due
2008......................................................................... 102,522 75,405
-------- --------
Total liabilities............................................................ 120,957 88,508
Shareholders' deficit.......................................................... (20,411) (16,090)
-------- --------
Total liabilities and shareholders' deficit............................. $100,546 $ 72,418
======== ========
THE SIMON OPERATING PARTNERSHIP'S SHARE OF:
Total assets............................................................ $ 80,437 $ 57,934
======== ========
Shareholders' deficit................................................... $(20,612) $(16,875)
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE YEAR PERIOD FROM PERIOD FROM
ENDED DECEMBER DECEMBER 20, JANUARY 1,
31, 1993 TO 1993 TO
----------------- DECEMBER 31, DECEMBER 19,
STATEMENTS OF OPERATIONS 1995 1994 1993 1993
- -------------------------------------------------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Management fees....................................... $20,106 $18,587 $ 707 $ 31,747
Development and leasing fees.......................... 15,451 9,683 763 6,874
Cost-sharing income and other......................... 7,561 10,077 214 2,691
-------- -------- ------ -------
Total revenue.................................. 43,118 38,347 1,684 41,312
EXPENSES:
Operating expenses.................................... 31,163 27,944 1,388 40,944
Depreciation.......................................... 2,275 1,406 51 1,723
Interest.............................................. 7,694 8,623 253 --
Total expenses...................................... 41,132 37,973 1,692 42,667
-------- -------- ------ -------
OPERATING INCOME (LOSS)................................. 1,986 374 (8) (1,355)
-------- -------- ------ -------
LOSS ON DISPOSITION OF ASSETS........................... (4,907) -- -- --
NET INCOME (LOSS)....................................... (2,921) 374 (8) (1,355)
-------- -------- ------ -------
PREFERRED DIVIDENDS..................................... 1,400 1,400 -- --
NET LOSS AVAILABLE FOR COMMON SHAREHOLDERS.............. $(4,321) $(1,026) $ (8) $ (1,355)
======== ======== ====== =======
SIMON OPERATING PARTNERSHIP'S SHARE OF NET LOSS......... $(3,737) $(1,101) $ (8)
======== ======== ======
</TABLE>
91
<PAGE> 129
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Simon Operating Partnership manages all Wholly Owned Properties, and,
accordingly, it reimburses the Administrative Services Partnership ("ASP") for
costs incurred, including management, leasing, development, accounting, legal,
marketing, and management information systems. Substantially all employees
(other than direct field personnel) are employed by ASP which is owned 1% by the
Simon Operating Partnership and 99% by the Management Company. The Management
Company's Statements of Operations report costs net of amounts reimbursed by the
Simon Operating Partnership. The Simon Operating Partnership's share of
allocated common costs was $21,874 and $15,619 for 1995 and 1994, respectively.
Common costs are allocated based on payroll and related costs. In
management's opinion, allocations under the cost-sharing arrangement are
reasonable. The Simon Operating Partnership's share of common costs and
management fees for the twelve days ended December 31, 1993 were not
significant. Allocated property operating expenses related to management,
development, leasing, financing and advisory services totaled $16,379 for the
period from January 1, 1993 to December 19, 1993.
The Management Company provides management, leasing, development,
accounting, legal, marketing and management information systems services to MSA,
Minority Interest Properties, Joint Venture Properties and non-owned managed
properties. Management, development and leasing fees charged to the Simon
Operating Partnership relating to the Minority Interest Properties were $5,353
and $2,352 for the years ended December 31, 1995 and 1994, respectively. Fees
for services provided by the Management Company to MSA were $4,572 and $7,239
for the years ended December 31, 1995 and 1994, respectively, and are included
in cost-sharing income and other in the Management Company's Statements of
Operations.
Amounts payable by the Simon Operating Partnership under the cost-sharing
arrangement and management contracts were $1,175 and $2,499 at December 31, 1995
and 1994, respectively, and are reflected in accounts payable and accrued
expenses in the accompanying Consolidated Balance Sheets.
9. INDEBTEDNESS
Mortgages and other notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Unsecured revolving credit facility, with variable interest
rate of 7.18% at December 31, 1995, due August 7, 1998.... $ 196,000 $ --
Term loan, unsecured, with variable interest rate, due
September 21, 1996........................................ -- 75,000
$100,000 Revolving loan, secured by Properties, with
variable interest rate, due March 15, 1997................ -- 87,899
$150,000 Revolving loan, unsecured, with variable interest
rate, due November 30, 1997............................... -- 124,139
Mortgages and other notes payable with fixed interest rates
ranging from 5.81% to 10.00% (weighted average rate of
7.81%) at December 31, 1995, due at various dates through
2026...................................................... 1,232,360 1,189,900
Mortgages and other notes payable with variable interest
rates ranging from 4.67% to 7.19% (weighted average rate
of 6.55%) at December 31, 1995, due at various dates
through 2000.............................................. 530,000 461,153
Construction loan with variable interest rate of 7.79% at
December 31, 1995 due on February 1, 1999................. 22,399 --
---------- ----------
$1,980,759 $1,938,091
========== ==========
</TABLE>
92
<PAGE> 130
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Credit Facilities
On August 7, 1995, the Simon Operating Partnership closed on a new $400,000
unsecured revolving credit facility which replaced the Simon Operating
Partnership's secured and unsecured lines of credit. The new facility currently
bears interest at London Interbank Offering Rate ("LIBOR") plus 132.5 basis
points, an improvement of 67.5 basis points over the previous unsecured
facility, and an improvement of 17.5 basis points over the previous secured
facility. Further, the new facility removes the first mortgages and negative
pledges on certain of the Simon Operating Partnership's Properties and provides
for different pricing based upon the Simon Operating Partnership's investment
grade rating. This facility contains financial covenants relating to
debt-to-market capitalization, minimum earnings before interest, taxes,
depreciation and amortization ("EBITDA") ratios and a minimum equity value.
Significant borrowings on the line include an initial draw of $144,000 used to
pay off the existing revolving credit facilities and purchase a controlling 75%
interest in The Shops at Sunset Place, a draw of $38,500 for the acquisition of
the remaining ownership interest of East Towne Mall, a draw of $87,000 of which
approximately $55,700 was used to acquire a 25% interest in the joint venture
which purchased Smith Haven Mall, with the remainder used to acquire a 50%
partnership interest in a parcel of land to be used to develop a regional mall
in Westbury (Long Island), New York. A significant pay-down occurred on October
27, 1995, when the Company completed a $100,000 private placement of 4,000,000
shares of convertible preferred stock. In exchange for Preferred Units, the net
proceeds were contributed by the Company to the Simon Operating Partnership and
$99,000 was used to pay down the balance on the unsecured revolving credit
facility. The facility is subject to renewal in August 1998. As of December 31,
1995, $196,000 was outstanding on the line, with $204,000 available.
The term loan which carried interest at LIBOR plus 175 basis points (7.75%
at December 31, 1994) was paid off, resulting in an extraordinary loss of $248.
This payoff was accomplished with proceeds from the Company's 6,000,000 share
add-on offering.
The secured revolving loan which carried interest at LIBOR plus 150 basis
points (7.625% at December 31, 1994) was paid off, resulting in an extraordinary
loss of $733. This payoff was accomplished with proceeds from the new unsecured
revolving credit facility.
The unsecured revolving loan which carried interest at LIBOR plus 200 basis
points (8.217% at December 31, 1994) was paid off, resulting in an extraordinary
loss of $1,332. This payoff was accomplished with the remaining proceeds of the
6,000,000 share add-on offering, the related underwriter's over-allotment option
of 241,845 shares, and the use of the new unsecured revolving credit facility.
Fixed and Variable Mortgages
Fixed-rate and variable-rate mortgages as of December 31, 1995 were
$1,762,360. The following is a summary of significant mortgage debt activity. On
December 1, 1994, the Simon Operating Partnership refinanced two mortgages
totaling $49,816. These loans would have matured May 28, 2020, and carried
interest at 11.0% and 13.5%. Under the terms of the debt agreements, the lender
was entitled to additional contingent interest to be determined by 50% of the
appreciated value of the Property, which totaled $27,184 as of the refinancing
date. The prepayment totaling $77,000 was accomplished using a $50,000 bridge
loan and $27,000 in cash. The bridge loan carried interest at a variable rate
and had a maturity date of December 1, 1995. The $27,184 contingent interest
payment relating to this transaction is considered unusual because none of the
debt agreements relating to the other Properties have similar equity
participation features. Therefore, the additional contingent interest paid has
been reflected as a separate line in the Consolidated Statements of Operations.
On February 6, 1995, a $50,000 secured financing was obtained and the bridge
loan was repaid. This financing, secured by one of the Properties, bears
interest at a variable rate and matures January 12, 2000. An interest rate cap
was purchased which caps LIBOR at 8.70% and expires January 12, 2000. The cost
of the interest-rate protection agreement of $1,050 will be amortized over the
life of the agreement. Refinancing and
93
<PAGE> 131
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other activities related to East Towne Mall, Crossroads Mall and White Oaks Mall
which impact mortgage debt are described in Notes 2 and 4.
Many of the investment properties are pledged as collateral to secure the
related mortgage notes. The mortgage notes are non-recourse but have a partial
guarantee by the Simons and other limited partners of approximately $426,777.
The mortgages and other notes payable are generally due in monthly installments
of principal and interest or interest only and mature at various dates through
January 1, 2026.
Certain of the mortgage indebtedness contain cross-default and
cross-collateralization features pertaining to certain groups of Properties.
Under the cross-default provisions, a default under any mortgage included in the
cross-defaulted package constitutes a default under all such mortgages and can
lead to acceleration of the indebtedness due on each Property within the
collateral package. Pursuant to the cross-collateralization feature, the excess
of the value of a Property over the mortgage indebtedness specific to that
Property serves as additional collateral for indebtedness against each other
Property within that particular financing package.
With respect to certain loans, the lender participates in a percentage of
gross revenues above a specified base or after deduction of debt service and
various expenses. Contingent interest incurred under these arrangements was
$1,929 and $1,527 for the years ended December 31, 1995 and 1994, respectively,
$94 for the period from December 20, 1993 to December 31, 1993, and $2,800 for
the period from January 1, 1993 to December 19, 1993.
Construction Loan
On February 22, 1995, the Simon Operating Partnership closed a $60,000
construction loan for Cottonwood Mall in Albuquerque, New Mexico. This loan
bears interest at the lower of the prime rate plus 25 basis points or LIBOR plus
200 basis points and matures February 1, 1999. The loan contains an option
provision to extend the maturity one year. As of December 31, 1995, $22,399 was
outstanding.
Debt Maturity and Other
As of December 31, 1995, scheduled principal repayments on indebtedness
were as follows:
<TABLE>
<S> <C>
1996............................................................. $ 159,982
1997............................................................. 119,023
1998............................................................. 431,984
1999............................................................. 250,013
2000............................................................. 240,225
Thereafter....................................................... 779,532
----------
$1,980,759
==========
</TABLE>
Certain mortgages and notes payable may be prepaid but are generally
subject to payment of a yield maintenance premium.
The unconsolidated partnerships and joint ventures have $410,652 of
mortgage and other notes payable at December 31, 1995. The Simon Operating
Partnership's share of this debt was $167,644 at December 31, 1995. This debt
becomes due in installments over various terms extending to January 1, 2017,
with interest rates ranging from 6.13% to 10.07% (weighted average rate of 7.40%
at December 31, 1995). The debt matures $5,219 in 1996, $241 in 1997, $60,267 in
1998, $98,786 in 1999, $21,758 in 2000 and $224,381 thereafter.
Net extraordinary gains (losses) of $(3,285) and $(17,980) for the years
ended December 31, 1995 and 1994, respectively, and $(30,481) for the period
from December 20, 1993 to December 31, 1993, and $26,189
94
<PAGE> 132
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the period from January 1, 1993 to December 19, 1993 were incurred,
resulting from the early extinguishment or refinancing of debt.
Interest-rate Protection Agreements
The Simon Operating Partnership has entered into certain interest-rate
protection agreements, in the form of "cap" or "swap" arrangements, with respect
to the majority of its variable-rate mortgage and other notes payable. Cap
arrangements, which effectively limit the amount by which variable interest
rates may rise, have been entered into for $395,879 principal amount of debt.
Swap arrangements, which effectively fix the Simon Operating Partnership's
interest rate on the respective borrowings, have been entered into for $155,688
principal amount of debt. Costs of the caps ($8,499) are amortized over the life
of the agreements. The unamortized balance of the cap arrangements was $5,916 as
of December 31, 1995. Each cap and swap arrangement, with the exception of two,
has a maturity which coincides with the related debt maturity. The Simon
Operating Partnership's hedging activity as a result of interest swaps and caps
resulted in interest savings of $3,528 and $863 for the years ended December 31,
1995 and 1994, respectively. This did not materially impact the Simon Operating
Partnership's weighted average borrowing rate. Following is a summary of the cap
and swap arrangements outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
INTEREST-RATE PROTECTION NOTIONAL
AGREEMENT AMOUNT INTEREST RATE CAP/SWAP MATURITY
----------------------------- -------- ------------------ -----------------
<S> <C> <C> <C>
Caps:........................ $100,000 (1) March 13, 1997
95,676 LIBOR up to 5.00% December 31, 1998(2)
35,774 LIBOR up to 5.00% December 31, 1998(2)
89,000 (3) December 23, 1996
25,429 LIBOR up to 5.00% December 31, 1998
50,000 LIBOR up to 8.70% January 12, 2000
--------
Total Caps.............. 395,879
Swaps:....................... 30,000 LIBOR up to 5.15% February 28, 1997
63,450 LIBOR up to 4.81% December 27, 1996
62,238 LIBOR up to 5.12% January 3, 1997 (4)
--------
Total Swaps............. 155,688
--------
Total Caps and Swaps.... $551,567
========
</TABLE>
- ---------------
(1) LIBOR is initially capped at 7.5% through maturity; however, if LIBOR should
equal or exceed 8.75% between monthly reset dates, then LIBOR will be
capped at 8.5% for that period only.
(2) The principal amounts of the two-tranche debt facility being capped are
$85,571 and $45,879.
(3) LIBOR cap rate may fluctuate, initially capped at 7.00% through December 23,
1996. If LIBOR increases more than 60 basis points between monthly reset
dates, the cap will be increased by 0.25% but shall not exceed 8.25%.
Payment for any reference period is limited to 9.00% less the
then-applicable cap. The principal amount of the debt is $89,701.
(4) The counterparty has the option to extend the swap up to the debt maturity
of December 31, 1997. The principal amount of the debt is $77,200.
$500,000 Shelf Registration
On December 15, 1995, a shelf registration for $500,000 of non-convertible
investment grade debt securities of the Simon Operating Partnership became
effective. The securities may be offered from time to time as needed, at prices
and terms to be stated at the time of such offerings.
95
<PAGE> 133
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RENTALS UNDER OPERATING LEASES
The Simon Operating Partnership receives rental income from the leasing of
retail and mixed-use space under operating leases. Future minimum rentals to be
received under non-cancelable operating leases for each of the next five years
and thereafter, excluding tenant reimbursements of operating expenses and
percentage rent based on tenant sales volume, as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996............................................................. $ 286,460
1997............................................................. 266,589
1998............................................................. 249,073
1999............................................................. 222,135
2000............................................................. 191,628
Thereafter....................................................... 698,559
----------
$1,914,444
==========
</TABLE>
Approximately 2.8% of future minimum rents to be received are attributable
to leases with JCPenney, Inc., an affiliate of a limited partner in the Simon
Operating Partnership.
11. STOCK OPTION PLANS
The Company and the Simon Operating Partnership adopted an Employee Stock
Plan (the "Employee Plan"). The Company also adopted a Director Stock Option
Plan (the "Director Plan" and, together with the Employee Plan, the "Stock
Option Plans") for the purpose of attracting and retaining eligible officers,
directors and employees. The Company has reserved for issuance 4,595,000 shares
of common stock under the Employee Plan and 100,000 shares of common stock under
the Director Plan. If stock options granted in connection with the Stock Option
Plans are exercised at any time or from time to time, the partnership agreement
requires the Company to sell to the Simon Operating Partnership, at fair market
value, shares of the Company's common stock sufficient to satisfy the exercised
stock options. The Company also is obligated to purchase Units for cash in an
amount equal to the fair market value of such shares.
Employee Plan
The Employee Plan is currently administered by the Company's Compensation
Committee (the "Committee"). During the ten-year period following the adoption
of the Employee Plan, the Committee may, subject to the terms of the Employee
Plan and in certain instances subject to board approval, grant to key employees
(including officers and directors who are employees) of the Simon Operating
Partnership or its "affiliates" (as defined in the Employee Plan) the following
types of awards: stock options (including options with a reload feature), stock
appreciation rights, performance units and shares of restricted or unrestricted
common stock. Awards granted under the Employee Plan become exercisable over the
period determined by the Committee. The exercise price of an option may not be
less than the fair market value of the shares of the common stock on the date of
grant. The options vest 40% on the first anniversary of the date of grant, an
additional 30% on the second anniversary of the grant date and become fully
vested three years after the grant date. The options expire ten years from the
date of grant.
Director Plan
Directors of the Company who are not also employees of the Company or its
"affiliates" (as defined in the Director Plan) participate in the Director Plan.
Under the Director Plan, each eligible director is automatically granted options
("Director Options") to purchase 5,000 shares of common stock upon the
director's initial election to the Board of Directors and 3,000 shares of common
stock upon each reelection of
96
<PAGE> 134
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the director to the Board of Directors. The exercise price of the options is
equal to 100% of the fair market value of the Company's common stock on the date
of grant. Director Options become exercisable on the first anniversary of the
date of grant or at such earlier time as a "change in control" of the Company
occurs and will remain exercisable through the tenth anniversary of the date of
grant (the "Expiration Date"). Prior to their Expiration Dates, Director Options
will terminate 30 days after the optionee ceases to be a member of the Board of
Directors.
Information relating to the Stock Option Plans from inception through
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
DIRECTOR PLAN EMPLOYEE PLAN
-------------------------- -----------------------------
OPTION PRICE OPTION PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
SHARES UNDER OPTION AT DECEMBER 20,
1993................................. -- $ -- -- $ --
Granted................................ 25,000 22.25 735,000 22.25
------ -------------- --------- --------------
SHARES UNDER OPTION AT JANUARY 1,
1994................................. 25,000 22.25 735,000 22.25
Granted................................ 15,000 27.00 1,363,272 23.44 - 25.25
Exercised.............................. -- -- -- --
Forfeited.............................. -- -- (28,125) 23.44
------ -------------- --------- --------------
SHARES UNDER OPTION AT DECEMBER 31,
1994................................. 40,000 22.25 - 27.00 2,070,147 22.25 - 25.25
Granted................................ 15,000 24.94 -- --
Exercised.............................. -- -- (6,876) 23.44
Forfeited.............................. -- -- (49,137) 23.44 - 25.25
------ -------------- --------- --------------
SHARES UNDER OPTION AT DECEMBER 31,
1995................................. 55,000 $22.25 - 27.00 2,014,134 $22.25 - 25.25
====== ============== ========= ==============
Options exercisable at December 31,
1995................................. 40,000 $22.25 - 27.00 1,027,464 $22.25 - 25.25
====== ============== ========= ==============
SHARES AVAILABLE FOR GRANT AT DECEMBER
31, 1995............................. 45,000 1,580,866
====== =========
</TABLE>
Stock Incentive Program
In October 1994, under the Employee Plan of the Company and the Simon
Operating Partnership, the Company's Compensation Committee approved a five-year
Stock Incentive Program, under which restricted stock award shares have been
granted to certain employees at no cost. The outstanding restricted stock award
shares vest in four installments of 25% each on January 1 of each year following
the year in which the restricted shares are awarded. The cost of restricted
stock awards, based on the stock's fair market value at the determination dates,
is charged to shareholders' equity and subsequently amortized against earnings
of the Simon Operating Partnership over the vesting period.
On March 22, 1995, an aggregate of 1,000,000 shares of restricted stock was
awarded to 50 executives, subject to the performance standards and other terms
of the Stock Incentive Program, described above. During 1995, 144,196 shares of
common stock were granted under the Stock Incentive Program and subsequently,
885 of these shares were forfeited, leaving 143,311 shares of common stock
outstanding under restricted stock awards at December 31, 1995. Forfeited shares
under the Stock Incentive Program are available for reissuance under the
Employee Plan. Approximately $918 was amortized in 1995 relating to this
program.
97
<PAGE> 135
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. PARTNERSHIP AGREEMENT AND EXCHANGE RIGHTS
In December 1995, Unitholders approved the amendment and restatement of the
Simon Operating Partnership's partnership agreement to allow for the issuance of
Preferred Units, and certain other changes to the agreement.
Pursuant to the Simon Operating Partnership Agreement, limited partners in
the Simon Operating Partnership have the right at any time after December 1994
to exchange all or any portion of their Units for shares of common stock of the
Company on a one-for-one basis or cash, as selected by the Company's Board of
Directors. If the Company selects to use cash, the Company can cause the Simon
Operating Partnership to redeem the units. The amount of cash to be paid if the
exchange right is exercised and the cash option is selected will be based on the
trading price of the Company's common stock at that time. The Company has
reserved 37,282,628 shares of common stock for possible issuance upon the
exchange of Units.
Such limited partners' exchange rights are not to be included in partners'
equity. Accordingly, the accompanying consolidated balance sheets have been
retroactively reclassified to reflect the limited partners' interest in the
Simon Operating Partnership, measured at redemption value. This reclassification
results in a reduction of partners' equity of $822,072 and $864,920 as of
December 31, 1995 and 1994, respectively.
In connection with the merger of the Company and DeBartolo which was
completed August 9, 1996, the Simon Operating Partnership agreement was amended
eliminating the exchange right provision. However, the limited partners' in the
Simon Operating Partnership exchanged their interest for limited partnership
units of Simon DeBartolo Group L.P.(SDG LP). SDG LP became the primary operating
partnership of the Company following the merger. Further SDG LP extended
exchange rights to its limited partners' similar to the rights previously held
by the limited partners of the Simon Operating Partnership. On November 13,
1996, an agreement was reached between the Company and SDG, LP which restricts
the Company's ability to cause SDG, LP to redeem for cash the limited partners'
units without contributing cash to SDG, LP as partners' equity sufficient to
effect the redemption. If sufficient cash is not contributed, the Company will
be deemed to have elected to acquire the limited partners' units for shares of
the Company's common stock. Accordingly, prospectively the limited partners'
interest in the Simon Operating Partnership and SDG, LP will be reflected in the
partnerships consolidated balance sheets as partners' equity at historical
carrying value. Previous transfers of limited partners' equity interest will be
reversed. This reversal occurred in the separate financial statements of the
Simon Operating Partnership, effective August 9, 1996.
13. EMPLOYEE BENEFIT PLAN
401(k) Plan
The Simon Operating Partnership and affiliated entities maintain a
tax-qualified retirement savings plan for eligible employees which contains a
cash or deferred arrangement permitting participants to defer up to a maximum of
12% of their compensation, subject to certain limitations. Participants' salary
deferrals will be matched at specified percentages and annual contributions of
3% of eligible employees' compensation will be made. The Simon Operating
Partnership contributed $1,716, $1,628 and $39 to the plan in 1995, 1994 and for
the period from December 20, 1993 to December 31, 1993, respectively.
Except for the 401(k) plan, Simon Operating Partnership offers no other
postretirement or postemployment benefits to its employees.
MSA had two defined contribution plans (the "Plans") for the benefit of
eligible employees. Both Plans covered the Properties' employees as well as
other employees of MSA. MSA made a required contribution to the Retirement Plan
and a discretionary contribution to the Matching Savings Plan pursuant to the
terms of both Plans. Under the Matching Savings Plan, employees could elect to
defer a portion of their salary, for which MSA made a matching contribution. MSA
could also make additional discretionary contributions. The
98
<PAGE> 136
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Predecessor's share of amounts contributed by MSA to the Plans totaled
approximately $1,587 for the period from January 1, 1993 to December 19, 1993.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments. The carrying values of cash and
cash equivalents, accounts and notes receivable, accounts payable and accrued
expenses are reasonable estimates of their fair values because of the short
maturity of these financial instruments. The carrying value of variable-rate
mortgages and other loans and interest-rate protection agreements represents
their fair values. The fair value of fixed-rate mortgages and other notes
payable approximates their carrying value at December 31, 1994. The fair value
and carrying value of fixed-rate mortgages and other notes payable at December
31, 1995 was approximately $1,375,000 and $1,232,000, respectively. At December
31, 1995 and 1994, the estimated discount rates were 7.00% and 7.63%,
respectively. The fair value of the interest-rate protection arrangements at
December 31, 1995 was $3,900.
15. COMMITMENTS AND CONTINGENCIES
Litigation
The Simon Operating Partnership currently is not subject to any material
litigation other than routine litigation and administrative proceedings arising
in the ordinary course of business. On the basis of consultation with counsel,
management believes that these items will not have a material adverse impact on
Simon Operating Partnership's financial position or results of operations.
Financing Commitments
On February 13, 1996, the Simon Operating Partnership acquired a 50% joint
venture interest in The Tower Shops at Stratosphere, a 122,000-square-foot
entertainment and retail development project currently under development in Las
Vegas, Nevada. The entity has a 15% equity commitment of approximately $6,350 to
construction costs, before the remaining construction costs totaling
approximately $36,000 will be advanced by the lender.
The Simon Operating Partnership has agreed to funding commitments of up to
$15,000 relating to the construction of the Ontario Mills project.
Lease Commitments
As of December 31, 1995, a total of 27 of the Properties are subject to
ground leases. The termination dates of these ground leases range from 1998 to
2085. These ground leases generally require payments by the Simon Operating
Partnership of a fixed annual rent, or a fixed annual rent plus a participating
percentage over a base rate. Ground lease expense incurred by the Simon
Operating Partnership for the years ended December 31, 1995 and 1994 was $6,700
and $5,808, respectively, and was $102 for the period from December 20, 1993 to
December 31, 1993. Ground lease expense incurred by the Predecessor for the
period from January 1, 1993 to December 19, 1993 was $4,168.
99
<PAGE> 137
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments due under such ground leases for each of the
next five years ending December 31 and thereafter are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 3,581
1997............................................................ 3,806
1998............................................................ 3,799
1999............................................................ 3,805
2000............................................................ 3,815
Thereafter...................................................... 145,206
--------
$164,012
========
</TABLE>
Environmental Matters
Substantially all of the Properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on Simon Operating Partnership's financial position or results of
operations. Management is unaware of any instances in which it would incur
significant environmental costs if any or all Properties were sold, disposed of
or abandoned.
Other
The Simon Operating Partnership's partner in Rolling Oaks Mall has the
right to transfer its ownership interest to the Simon Operating Partnership in
exchange for Units based on the fair market value of the ownership interest at
the time of the exchange. This right expires on January 1, 2002. Rolling Oaks
Mall is a Joint Venture Property accounted for using the equity method of
accounting.
16. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires entities to measure compensation costs related to
awards of stock-based compensation using either the fair value method or the
intrinsic value method. Under the fair value method, compensation expense is
measured at the grant date based on the fair value of the award. Under the
intrinsic value method, compensation expense is equal to the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. Entities electing to measure
compensation costs using the intrinsic value method must make pro forma
disclosures, beginning after the effective date of January 1, 1996, of net
income and earnings per Unit as if the fair value method has been applied. The
Simon Operating Partnership has elected to account for stock-based compensation
programs using the intrinsic value method consistent with existing accounting
policies and, therefore, the standard will not have an effect on the
consolidated financial statements.
100
<PAGE> 138
SIMON PROPERTY GROUP, L.P. AND SIMON PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly 1995 and 1994 data is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
Total revenue $129,490 $130,765 $138,042 $155,360 $553,657
Operating income............................ 58,865 58,115 64,191 69,965 251,136
Income before extraordinary items........... 22,207 23,528 26,946 28,824 101,505
Net income available to Unitholders......... 22,207 23,280 24,310 26,933 96,730
Net income before extraordinary items per 0.26 0.25 0.28 0.29 1.08
Unit......................................
Net income per Unit......................... $ 0.26 $ 0.25 $ 0.25 $ 0.28 $ 1.04
1994
Total revenue............................... $104,987 $111,809 $120,528 $136,352 $473,676
Operating income............................ 45,540 49,473 51,485 67,800 214,298
Income before extraordinary items........... 17,809 19,053 21,694 1,752 60,308
Net income (loss) available to 15,528 12,179 15,577 (956) 42,328
Unitholders...............................
Net income before extraordinary items per 0.21 0.23 0.26 0.02 0.72
Unit......................................
Net income (loss) per Unit.................. $ 0.19 $ 0.14 $ 0.18 $ (0.01) $ 0.50
</TABLE>
Due to the cyclical nature of earnings available to Unitholders and the
issuance of additional Units, the sum of the quarterly earnings per Unit in 1994
varies from the annual earnings per Unit. Income before extraordinary items in
the fourth quarter of 1994 included $27,184 of a non-recurring interest payment.
18. SUBSEQUENT EVENTS
The Forum Shops at Caesars
On February 23, 1996, the Simon Operating Partnership borrowed the initial
$100,000 tranche from a $184,000 two tranche loan facility for Forum and retired
the existing $89,701 mortgage debt for Forum. The initial funding bears interest
at LIBOR plus 100 basis points and matures in February 2000. The remaining
proceeds will be used to provide funds for the approximately 250,000-square-foot
expansion of this Property.
Smith Haven Mall
On March 8, 1996, the joint venture which owns Smith Haven Mall entered
into an agreement to finance $115,000 of the purchase price of Smith Haven Mall
with a 10-year interest-only mortgage which carries interest at 113 basis points
over 10-year treasury bills. Proceeds from the loan will be used to repay a
portion of the partners' equity contributions made at the time of the Property
acquisition.
Definitive Agreement to a Merger with DeBartolo Realty Corporation
On March 26, 1996, the Company and DeBartolo Realty Corporation
("DeBartolo") announced that they have reached an agreement in principle,
approved by their respective boards of directors, to merge the two companies.
Under the terms of the agreement, DeBartolo shareholders will receive 0.68
shares of the Company's common stock for each share of DeBartolo common stock
owned. The transaction is subject to the approval of the shareholders of both
companies and customary regulatory and other conditions. A definitive agreement
was signed on March 28, 1996.
Distributions Declared
On March 22, 1996, the Board of Directors of the Company approved a $0.4925
distribution on each Unit payable on April 26, 1996 to Unitholders of record on
April 12, 1996.
101
<PAGE> 139
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE III
To Simon Property Group, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of SIMON PROPERTY GROUP, L.P. included in
this Form 10-K, and have issued our report thereon dated February 14, 1996. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule is the responsibility of Simon
Property Group, L.P.'s management and is presented for purposes of complying
with the Securities and Exchange Commissions rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
November 13, 1996
102
<PAGE> 140
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
COST CAPITALIZED CARRIED
SUBSEQUENT TO AT
CLOSE
OF
INITIAL COST ACQUISITION PERIOD
---------------------- --------------------- -------
BUILDINGS BUILDINGS
AND AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- -------------------------------------------- ------------- ------- ------------ ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
REGIONAL MALLS
Alton Square, Alton, IL..................... $ 0 $ 154 $ 7,641 $ 0 $ 559 $ 154
Amigoland Mall, Brownsville, TX............. 0 1,045 4,518 0 198 1,045
Anderson Mall, Anderson, SC................. 19,000 1,838 18,122 1,363 1,816 3,201
Barton Creek Square, Austin, TX............. 64,293 4,413 20,699 771 13,172 5,184
Battlefield Mall, Springfield, MO........... 51,721 4,040 29,783 3,225 26,199 7,265
Broadway Square, Tyler, TX.................. 0 11,470 32,450 0 466 11,470
Century Consumer Mall, Merrillville, IN..... 0 2,190 9,589 0 402 2,190
Charles Town Square, Charleston, SC......... 0 593 2,825 500 334 1,093
Cielo Vista Mall, El Paso, TX............... 59,296 1,307 18,512 608 12,063 1,915
College Mall, Bloomington, IN............... 43,973 1,012 16,245 722 13,039 1,734
Crossroads Mall, Omaha, NE.................. 41,440 884 37,293 409 20,237 1,293
East Towne Mall, Knoxville, TN.............. 55,000 5,269 22,965 3,699 18,827 8,968
Eastgate Consumer Mall, Indianapolis, IN.... 25,429 425 4,722 187 2,657 612
Eastland Mall, Tulsa, OK.................... 30,000 3,124 24,035 518 5,508 3,642
Forest Mall, Fond Du Lac, WI................ 12,800 757 4,498 0 572 757
Forest Village Park, Forestville, MD........ 20,600 1,212 4,625 757 3,179 1,969
Fremont Mall, Fremont, NE................... 0 26 1,280 265 621 291
Golden Ring Mall, Baltimore, MD............. 29,750 1,130 8,955 572 5,921 1,702
Greenwood Park Mall, Greenwood, IN.......... 36,829 2,606 23,500 5,275 49,760 7,881
Heritage Park, Midwest City, OK............. 0 620 6,213 0 584 620
Hutchinson Mall, Hutchison, KS.............. 11,523 1,777 18,427 0 2,154 1,777
Independence Center, Independence, MO....... 0 5,591 45,822 0 995 5,591
Ingram Park Mall, San Antonio, TX........... 56,681 820 17,182 169 9,661 989
Irving Mall, Irving, TX..................... 43,734 11,490 17,479 2,533 4,820 14,023
Jefferson Valley Mall, Yorktown, NY......... 50,000 4,869 30,304 0 2,226 4,869
La Plaza, McAllen, TX....................... 51,015 2,194 9,828 0 1,117 2,194
Lincolnwood Town Center, Lincolnwood, IL.... 63,079 11,197 64,540 28 616 11,225
Longview Mall, Longview, TX................. 22,100 278 3,602 124 1,971 402
Machesney Park Mall, Rockford, IL........... 0 613 7,460 120 1,894 733
Markland Mall, Kokomo, IN................... 10,000 0 7,568 0 566 0
Mc Cain Mall, N. Little Rock, AK............ 26,522 0 9,515 0 5,330 0
Memorial Mall, Sheboygan, WI................ 0 175 4,881 0 242 175
Midland Park Mall, Midland, TX.............. 22,500 704 9,613 0 1,100 704
Miller Hill Mall, Duluth, MN................ 34,500 2,537 18,114 0 669 2,537
Mounds Mall, Anderson, IN................... 0 0 2,689 0 699 0
Muncie Mall, Muncie, IN..................... 24,000 210 5,964 0 858 210
North Towne Square, Toledo, OH.............. 23,500 579 8,382 0 918 579
Northwoods Mall, Peoria, IL................. 0 1,202 12,779 1,449 16,555 2,651
Orange Park Mall, Orange Park, FL........... 0 13,345 65,173 0 566 13,345
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT
CLOSE
OF
PERIOD
------------
BUILDINGS
AND AMORTIZED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- -------------------------------------------- ------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
REGIONAL MALLS
Alton Square, Alton, IL..................... $ 8,200 $ 8,354 $ 798 1993(Note 3)
Amigoland Mall, Brownsville, TX............. 4,716 5,761 702 1974
Anderson Mall, Anderson, SC................. 19,938 23,139 1,758 1972
Barton Creek Square, Austin, TX............. 33,871 39,055 2,770 1981
Battlefield Mall, Springfield, MO........... 55,982 63,247 4,011 1976
Broadway Square, Tyler, TX.................. 32,916 44,386 986 1994(Note 3)
Century Consumer Mall, Merrillville, IN..... 9,991 12,181 1,364 1992(Note 3)
Charles Town Square, Charleston, SC......... 3,159 4,252 377 1976
Cielo Vista Mall, El Paso, TX............... 30,575 32,490 3,482 1974
College Mall, Bloomington, IN............... 29,284 31,018 3,173 1965
Crossroads Mall, Omaha, NE.................. 57,530 58,823 780 1994(Note 3)
East Towne Mall, Knoxville, TN.............. 41,792 50,760 586 1984
Eastgate Consumer Mall, Indianapolis, IN.... 7,379 7,991 1,926 1991(Note 3)
Eastland Mall, Tulsa, OK.................... 29,543 33,185 2,519 1986
Forest Mall, Fond Du Lac, WI................ 5,070 5,827 683 1973
Forest Village Park, Forestville, MD........ 7,804 9,773 786 1980
Fremont Mall, Fremont, NE................... 1,901 2,192 128 1983
Golden Ring Mall, Baltimore, MD............. 14,876 16,578 1,622 1974(Note 3)
Greenwood Park Mall, Greenwood, IN.......... 73,260 81,141 5,743 1977
Heritage Park, Midwest City, OK............. 6,797 7,417 812 1978
Hutchinson Mall, Hutchison, KS.............. 20,581 22,358 1,784 1985
Independence Center, Independence, MO....... 46,817 52,408 1,444 1994(Note 3)
Ingram Park Mall, San Antonio, TX........... 26,843 27,832 2,701 1979
Irving Mall, Irving, TX..................... 22,299 36,322 3,373 1971
Jefferson Valley Mall, Yorktown, NY......... 32,530 37,399 2,846 1983
La Plaza, McAllen, TX....................... 10,945 13,139 1,033 1976
Lincolnwood Town Center, Lincolnwood, IL.... 65,156 76,381 5,201 1990
Longview Mall, Longview, TX................. 5,573 5,975 763 1978
Machesney Park Mall, Rockford, IL........... 9,354 10,087 1,091 1979
Markland Mall, Kokomo, IN................... 8,134 8,134 532 1983
Mc Cain Mall, N. Little Rock, AK............ 14,845 14,845 1,930 1973
Memorial Mall, Sheboygan, WI................ 5,123 5,298 499 1980
Midland Park Mall, Midland, TX.............. 10,713 11,417 1,117 1980
Miller Hill Mall, Duluth, MN................ 18,783 21,320 1,700 1973
Mounds Mall, Anderson, IN................... 3,388 3,388 374 1964
Muncie Mall, Muncie, IN..................... 6,822 7,032 990 1975
North Towne Square, Toledo, OH.............. 9,300 9,879 1,447 1980
Northwoods Mall, Peoria, IL................. 29,334 31,985 2,981 1983(Note 3)
Orange Park Mall, Orange Park, FL........... 65,739 79,084 1,929 1994(Note 3)
</TABLE>
103
<PAGE> 141
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
OF
INITIAL COST ACQUISITION PERIOD
------------------------ ----------------------- --------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------ -------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Prien Lake Mall, Lake Charles, LA....... 0 1,926 2,829 725 2,049 2,651
South Park Mall, Shreveport, LA......... 24,748 855 13,691 74 1,788 929
Southgate Mall, Yuma, AZ................ 0 1,817 7,974 0 2,937 1,817
Southtown Mall, Ft. Wayne, IN........... 0 2,059 13,288 0 828 2,059
St Charles Towne Center Waldorf, MD..... 77,200 9,328 52,974 1,180 8,484 10,508
Sunland Park Mall, El Paso, TX.......... 40,469 2,896 28,900 0 1,580 2,896
Tippecanoe Mall, Lafayette, IN.......... 48,205 4,771 8,474 5,354 29,529 10,125
Towne East Square, Wichita, KS.......... 58,138 9,495 18,479 2,042 6,479 11,537
Towne West Square, Wichita, KS.......... 40,250 988 21,203 76 2,948 1,064
University Mall, Little Rock, AK........ 0 123 17,411 0 286 123
University Mall, Pensacola, FL.......... 0 4,741 26,657 0 303 4,741
Valle Vista Mall, Harlingen, TX......... 35,126 1,398 17,266 372 6,637 1,770
West Ridge Mall, Topeka, KS............. 50,552 5,837 34,132 197 2,220 6,034
White Oaks Mall, Springfield, IL........ 16,500 3,024 35,692 1,153 12,816 4,177
Wichita Mall, Wichita, KS............... 0 0 4,535 0 285 0
Windsor Park Mall, San Antonio, TX...... 15,123 1,194 16,940 130 2,654 1,324
COMMUNITY SHOPPING CENTERS
Arvada Plaza, Arvada, CO................ 0 70 342 0 1,724 70
Aurora Plaza, Aurora, CO................ 0 35 5,754 0 186 35
Bloomingdale Court, Bloomingdale, IL.... 29,009 9,735 26,184 0 481 9,735
Bridgeview Court, Bridgeview, IL........ 0 308 3,676 0 0 308
Brightwood Plaza, Indianapolis, IN...... 0 65 128 0 136 65
Bristol Plaza, Bristol, VA.............. 0 61 325 0 1 61
Grove Towne Center, Buffalo Grove, IL... 0 2,044 6,602 0 779 2,044
Celina Plaza, El Paso, TX............... 0 138 815 0 13 138
Cohoes Commons, Rochester, NY........... 0 1,698 8,426 0 51 1,698
Cook's Discount, Ardmore, OK............ 0 80 280 0 1 80
Countryside Plaza, Countryside, IL...... 0 1,243 8,507 0 433 1,243
East Towne Commons, Knoxville, TN....... 0 3,921 5,345 0 1,599 3,921
Eastland Plaza, Tulsa, OK............... 0 908 3,709 0 5 908
Forest Plaza, Rockford, IL.............. 17,354 4,353 16,818 0 162 4,353
Fox River Plaza, Elgin, IL.............. 12,654 2,907 9,453 0 48 2,907
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT CLOSE
OF
PERIOD
-------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Prien Lake Mall, Lake Charles, LA....... 4,878 7,529 528 1972
South Park Mall, Shreveport, LA......... 15,479 16,408 1,799 1975
Southgate Mall, Yuma, AZ................ 10,911 12,728 870 1988(Note 3)
Southtown Mall, Ft. Wayne, IN........... 14,116 16,175 1,582 1969
St Charles Towne Center Waldorf, MD..... 61,458 71,966 5,629 1990
Sunland Park Mall, El Paso, TX.......... 30,480 33,376 3,428 1988
Tippecanoe Mall, Lafayette, IN.......... 38,003 48,128 2,341 1973
Towne East Square, Wichita, KS.......... 24,958 36,495 2,858 1975
Towne West Square, Wichita, KS.......... 24,151 25,215 2,858 1980
University Mall, Little Rock, AK........ 17,697 17,820 1,894 1967
University Mall, Pensacola, FL.......... 26,960 31,701 802 1994(Note 3)
Valle Vista Mall, Harlingen, TX......... 23,903 25,673 2,195 1983
West Ridge Mall, Topeka, KS............. 36,352 42,386 3,197 1988
White Oaks Mall, Springfield, IL........ 48,508 52,685 1,533 1977
Wichita Mall, Wichita, KS............... 4,820 4,820 582 1981
Windsor Park Mall, San Antonio, TX...... 19,594 20,918 1,974 1976
COMMUNITY SHOPPING CENTERS
Arvada Plaza, Arvada, CO................ 2,066 2,136 169 1966
Aurora Plaza, Aurora, CO................ 5,940 5,975 661 1966
Bloomingdale Court, Bloomingdale, IL.... 26,665 36,400 1,228 1987
Bridgeview Court, Bridgeview, IL........ 3,676 3,984 255 1988
Brightwood Plaza, Indianapolis, IN...... 264 329 36 1965
Bristol Plaza, Bristol, VA.............. 326 387 64 1966
Grove Towne Center, Buffalo Grove, IL... 7,381 9,425 396 1988
Celina Plaza, El Paso, TX............... 828 966 72 1977
Cohoes Commons, Rochester, NY........... 8,477 10,175 823 1984
Cook's Discount, Ardmore, OK............ 281 361 54 1969
Countryside Plaza, Countryside, IL...... 8,940 10,183 982 1977
East Towne Commons, Knoxville, TN....... 6,944 10,865 394 1990
Eastland Plaza, Tulsa, OK............... 3,714 4,622 299 1987
Forest Plaza, Rockford, IL.............. 16,980 21,333 704 1985
Fox River Plaza, Elgin, IL.............. 9,501 12,408 397 1985
</TABLE>
104
<PAGE> 142
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- CONTINUED
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
OF
INITIAL COST ACQUISITION PERIOD
------------------------ ----------------------- --------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------ -------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Greenwood Plus, Greenwood, IN........... 0 1,350 1,792 0 259 1,350
Griffith Park Plaza, Griffith, IN....... 0 0 2,412 0 68 0
Hammond Square, Sandy Springs, GA....... 0 0 27 0 1 0
Ingram Plaza, San Antonio, TX........... 0 421 1,802 4 22 425
Lake Plaza, Waukegan, IL................ 0 2,868 6,420 0 152 2,868
Lake View Plaza, Orland Park, IL........ 22,169 4,775 17,586 0 198 4,775
Lincoln Crossing, O'Fallon, IL.......... 997 1,079 2,692 0 0 1,079
Maplewood Square, Omaha, NE............. 0 466 1,249 0 17 466
Markland Plaza, Kokomo, IN.............. 0 210 1,258 0 188 210
Martinsville Plaza, Martinsville, VA.... 0 0 584 0 45 0
Marwood Plaza, Indianapolis, IN......... 0 52 3,597 0 31 52
Matteson Plaza, Matteson, IL............ 11,159 1,830 9,737 0 49 1,830
Memorial Plaza, Sheyboygan, WI.......... 0 250 436 0 129 250
Mounds Mall Cinema, Anderson, IN........ 0 88 158 0 1 88
New Castle Plaza, New Castle, IN........ 0 130 1,621 0 318 130
North Ridge Plaza, Joliet, IL........... 0 2,831 7,699 0 36 2,831
North Riverside Park Plaza,
N. Riverside, IL...................... 7,908 1,062 2,490 0 136 1,062
Northland Plaza, Columbus, OH........... 0 4,490 8,893 0 18 4,490
Northwood Plaza, Fort Wayne, IN......... 0 304 2,922 0 202 304
Park Plaza, Hopkinsville, KY............ 0 300 1,572 0 19 300
Regency Plaza, St. Charles, MO.......... 1,878 616 4,963 0 123 616
St. Charles Towne Plaza, Waldorf, MD.... 30,887 8,835 19,008 0 64 8,835
Teal Plaza, Lafayette, IN............... 0 99 878 0 8 99
Tippecanoe Plaza, Lafayette, IN......... 0 265 440 305 576 570
Wabash Village, West Lafayette, IN...... 0 0 976 0 22 0
West Ridge Plaza, Topeka, KS............ 4,612 1,491 4,620 0 12 1,491
White Oaks Plaza, Springfield, IL....... 12,345 3,265 14,267 0 83 3,265
Wood Plaza, Fort Dodge, IA.............. 0 45 380 0 655 45
SPECIALITY RETAIL CENTER
The Forum Shops at Caesars,
Las Vegas, NV......................... 89,701 0 72,866 0 5,307 0
Trolley Square, Salt Lake City, UT...... 27,141 4,899 27,539 263 2,024 5,162
<CAPTION>
GROSS
AMOUNTS
AT
WHICH
CARRIED
AT CLOSE
OF
PERIOD
-------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Greenwood Plus, Greenwood, IN........... 2,051 3,401 319 1979(Note 3)
Griffith Park Plaza, Griffith, IN....... 2,480 2,480 264 1979
Hammond Square, Sandy Springs, GA....... 28 28 2 1974
Ingram Plaza, San Antonio, TX........... 1,824 2,249 227 1980
Lake Plaza, Waukegan, IL................ 6,572 9,440 263 1986
Lake View Plaza, Orland Park, IL........ 17,784 22,559 717 1986
Lincoln Crossing, O'Fallon, IL.......... 2,692 3,771 118 1990
Maplewood Square, Omaha, NE............. 1,266 1,732 147 1987
Markland Plaza, Kokomo, IN.............. 1,446 1,656 189 1975
Martinsville Plaza, Martinsville, VA.... 629 629 133 1980
Marwood Plaza, Indianapolis, IN......... 3,628 3,680 242 1962
Matteson Plaza, Matteson, IL............ 9,786 11,616 528 1988
Memorial Plaza, Sheyboygan, WI.......... 565 815 97 1966
Mounds Mall Cinema, Anderson, IN........ 159 247 20 1975
New Castle Plaza, New Castle, IN........ 1,939 2,069 219 1966
North Ridge Plaza, Joliet, IL........... 7,735 10,566 414 1985
North Riverside Park Plaza,
N. Riverside, IL...................... 2,626 3,688 311 1977
Northland Plaza, Columbus, OH........... 8,911 13,401 369 1988
Northwood Plaza, Fort Wayne, IN......... 3,124 3,428 324 1977
Park Plaza, Hopkinsville, KY............ 1,591 1,891 149 1968
Regency Plaza, St. Charles, MO.......... 5,086 5,702 197 1988
St. Charles Towne Plaza, Waldorf, MD.... 19,072 27,907 846 1987
Teal Plaza, Lafayette, IN............... 886 985 64 1986
Tippecanoe Plaza, Lafayette, IN......... 1,016 1,586 219 1962
Wabash Village, West Lafayette, IN...... 998 998 119 1976
West Ridge Plaza, Topeka, KS............ 4,632 6,123 226 1988
White Oaks Plaza, Springfield, IL....... 14,350 17,615 572 1986
Wood Plaza, Fort Dodge, IA.............. 1,035 1,080 101 1967
SPECIALITY RETAIL CENTER
The Forum Shops at Caesars,
Las Vegas, NV......................... 78,173 78,173 6,775 1992
Trolley Square, Salt Lake City, UT...... 29,563 34,725 2,869 1986(Note 3)
</TABLE>
105
<PAGE> 143
SIMON PROPERTY GROUP, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- CONTINUED
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------------------ -----------------------
BUILDINGS AND BUILDINGS AND
NAME, LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ------------------------------------------------------------ ------------ -------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
MIXED-USE PROPERTIES
O Hare International Center,
Rosemont, IL.............................................. 27,500 172 60,287 1 3,601
Riverway, Rosement, IL...................................... 131,450 8,738 129,175 16 4,262
LAND HELD FOR DEVELOPMENT
Cottonwood Mall, Albuquerque, NM............................ 22,399 0 0 5,993 36,233
The Shops at Sunset Place,
South Miami, FL........................................... 0 11,898 3,884 0 0
---------- -------- ---------- ------- --------
$1,784,759 $242,543 $ 1,488,831 $41,179 $ 371,372
========== ======== ========== ======= ========
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
AT CLOSE OF PERIOD
------------------------
BUILDINGS AND ACCUMULATED DATE OF
NAME, LOCATION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ------------------------------------------------------------ -------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
MIXED-USE PROPERTIES
O Hare International Center,
Rosemont, IL.............................................. 173 63,888 64,061 7,238 1986
Riverway, Rosement, IL...................................... 8,754 133,437 142,191 13,718 1988
LAND HELD FOR DEVELOPMENT
Cottonwood Mall, Albuquerque, NM............................ 5,993 36,233 42,226 0 1993
The Shops at Sunset Place,
South Miami, FL........................................... 11,898 3,884 15,782 0 1995
-------- ---------- ---------- --------
$283,722 $ 1,860,203 $2,143,925 $147,341
======== ========== ========== ========
</TABLE>
106
<PAGE> 144
SIMON PROPERTY GROUP, L.P.
NOTES TO SCHEDULE III AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) RECONCILIATION OF REAL ESTATE PROPERTIES:
The changes in real estate assets for the years ended December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Balance, beginning of year.................................. $1,887,122 $1,346,142
Net book value of real estate exchanged................... -- --
Acquisitions.............................................. 32,547 205,249
Improvements.............................................. 73,097 52,429
Disposals................................................. (12,722) (1,733)
Consolidation............................................. 163,881 285,035
---------- ----------
Balance, close of year...................................... $2,143,925 $1,887,122
========== ==========
</TABLE>
The aggregate net book value for federal income tax purposes as of December
31, 1995 was $1,826,759.
(2) RECONCILIATION OF ACCUMULATED DEPRECIATION:
The changes in accumulated depreciation and amortization for the years
ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Balance, beginning of year.................................. $ 68,222 $ 1,830
Depreciation expense........................................ 79,126 66,440
Disposals................................................... (7) (48)
-------- -------
Balance, close of year...................................... $ 147,341 $ 68,222
======== =======
</TABLE>
Depreciation of the Simon Operating Partnership's investment in buildings
and improvements reflected in the statements of operations is calculated over
the estimated original lives of the assets as follows:
Buildings -- typically 35 years
Improvements -- shorter of lease term or useful life
(3) NOT DEVELOPED/CONSTRUCTED BY THE SIMONS. THE DATE OF CONSTRUCTION REPRESENTS
ACQUISITION DATE.
107
<PAGE> 145
CERTAIN INFORMATION WITH RESPECT
TO DEBARTOLO REALTY PARTNERSHIP, L.P.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
DeBartolo Realty Partnership, L.P. Consolidated Balance Sheet as of December 31,
1995............................................................................. 109
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
period from January 1, 1996 to August 9, 1996 and for the nine months ended
September 30, 1995............................................................... 110
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
period from July 1, 1996 to August 9, 1996 and for the three months ended
September 30, 1995............................................................... 111
DeBartolo Realty Partnership, L.P. Consolidated Statements of Cash Flows for the
period from January 1, 1996 to August 9, 1996 and for the nine months ended
September 30, 1995............................................................... 112
Notes to Financial Statements...................................................... 113
Report of Independent Auditors..................................................... 117
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... 118
DeBartolo Realty Partnership, L.P. Consolidated Statements of Operations for the
year ended December 31, 1995 and for the period from inception (April 21, 1994)
through December 31, 1994 and DeBartolo Retail Group (the predecessor to
DeBartolo Realty Partnership, L.P.) Combined Statements of Operations for the
period January 1, 1994 through April 20, 1994 and for the year ended December 31,
1993............................................................................. 119
DeBartolo Realty Partnership, L.P. Consolidated Statements of Partnership Equity
for the year ended December 31, 1995 and for the period from inception (April 21,
1994) through December 31, 1994 and DeBartolo Retail Group Combined Statements of
Owners' Equity
for the period January 1, 1994 through April 20, 1994 and for the year ended
December 31, 1993................................................................ 120
DeBartolo Realty Partnership, L.P. Consolidated Statements of Cash Flows for the
year ended December 31, 1995 and the period from inception (April 21, 1994)
through December 31, 1994 and DeBartolo Retail Group Combined Statements of Cash
Flows for the period January 1, 1994 through April 20, 1994 and for the year
ended December 31, 1993.......................................................... 121
Notes to Financial Statements...................................................... 122
Report of Independent Auditors..................................................... 142
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. and Uncombined
Joint Ventures of DeBartolo Retail Group Combined Balance Sheets as of December
31, 1995 and 1994................................................................ 143
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Operations for the year ended December 31, 1995 and the period from
inception (April 21, 1994) to December 31, 1994 and Uncombined Joint Ventures of
DeBartolo Retail Group Combined Statements of Operations for the period January
1, 1994 to April 20, 1994 and for the year ended December 31, 1993............... 144
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Accumulated Deficit for the year ended December 31, 1995 and the
period from inception (April 21, 1994) to December 31, 1994 and Uncombined Joint
Ventures of DeBartolo Retail Group Combined Statements of Accumulated Deficit for
the period January 1, 1994 to April 20, 1994 and for the year ended December 31,
1993............................................................................. 145
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. Combined
Statements of Cash Flow for the year ended December 31, 1995 and the period from
inception (April 21, 1994) to December 31, 1994 and Uncombined Joint Venture of
DeBartolo Retail Group Combined Statements of Cash Flow for the period January 1,
1994 to April 20, 1994 and for the year ended December 31, 1993.................. 146
Notes to Financial Statements...................................................... 147
</TABLE>
108
<PAGE> 146
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1995
--------------------
(DOLLARS IN
THOUSANDS EXCEPT
UNIT DATA)
<S> <C>
Investment properties (Note 4)........................................... $1,793,663
Less accumulated depreciation............................................ 574,338
----------
1,219,325
Cash and cash equivalents................................................ 25,851
Restricted cash (Note 3)................................................. 13,910
Short term investments................................................... 14,057
Accounts receivable, net................................................. 39,103
Investments in and advances to nonconsolidated joint ventures (Notes 4
and 5)................................................................. 116,725
Minority interest in capital deficits of consolidated joint ventures..... 25,496
Deferred charges and prepaid expenses.................................... 77,103
----------
$1,531,570
==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgages and notes payable (Note 4)..................................... $1,348,573
Accounts payable and accrued expenses.................................... 38,810
Distributions payable.................................................... 28,225
Deficits in nonconsolidated joint ventures (Notes 4 and 5)............... 71,147
----------
1,486,755
----------
Commitments and contingencies............................................ --
Partners' Equity (Deficit):
Preferred Units, 10,000,000 units authorized, none issued and
outstanding............................................................ --
General Partner, 55,329,162 units outstanding............................ 27,673
Limited Partners, 34,272,532 units outstanding........................... 17,142
----------
Total Partners' Equity................................................... 44,815
----------
$1,531,570
==========
</TABLE>
See accompanying notes.
109
<PAGE> 147
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, FOR THE NINE
1996 TO MONTHS ENDED
AUGUST 9, SEPTEMBER 30,
1996 1995
---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER
UNIT DATA)
<S> <C> <C>
Revenues:
Minimum rents............................................. $136,594 $153,472
Tenant recoveries......................................... 52,398 60,828
Percentage rents.......................................... 6,188 8,423
Other..................................................... 11,455 21,828
-------- --------
Total revenues............................................ 206,635 244,551
-------- --------
Expenses:
Shopping Center Expenses:
Property operating........................................ 23,783 25,811
Repairs and maintenance................................... 18,275 20,092
Real estate taxes......................................... 22,350 24,952
Advertising & promotion................................... 4,572 4,691
Management expenses....................................... 5,494 4,218
Provision for doubtful accounts........................... 5,085 2,058
Ground leases............................................. 1,815 1,811
Other..................................................... 4,679 3,672
-------- --------
Total shopping center expenses............................ 86,053 87,305
Deferred stock compensation expense....................... 130 158
Interest expense.......................................... 74,714 91,102
Depreciation and amortization............................. 38,706 42,726
Write off of minority partners' interests................. 13,854 --
Merger expenses (Note 4).................................. 13,512 --
-------- --------
226,969 221,291
Gain on sale of assets.................................... -- 3,944
Income from nonconsolidated joint ventures (Notes 4 and
5)..................................................... 8,422 6,312
Minority partners' interest in consolidated joint
ventures............................................... (528) 1,392
-------- --------
Income (loss) before extraordinary item................... (12,440) 34,908
Extraordinary item (Note 4)............................... 9,191 (5,629)
-------- --------
Net income (loss)................................. $ (3,249) $ 29,279
======== ========
Net Income (loss) Available to Unitholders Attributable to:
General Partner........................................... $ (2,031) $ 17,331
Limited Partners.......................................... (1,218) 11,948
-------- --------
Net income (loss) available to unitholders................ $ (3,249) $ 29,279
======== ========
EARNINGS PER UNIT (Note 6):
Income (loss) before extraordinary item................... $ (0.14) $ 0.41
Extraordinary item........................................ 0.13 (0.07)
-------- --------
Net income (loss)......................................... $ 0.01 $ 0.34
======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's).................. 89,781 84,456
======== ========
</TABLE>
See accompanying notes.
110
<PAGE> 148
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE PERIOD MONTHS ENDED
FROM JULY 1, 1996 TO SEPTEMBER 30,
AUGUST 9, 1996 1995
--------------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
Revenues:
Minimum rents........................................ $ 22,508 $51,088
Tenant recoveries.................................... 6,942 20,984
Percentage rents..................................... 553 2,791
Other................................................ -- 9,236
---------- ----------
Total revenues....................................... 30,003 84,099
Expenses:
Shopping Center Expenses:
Property operating................................ 4,088 8,849
Repairs and maintenance........................... 3,145 7,301
Real estate taxes................................. 4,012 8,146
Advertising & promotion........................... 794 1,930
Management expenses............................... 1,351 1,421
Provision for doubtful accounts................... 3,583 565
Ground leases..................................... 365 604
Other............................................. 2,336 896
---------- ----------
Total shopping center expenses....................... 19,674 29,712
Deferred stock compensation expense.................. 25 53
Interest expense..................................... 13,955 29,764
Depreciation and amortization........................ 6,274 14,378
Write off of minority partners' interests............ 13,854 --
Merger expenses (Note 4)............................. 3,312 --
---------- ----------
57,094 73,907
---------- ----------
Gain on sale of assets............................... -- 165
Income from nonconsolidated joint ventures (Notes 4
and 5)............................................ 186 2,130
Minority partners' interest in consolidated joint
ventures.......................................... (203) 856
---------- ----------
Income (loss) before extraordinary item.............. (27,108) 13,343
Extraordinary item (note 4).......................... -- (5,629)
---------- ----------
Net income (loss)............................ (27,108) 7,714
========== ==========
Net Income (loss) Available to Unitholders Attributable
to:
General Partner................................... $ (16,793) $ 4,657
Limited Partners.................................. (10,315) 3,057
---------- ----------
Net income (loss) available to unitholders........ $ (27,108) $ 7,714
========== ==========
EARNINGS PER UNIT (Note 6):
Income (loss) before extraordinary item........... $ (0.30) $ 0.15
Extraordinary item................................ -- (0.07)
---------- ----------
Net income (loss)................................. $ (0.30) 0.08
========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's)........... 89,827 89,602
========== ==========
</TABLE>
See accompanying notes
111
<PAGE> 149
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
PERIOD FOR THE
FROM NINE
JANUARY 1, MONTHS
1996 TO ENDED
AUGUST 9, SEPTEMBER 30,
1996 1995
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flow From Operating Activities:
Net income (loss).......................................................... $ (3,249) $ 29,279
Adjustments to reconcile net income to net cash provided by Operating
Activities:
Gain on sale of assets................................................... -- (3,944)
Depreciation and amortization............................................ 44,797 54,232
Extraordinary item....................................................... (9,191) 5,629
Deferred stock compensation expense...................................... 3,434 158
Minority partners' interests in consolidated joint ventures.............. 528 (1,392)
Write off of minority partners' interests................................ 13,854 --
Income from nonconsolidated joint ventures............................... (8,422) (6,312)
Decrease in restricted cash.............................................. 5,556 19,041
Decrease (increase) in short term investments............................ 14,057 (7,736)
Decrease in accounts receivable.......................................... 2,343 1,779
(Decrease) increase in prepaid expenses and other........................ 3,051 (4,347)
Increase in accounts payable and accrued expenses........................ 37,695 7,316
--------- ---------
Net Cash Provided By Operating Activities................................ 104,453 93,703
--------- ---------
Cash Flows From Investing Activities:
Additions to investment properties....................................... (49,050) (36,476)
Purchase of partnership interests........................................ (5,375) --
Additions to deferred charges for lease costs and other.................. (4,678) (2,472)
Distributions from nonconsolidated joint ventures........................ 37,032 14,640
Advances to and investments in nonconsolidated joint ventures............ (12,055) (1,486)
Net proceeds from sale of assets......................................... 307 4,083
--------- ---------
Net Cash Used In Investing Activities.................................... (33,119) (21,711)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of debt........................................... 93,108 60,783
Principal payments on mortgages.......................................... (44,852) (89,602)
Loan costs paid.......................................................... (294) (736)
Prepayment penalties on early extinguishment of debt..................... -- (1,990)
Minority partner distributions........................................... (1,751) (387)
Capital contributions.................................................... -- 80,370
Distributions paid....................................................... (88,235) (78,309)
Decrease in affiliate receivables........................................ 1,527 (2,918)
--------- ---------
Net Cash Used in Financing Activities.................................... (40,498) (32,789)
--------- ---------
Net (Decrease) Increase in Cash.......................................... 30,836 39,203
Cash and Cash Equivalents:
Beginning of period...................................................... 25,851 38,899
--------- ---------
End of period............................................................ $ 56,687 $ 78,102
========= =========
Supplemental Information:
Interest Paid............................................................ $ 71,803 $ 60,915
========= =========
Supplemental schedule of non-cash and financing activities:
Step-up in connection with acquisition of additional interest in joint
venture................................................................ $ 7,296 --
========= =========
Historical cost basis of net investment properties consolidated as a
result of acquisitions of additional interests in joint ventures....... $ 121,245 --
========= =========
Mortgages on those properties consolidated as a result of acquisitions of
additional interests in joint ventures................................. $ 136,009 --
========= =========
Historical cost basis of net investment property disposed................ $ (4,040) --
========= =========
Mortgage extinguishment relating to property disposition................. $ (13,372) --
========= =========
</TABLE>
See accompanying notes
112
<PAGE> 150
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND OWNERSHIP
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been included.
The results for the interim period ended August 9, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year. These
financial statements should be read in conjunction with the DeBartolo Realty
Partnership, L.P. December 31, 1995 audited consolidated financial statements
and notes thereto included herein.
DeBartolo Realty Partnership, L.P., a Delaware Limited Partnership (the
"Operating Partnership") and an affiliate, DeBartolo Capital Partnership, a
Delaware general partnership, are engaged in the ownership, development,
management, leasing, acquisition and expansion of super-regional and regional
malls and community shopping centers. The Operating Partnership's sole general
partner is DeBartolo Realty Corporation (the "Company"), an Ohio corporation
which operates as a self-administered and self-managed real estate investment
trust ("REIT"), which at August 9, 1996 holds a 61.9% interest in the Operating
Partnership.
The Operating Partnership was formed to continue and expand the shopping
mall ownership, management and development business of The Edward J. DeBartolo
Corporation ("EJDC") in a portfolio which, as of August 9, 1996, consisted of 50
super-regional and regional malls (the "DeBartolo Malls"), 11 community centers
and land held for future development (collectively, the "DeBartolo Properties").
As of August 9, 1996, EJDC and certain affiliates (collectively, the "DeBartolo
Group") and certain current and former employees of EJDC, along with JCP Realty,
Inc. ("JCP"), own the remaining 38.1% interest in the Operating Partnership.
In addition, the Operating Partnership owns 100% of the non-voting
preferred stock and a non-controlling common stock Interest (5%) in DeBartolo
Properties Management, Inc. (the "Property Manager") which provides certain
architectural, design, construction and other services to substantially all of
the DeBartolo Properties, as well as, certain other regional malls and community
shopping centers owned by third parties.
NOTE 2 -- BASIS OF PRESENTATION
The financial statements of the Operating Partnership are presented on a
consolidated basis. Properties which are controlled through majority ownership
have been consolidated and all significant intercompany transactions and
accounts have been eliminated. Properties where the Operating Partnership owns
less than a majority interest have been accounted for under the equity method.
One property, which is owned 2% by the Operating Partnership, is accounted for
under the cost method.
The Operating Partnership owns 5% of the voting common stock and all of the
nonvoting preferred stock of the Property Manager. The Operating Partnership
accounts for the investment in the Property Manager under the equity method.
NOTE 3 -- RESTRICTED CASH
Cash is restricted primarily for renovations and redevelopment of the 17
DeBartolo Properties in connection with a securitized commercial pass-through
certificate issuance simultaneously with the IPO.
113
<PAGE> 151
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 4 -- MERGERS, ACQUISITIONS AND DISPOSITIONS
The parent company of the Operating Partnership entered into an Agreement
and Plan of Merger, dated as of March 26, 1996 (the "Agreement"), among Simon
Property Group, Inc., a Maryland corporation ("SPG"), its merger subsidiary and
the Company, pursuant to which the Company agreed to merge with the merger
subsidiary. The Agreement provides for the exchange of all outstanding Company
common stock for SPG common stock, $0.0001 par value (the "SPG Common Stock"),
at an exchange ratio of 0.68 shares of SPG Common Stock for each share of
Company common stock. The merger and other related transactions closed on August
9, 1996. Shareholders of the Company received approximately 37.9 million shares
of SPG common stock valued at $24.375 per share. During the period ended August
9, 1996, the Company incurred $10,200 of underwriting, legal, accounting and
other expenses associated with the merger. These costs were charged to expense.
During January, 1996, the Property Manager acquired partnership interests
of 33 1/3% and 25% in two joint ventures, respectively, from an unrelated joint
venture partner. As a result, the Operating Partnership effectively owns 65% and
74% of these joint ventures and includes the financial position and results of
operations and cash flows of these joint ventures in its consolidated financial
statements. Effective March 31, 1996, the Operating Partnership acquired an
additional 10% partnership interest in Miami International Mall. As a result,
the Operating Partnership owns 60% of this joint venture and includes the
financial position and results of operations and cash flows in its consolidated
financial statements effective April 1, 1996.
The Operating Partnership transferred ownership of one property to its
lender, as of March 1, 1996, fully satisfying the property's mortgage note
payable. This property no longer met the Operating Partnership's criteria for
its ongoing strategic plan. The Operating Partnership has recognized an
extraordinary gain on this transaction of $9.2 million. The Operating
Partnership's share of this property's net income (loss) for 1993, 1994 and 1995
was $9, ($760) and ($513), respectively. The Operating Partnership's share of
this property's cash generated before debt payments and capital expenditures
("FFO") for 1993, 1994 and 1995 was $512, ($237) and $48, respectively.
Effective January 1, 1996, the Operating Partnership acquired the
management, leasing and certain other operating divisions of the Property
Manager. The operating results of these divisions are included in the Operating
Partnership's consolidated financial statements net of eliminated intercompany
transactions. The Property Manager continues to provide architectural,
engineering and construction services for the Operating Partnership.
114
<PAGE> 152
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
NOTE 5 -- INVESTMENT IN NONCONSOLIDATED JOINT VENTURES
As a result of the above-discussed acquisitions, the combined Balance Sheet
of the nonconsolidated joint ventures includes the financial position of twelve
joint ventures at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Balance Sheets
Investment properties (net)................................................ $599,234
Other assets............................................................... 43,094
--------
Total assets....................................................... 642,328
--------
Mortgages and notes payable................................................ 584,495
Other liabilities.......................................................... 90,549
--------
Total liabilities.................................................. 675,044
--------
Accumulated equity (deficit)............................................... (32,716)
Less: Outside partners' equity............................................. 180
Advances to nonconsolidated joint ventures................................. 78,474
--------
Net surplus in nonconsolidated joint ventures.............................. $ 45,578
========
Net surplus (deficits) in nonconsolidated joint ventures is presented in
the accompanying consolidated balance sheets as follows:
Investments in nonconsolidated joint ventures.............................. $ 38,251
Advances to nonconsolidated joint ventures................................. 78,474
--------
Total investments in and advances to nonconsolidated joint ventures.......... 116,725
Deficits in nonconsolidated joint ventures................................. (71,147)
--------
$ 45,578
========
</TABLE>
The combined statements of operations for the nonconsolidated joint
ventures include the operating results of ten joint ventures for the three month
period ended March 31, 1996, nine joint ventures for the period ended August 9,
1996 and twelve joint ventures in 1995. The operating results of two joint
ventures, in which the Operating Partnership acquired additional partnership
interest in January 1996, are included in the Operating Partnership's
consolidated operating statement. The operating results of one joint venture, in
which
115
<PAGE> 153
DEBARTOLO REALTY PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND DOLLARS IN THOUSANDS)
the Operating Partnership acquired additional partnership interest effective
March 31, 1996, are included in the Operating Partnership's consolidated
operating statement effective April 1, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
---------------------------
AUGUST 9, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
Statements of Operations Revenues:
Minimum rents...................................... $46,847 $66,794
Tenant recoveries.................................. 25,287 33,055
Percentage rents................................... 2,745 4,055
Other.............................................. 6,317 8,417
------- -------
Total revenues..................................... 81,196 112,321
------- -------
Expenses:
Shopping Center Expenses:
Property operating.............................. 7,471 10,619
Repairs and maintenance......................... 6,093 8,862
Real estate taxes............................... 9,985 13,958
Advertising and promotion....................... 2,157 3,272
Management fees to affiliate.................... 2,819 3,699
Provision for doubtful accounts................. 1,899 766
Ground leases................................... 5 90
Other........................................... 594 991
------- -------
31,023 42,257
Interest expense................................... 25,016 43,050
Depreciation and amortization...................... 12,849 17,771
------- -------
68,888 103,078
------- -------
Gain (loss) on sale of assets...................... -- 167
------- -------
Net income...................................... $12,308 $ 9,410
======= =======
DeBartolo Realty Partnership, L.P.'s share of:
Revenues less shopping center expenses............. $23,902 $20,275
Interest expense................................... 9,234 9,866
Depreciation, amortization and other............... 6,246 6,227
------- -------
Net income................................. $ 8,422 $ 4,182
======= =======
</TABLE>
NOTE 6 -- EARNINGS PER UNIT
Earnings per Unit is based on the weighted average number of units of
partnership interest ("units") outstanding for the period ended August 9, 1996.
Common stock awarded but not yet issued under the deferred stock plan (42,400
shares) and the Company and the Operating Partnership's long-term incentive plan
(80,400 shares) have been included in the computations of per unit data for the
period months ended August 9, 1996.
NOTE 7 -- DISTRIBUTIONS
The Operating Partnership paid a distribution of $0.315 per unit on July
22, 1996 for the period of April 1, 1996 through June 28, 1996. On August 9,
1996, the Operating Partnership paid a prorated distribution of $0.1454 per unit
for the period June 29, 1996 through August 9, 1996 (the closing date of the
merger with SPG).
116
<PAGE> 154
REPORT OF INDEPENDENT AUDITORS
To the Partners of
DeBartolo Realty Partnership, L.P.
We have audited the accompanying consolidated balance sheets of DeBartolo
Realty Partnership, L.P. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, partners' equity and cash flows for the
year ended December 31, 1995 and for the period April 21, 1994 (Commencement of
Operations) to December 31, 1994, and the combined statements of operations,
accumulated deficit and cash flows of DeBartolo Retail Group (Predecessor), as
described in Note 2, for the period January 1, 1994 to April 20, 1994 and the
year ended December 31, 1993. These financial statements are the responsibility
of DeBartolo Realty Partnership, L.P.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DeBartolo Realty Partnership, L.P., at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1995 and for the period April 21, 1994 to December 31, 1994, and
the combined results of operations and cash flows of DeBartolo Retail Group
(Predecessor) for the period January 1, 1994 to April 20, 1994 and the year
ended December 31, 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 14, 1996, except for Note 16,
first paragraph, as to which the date is
March 1, 1996
117
<PAGE> 155
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT
UNIT DATA)
<S> <C> <C>
Investment properties (Notes 4 and 8)............................. $1,793,663 $1,737,592
Less accumulated depreciation.................................. 574,338 519,754
---------- ----------
1,219,325 1,217,838
Cash and cash equivalents......................................... 25,851 38,899
Restricted cash (Note 3).......................................... 13,910 35,751
Short term investments............................................ 14,057 4,339
Accounts receivable, less allowance............................... 39,103 40,083
for doubtful accounts of $10,070 and $9,462 in 1995 and 1994
Affiliate receivables (Note 11).............................. 3,007 356
Investments in and advances to nonconsolidated joint ventures
(Note 5)....................................................... 116,725 110,845
Minority interest in capital deficits of consolidated joint
ventures....................................................... 25,920 27,249
Deferred charges and prepaid expenses (Note 7).................... 74,096 97,610
---------- ----------
$1,531,994 $1,572,970
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgages and notes payable (Note 8)........................... $1,348,573 $1,409,827
Accounts payable and accrued expenses.......................... 38,810 39,325
Distributions payable.......................................... 28,225 26,093
Deficits in nonconsolidated joint ventures (Note 5)............ 71,147 69,842
Minority interest in consolidated joint ventures............... 424 604
---------- ----------
1,487,179 1,545,691
========== ==========
Commitments and contingencies (Notes 3, 8, 9, 10 and 15).......... -- --
Partners' Equity (Note 12):
Preferred Units, 10,000,000 authorized, none issued and
outstanding.................................................... -- --
General Partner, 55,329,162 and 48,666,153 units outstanding,
respectively................................................... 27,673 16,026
Limited Partners, 34,272,532 and 34,168,347 units outstanding,
respectively................................................... 17,142 11,253
---------- ----------
Total Partners' Equity......................................... 44,815 27,279
---------- ----------
$1,531,994 $1,572,970
========== ==========
</TABLE>
See accompanying notes
118
<PAGE> 156
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DEBARTOLO REALTY DEBARTOLO RETAIL
PARTNERSHIP, L.P. GROUP
--------------------------- ---------------------------
1995 1994 1994 1993
------------ ------------ ------------ ------------
JANUARY 1 APRIL 21 JANUARY 1 JANUARY 1
THROUGH THROUGH THROUGH THROUGH
DECEMBER 31 DECEMBER 31 APRIL 20 DECEMBER 31
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
Revenues (Note 11):
Minimum rents............................... $205,056 $140,909 $ 61,898 $194,643
Tenant recoveries........................... 82,147 56,720 24,361 81,967
Percentage rents............................ 12,924 9,122 3,653 14,060
Other....................................... 32,530 22,192 5,360 18,285
-------- -------- ------- --------
Total revenues...................... 332,657 228,943 95,272 308,955
-------- -------- ------- --------
Expenses:
Shopping Center Expenses:
Property operating....................... 34,707 23,575 10,272 33,966
Repairs and maintenance.................. 28,060 20,469 8,710 29,602
Real estate taxes........................ 33,223 23,371 9,807 33,015
Advertising and promotion................ 7,403 5,499 1,348 6,400
Management fees to affiliate (Note 11)... 5,674 3,274 2,246 7,167
Provision for doubtful accounts.......... 2,671 910 1,535 3,747
Ground leases (Note 10).................. 2,413 1,499 754 2,232
Other.................................... 4,137 2,038 976 3,399
-------- -------- ------- --------
Total shopping center expenses...... 118,288 80,635 35,648 119,528
Deferred stock compensation expense (Note
12)...................................... 210 4,058 -- --
Interest expense............................ 124,567 87,040 44,119 152,683
Depreciation and amortization............... 58,603 39,578 16,616 54,227
-------- -------- ------- --------
301,668 211,311 96,383 326,438
-------- -------- ------- --------
Gain on sale of assets (Note 13)............ 5,460 1,952 3,286 4,960
Income (loss) from nonconsolidated joint
ventures (Note 5)........................ 8,865 7,554 842 (304)
Minority partners' interest in consolidated
joint ventures........................... 1,029 530 888 3,065
-------- -------- ------- --------
Income (loss) before extraordinary
items.................................. 46,343 27,668 3,905 (9,762)
Extraordinary item -- loss on early
extinguishment of debt (Note 14)....... (11,267) (8,932) -- --
-------- -------- ------- --------
Net income (loss) available to
Unitholders............................ $ 35,076 $ 18,736 $ 3,905 $ (9,762)
======== ======== ======= ========
Net Income (loss) available to Unitholders
attributable to:
General Partner.......................... $ 20,911 $ 11,008 $ 3,905 $ (9,762)
Limited Partners......................... 14,165 7,728 -- --
-------- -------- ------- --------
35,076 18,736 3,905 (9,762)
======== ======== ======= ========
EARNINGS PER UNIT:
Income before extraordinary items........... $ 0.53 $ 0.34
Extraordinary items......................... (0.13) (0.11)
-------- --------
$ 0.40 $ 0.23
======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING (000's).... 85,722 82,540
======== ========
</TABLE>
See accompanying notes
119
<PAGE> 157
DEBARTOLO REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
AND DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
DEBARTOLO REALTY PREDECESSOR EQUITY
CORPORATION UNITS LIMITED PARTNERS UNITS TOTAL UNITS (DEFICIT)
---------------- --------- ---------------- -------- ---------- --------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1993................. $ (79,524)
Contributions.......... 8,198
Distributions.......... (33,614)
Net loss............... (9,762)
---------
Balance at December 31,
1993................. (114,702)
Contributions.......... 8,818
Distributions.......... (14,095)
Net income for the
period January 1,
1994 to April 20,
1994................. 3,905
Affiliated receivables
not contributed to
the Operating
Partnership.......... (201,014)
Distribution of net
affiliated
receivables and
payables............. (23,464)
Distributions to
predecessor's
parent............... (130,400)
Minority partners'
interest exchanges
for Operating
Partners............. (11,923)
Other cash and non-cash
contributions to
equity............... 3,740
---------
Accumulated Deficit at
commencement of
operations........... - - - - - - $ (479,135)
Contributions of
proceeds from Initial
Public Offering, net
of transaction
costs................ 41,336,900 545,670 - - 41,336,900 545,670 -
Exchange of debt for
partnership
interest............. 982,237 14,488 - - 982,237 14,488 -
Transfer of predecessor
accumulated
deficit.............. - (479,135) - - - (479,135) 479,135
Establishment of in the
Operating
Partnership.......... - (33,422) 40,515,363 33,422 40,515,363 - -
Transfer of limited
partners' interest to
DeBartolo Realty
Corporation.......... 6,347,016 - (6,347,016) - - - -
Distributions from
April 21, 1994 to
December 31, 1994.... - (42,583) - (29,897) - (72,480) -
Net income from April
21, 1994 to December
31, 1994............. - 11,008 - 7,728 - 18,736 -
---------- --------- ---------- -------- ---------- --------- ---------
Balance at December 31,
1994................. 48,666,153 16,026 34,168,347 11,253 82,834,500 27,279 -
Contributions relating
to incentive plans... 96,006 785 - 535 96,006 1,320 -
Contributions relating
to second stock
offering............. 6,000,000 49,417 - 30,953 6,000,000 80,370 -
Contributions relating
to purchase of
minority partners'
interest in five
properties........... - 5,514 671,188 3,921 671,188 9,435 -
Transfer of limited
partners' interest
DeBartolo Realty
Corporation.......... 567,003 567 (567,003) (567) - - -
Distributions.......... - (65,547) - (43,118) - (108,665) -
Net income............. - 20,911 - 14,165 - 35,076 -
---------- --------- ---------- -------- ---------- --------- ---------
Balance at December 31,
1995................. 55,329,162 $ 27,673 34,272,532 $ 17,142 89,601,694 $ 44,815 $ -
========== ========= ========== ======== ========== ========= =========
</TABLE>
120
<PAGE> 158
DEBARTOLO REALTY PARTNERSHIP, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
AND DEBARTOLO RETAIL GROUP (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DEBARTOLO REALTY DEBARTOLO RETAIL
PARTNERSHIP, L.P. GROUP
------------------------- -------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
JANUARY 1 APRIL 21 JANUARY 1 JANUARY 1
THROUGH THROUGH THROUGH THROUGH
DECEMBER 31 DECEMBER 31 APRIL 20 DECEMBER 31
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Flow From Operating Activities:
Net Income (loss)....................................................... $ 35,076 $ 18,736 $ 3,905 $ (9,762)
Adjustments to reconcile net income to net cash provided by Operating
Activities:
Amortization of formation and loan costs included in interest
expense............................................................. 11,616 10,528 1,354 4,390
Amortization and write-off of interest rate protection agreements..... 7,307 2,112 -- --
Extraordinary loss on early extinguishment of debt.................... 11,267 8,932 -- --
Gain on sale of assets................................................ (5,460) (1,952) (3,286) (4,960)
Depreciation and amortization......................................... 58,603 39,578 16,616 54,227
Deferred stock compensation expense................................... 210 4,058 -- --
Minority partners' interests in consolidated joint ventures........... (1,029) (530) (888) (3,065)
(Income) loss from nonconsolidated joint ventures..................... (8,865) (7,554) (842) 304
Decease (increase) in restricted cash................................. -- 7,143 (2,829) (344)
Decrease (increase) in accounts receivable............................ 980 (642) 172 1,286
Decrease (increase) in prepaid expenses and other..................... (984) 5,219 (5,995) (429)
Increase (decrease) in accounts payable and accrued expenses.......... 179 (12,228) 7,938 (4,832)
---------- ---------- ---------- ----------
Net Cash Provided By Operating Activities......................... 108,900 73,400 16,145 36,815
Cash Flows From Investing Activities:
Additions to investment properties...................................... (51,339) (24,089) (3,018) (28,981)
Acquisition of development land......................................... -- (21,000) -- --
Purchase of properties and partnership interests........................ -- (1,818) -- --
Additions to deferred charges for lease costs and other................. (3,625) (1,927) (501) (3,436)
Distributions from nonconsolidated joint ventures....................... 19,379 7,132 5,777 15,498
Advances to and investments in nonconsolidated joint ventures........... (8,521) (53,585) (258) (1,784)
Net proceeds from sale of assets........................................ 6,282 3,035 4,547 8,206
Purchase of short term investments...................................... (9,718) (4,339) -- --
---------- ---------- ---------- ----------
Net Cash Provided By (Used In) Investing Activities................... (47,542) (96,591) 6,547 (10,497)
Cash Flows From Financing Activities:
Proceeds from issuance of debt.......................................... 116,828 481,736 4,173 29,611
Partnership contributions............................................... 80,370 543,852 8,818 8,198
Scheduled principal payments on mortgages............................... (6,647) (4,587) (3,657) (7,797)
Other payments on debt.................................................. (171,436) (681,435) (626) (5,919)
Loan costs and interest rate buydowns................................... (1,941) (70,822) (87) (3,205)
Distribution to predecessor parent...................................... -- (130,400) -- --
Prepayment penalties on early extinguishment of mortgage notes
payable............................................................... (3,390) (4,478) -- --
Partnership distributions............................................. (106,533) (46,387) (14,095) (20,936)
Minority partner distributions.......................................... (847) (574) (144) (1,500)
(Increase) decrease in restricted cash.................................. 21,841 (39,000) -- --
Decrease (increase) in affiliate receivables (net of affiliated
payables)............................................................. (2,651) 1,901 (14,672) (23,776)
---------- ---------- ---------- ----------
Net Cash Provided by (Used In) Financing Activities............... (74,406) 49,806 (20,290) (25,324)
---------- ---------- ---------- ----------
Net Increase (Decrease) In Cash................................... (13,048) 26,615 2,402 994
Cash and Cash Equivalents:
Beginning of Period..................................................... 38,899 12,284 9,882 8,888
---------- ---------- ---------- ----------
End of period........................................................... $ 25,851 $ 38,899 $ 12,284 $ 9,882
========== ========== ========== ==========
Supplemental Information:
Interest Paid........................................................... $ 105,501 $ 81,306 $ 41,434 $ 147,646
========== ========== ========== ==========
Supplemental Schedule of Non-Cash and Financing Activities:
Distribution of affiliate receivables and payables...................... $ -- $ -- $ 23,464 $ 12,678
Exchange of debt for Operating Partnership interest..................... $ -- $ 14,488 $ -- $ --
Minority partners' interest exchanged for Operating Partnership
interest.............................................................. $ 9,435 $ 11,923 $ -- $ --
Affiliate receivables not contributed to Operating Partnership........ $ -- $ -- $ 201,014 $ --
Distribution of affiliate payables to minority partners............... $ -- $ -- $ -- $ (1,264)
Limited Partners' interest exchanged for General Partner Units.......... $ 567 $ -- $ -- $ --
</TABLE>
See accompanying notes
121
<PAGE> 159
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND FORMATION
DeBartolo Realty Partnership, L.P. (the "Operating Partnership" or "OP")
was formed as a Delaware limited partnership in 1993 in connection with
DeBartolo Realty Corporation's ( the "Company") initial public offering (the
"IPO"). On April 21, 1994, the Company raised 498 million in net proceeds
through the Company's IPO.
The proceeds of the IPO were used to acquire general partnership interests
in the OP, and indirectly, interest in DeBartolo Capital Partnership, a Delaware
general partnership ("FP"). The Company acquired a 47.8% general partner
interest in the OP in exchange for its contribution of these net proceeds to the
OP. The OP, and consequently the FP, were formed to continue and expand the
shopping mall ownership, management and development business of The Edward J.
DeBartolo Corporation ("EJDC") in a portfolio which, as of December 31, 1995,
consists of 51 super-regional and regional malls (the "DeBartolo Malls"), 11
community centers and land held for future development (collectively, the
"DeBartolo Properties"). As the sole general partner of the OP, the Company has
full, exclusive and complete responsibility and discretion in the management and
control of the OP. The OP was formed prior to the consummation of the Company's
IPO and is the successor entity to the DeBartolo Retail Group. During 1995,
certain property management and development activities are carried out for the
OP and FP through an affiliate, DeBartolo Properties Management, Inc. (the
"Property Manager").
Concurrently with the completion of the IPO, the FP completed a 455 million
principal amount securitized debt financing (the "Securitized Debt Financing").
Simultaneously with the IPO, EJDC and certain affiliates (collectively, the
"DeBartolo Group") and certain current and former employees of EJDC, along with
JCP Realty, Inc. ("JCP"), contributed to the OP interests in the DeBartolo
Properties (and certain other assets) for limited partnership interests in the
OP. Pursuant to an Exchange Rights Agreement, in April 1995 the Company filed a
registration statement for the issuance of 34,168,347 shares of common stock.
The Exchange Rights Agreement provides for the conversion of the limited partner
interests to shares of common stock. The Exchange Rights Agreement is subject to
certain restrictions relating to the initial exercise period, minimum value of
interest exchanged, and ownership limitations.
In connection with the IPO, the OP received options to acquire the
interests of the estate of Edward J. DeBartolo and other members of his family
and affiliates in four DeBartolo Malls and one community center. On July 1,
1995, the Company exercised these options and acquired a 12.8% interest in Miami
International Mall, 10.1% interests in University Park Mall and University
Center and 0.1% interests in Coral Square and Lakeland Square. The exercise
price of approximately 9.4 million was payable in limited partnership interests
in the OP. As a result of these acquisitions, the Company's percentage ownership
in the OP decreased from 58.8% to 58.3%.
On August 1, 1995, the Company completed a public offering of 6,000,000
shares of common stock at an offering price of 14 1/4 per share raising net
proceeds of approximately 80.4 million. The Company contributed the net proceeds
to the OP, which has used the net proceeds to retire mortgage debt (including
any related prepayment penalties). As a result of the contribution by the
Company to the OP of the net proceeds of the offering, the Company's percentage
ownership in the OP increased from 58.3% to 61.1%.
During August 1995, EJDC exchanged limited partnership interests in the OP
to retire certain EJDC corporate debt. The lender immediately exchanged the
limited partnership interests in the OP for common stock of the Company. As a
result of this transaction, the Company's percentage ownership in the OP
increased from 61.1% to 61.8%.
122
<PAGE> 160
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1995, ownership in the OP is as follows:
<TABLE>
<CAPTION>
TOTAL PERCENT
UNITS OWNED
---------- -------
<S> <C> <C>
GENERAL PARTNER
DeBartolo Realty Corporation.......................... 55,329,162 61.8%
LIMITED PARTNERS
DeBartolo Group....................................... 32,714,135 36.5
JCP Realty, Inc....................................... 1,016,156 1.1
DeBartolo Employees (current and former).............. 542,241 0.6
---------- ----
TOTAL......................................... 34,272,532 38.2
---------- ----
TOTAL UNITS................................... 89,601,694 100%
========== ====
</TABLE>
NOTE 2 -- BASIS OF PRESENTATION
The financial statements of the OP are presented on a consolidated basis.
Properties which are controlled through majority ownership have been
consolidated and all significant intercompany transactions and accounts have
been eliminated. Properties where the OP owns less than a majority interest have
been accounted for under the equity method. One property, 2% of which is owned
by the OP, is accounted for under the cost method.
The OP owns 5% of the voting common stock and all of the nonvoting
preferred stock of the Property Manager. The OP's pro rata share is 95% of the
Property Manager's operating results. The OP accounted for its investment in the
Property Manager under the cost method through September 30, 1995. During 1995,
in accordance with Emerging Issues Task Force Issue No. 95-6, Accounting by a
Real Estate Investment Trust for an Investment in a Service Corporation, the OP
changed its method of accounting for its investment in the Property Manager to
the equity method. The OP has applied the new accounting method retroactively to
April 21, 1994, in accordance with Accounting Principles Board Opinion 20,
Accounting Changes. The change had no significant impact to previously issued
financial results for 1994 and 1995.
The accompanying combined financial statements of DeBartolo Retail Group
represent DeBartolo Properties previously owned by EJDC and certain of its
affiliates. The historical financial statements of DeBartolo Retail Group are
presented on a combined basis because EJDC and certain of its affiliates were
the subject of the business combination discussed above. The business
combination has been accounted for as a reorganization of entities under common
control, which is similar to the accounting used for a pooling of interests.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
123
<PAGE> 161
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Investment Properties:
Investment properties are stated at cost less accumulated depreciation,
which in the opinion of management is not in excess of net realizable value.
Costs incurred for the acquisition, development, construction and improvement of
properties, including significant renovations, are capitalized. Interest costs
and real estate taxes incurred with respect to qualified expenditures relating
to the construction of assets are capitalized during the development period.
Depreciation and Amortization:
The cost of buildings, improvements and equipment are depreciated on the
straight-line method over estimated useful lives, as follows:
Buildings -- 30 to 40 years
Improvements -- shorter of lease term or useful life
Equipment -- 3 to 10 years
Tenant allowances paid to tenants for construction are capitalized and
amortized over the terms of each specific lease. Maintenance and repairs are
charged to expense when incurred.
Deferred Charges:
Deferred charges consist principally of financing costs and leasing
commissions which are amortized over the terms of the respective agreements.
Capitalized Interest:
Interest is capitalized on projects during the construction period.
Interest capitalized was $1,614 in 1995; $686 from inception to December 31,
1994; $13 for the period January 1, 1994 to April 20, 1994, and $219 in 1993.
Cash and Cash Equivalents:
Highly liquid investments with maturities of three months or less are
considered cash equivalents.
Restricted Cash:
Cash is restricted primarily for renovations and redevelopment of certain
DeBartolo Properties in connection with the Securitized Debt Financing.
Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of financial instruments:
- The fair value of cash and cash equivalents, restricted cash and
short-term investments approximate carrying value due to the short-term
nature of these instruments.
- The fair value of the OP's fixed rate mortgages and notes payable is
based on current rates available to the OP for debt of similar terms.
Fair value of variable rate debt is considered to be the carrying amount.
- The fair value of the interest rate caps and interest rate swaps are
based on available market data.
124
<PAGE> 162
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Minority Interests:
Minority interests in consolidated joint ventures represent the amounts of
net assets of consolidated ventures attributable to the interests of outside
parties. Minority interests in capital deficits of joint ventures are carried as
assets to the extent considered recoverable.
Revenue Recognition:
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method over the terms of
leases. Percentage rents are recognized on an accrual basis as earned. Real
estate tax and operating expense recoveries are recognized in the period the
applicable costs are incurred.
Ground Leases:
Certain properties, as lessees, lease land under operating leases. Rent
expense is recorded on the straight-line method over the term of these leases.
Income Taxes:
The allocable share of the taxable income or loss of the OP is includable
in the income tax returns of the partners; accordingly, income taxes are not
reflected in the consolidated financial statements.
Earnings Per Unit:
Earnings per unit is based on the weighted average number of units
outstanding for the year ending December 31, 1995 and for the period of April
21, 1994 through December 31, 1994. Units of common stock awarded during 1994
under a deferred stock plan (70,696 units) and units of common stock awarded
under a long-term incentive plan (245,200 units) have been considered
outstanding units. In April 1995, the OP issued 96,006 units of common stock
under both plans. Both plans are a part of the 1994 DeBartolo Realty Corporation
Stock Incentive Plan. For purposes of determining fully dilutive earnings per
unit, the remaining 2,427,100 units of common stock under the long-term
incentive deferred stock plan are anti-dilutive after adjusting earnings to give
effect to the increase in earnings necessary for the units of common stock to be
awarded under the plan.
Impact of Recently Issued Accounting Standards:
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The OP will adopt Statement 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material. The OP continually analyzes its mall
properties based on investment related criteria and, as a result, the OP may
determine to dispose of certain properties. Current circumstances based on the
OP's intention to hold the properties for long-term appreciation, do not
indicate that any of the OP's properties are impaired. However, if a decision is
made to dispose of certain properties, it is reasonably possible that
significant write-downs may be required.
125
<PAGE> 163
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 4 -- INVESTMENT PROPERTIES
Investment properties consist of shopping center properties, including
peripheral land and properties under development and an office tower adjacent to
one of the shopping centers. Investment properties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Land................................................ $ 193,365 $ 192,781
Shopping center buildings, improvements and
equipment......................................... 1,537,725 1,486,819
Office tower building, improvements and
equipment...................................... 40,522 40,225
Properties under
construction/expansion/renovation................. 13,351 7,962
Peripheral land parcels............................. 8,700 9,805
---------- ----------
1,793,663 1,737,592
Accumulated depreciation............................ 574,338 519,754
---------- ----------
Total investment properties............... $1,219,325 $1,217,838
========== ==========
</TABLE>
Peripheral land parcels primarily consist of undeveloped land parcels
adjacent to certain shopping centers.
Depreciation expense totaled $55,315 in 1995; $37,298 from April 21, 1994
to December 31, 1994; $15,792 for the period January 1, 1994 to April 20, 1994;
and $51,431 for 1993.
The DeBartolo Group has granted the OP options to purchase their interests
in two shopping center development sites at an agreed upon purchase price. These
options are subject to the rights and approvals of existing lenders, third
parties and governmental authorities. The OP has options and rights of first
refusal to purchase the DeBartolo Group's interest in two regional malls. The
option prices are fair market value at any time until December 31, 1998.
As of December 31, 1995, the OP had options to acquire the interests of
three outside partners in five DeBartolo Properties. These options are subject
to the rights of partners and lenders and to the satisfaction of certain
conditions. In January 1996, the Property Manager acquired the interests of one
outside partner in two properties, see Note 16.
126
<PAGE> 164
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- INVESTMENTS IN NONCONSOLIDATED JOINT VENTURES
The OP's investments in the joint ventures, which have been accounted for
under the equity method, are as follows:
<TABLE>
<CAPTION>
OP'S PERCENTAGE
OWNERSHIP AS OF
VENTURE PROPERTY DECEMBER 31, 1995
- -------------------------------------- ------------------------- -----------------
<S> <C> <C>
Aventura Mall Aventura Mall 33.3%
Jacksonville Avenues Limited
Partnership The Avenues 25.0%
Biltmore Square Associates Biltmore Square 33.3%
Century III Associates Century III Mall 50.0%
Chesapeake-JCP Associates, Ltd. Chesapeake Square 50.0%
Coral-CS/LTD Associates Coral Square 50.0%
Florida Mall Associates The Florida Mall 50.0%
HD Lakeland Mall Joint Venture Lakeland Square 50.0%
West Dade County Associates Miami International Mall 50.0%
Northfield Center Limited Partnership Northfield Square 31.6%
Palm Beach Mall (a tenancy in common) Palm Beach Mall 50.0%
Philadelphia Center Associates Great Northeast Plaza 50.0%
</TABLE>
These investments are recorded initially at cost and subsequently adjusted
for net equity in income (loss) and cash contributions and distributions. The OP
receives substantially all of the economic benefit of Biltmore Square,
Chesapeake Square and Northfield Square as the result of advances made to those
joint ventures. For one joint venture, the outside partner receives
substantially all of the economic benefit.
Summary financial information and summary of OP's investment in and share
of income (loss) from the above joint ventures follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
BALANCE SHEETS
Investment properties (net).......................................... $599,234 $604,506
Other assets......................................................... 43,094 47,007
-------- --------
Total assets................................................. 642,328 651,513
-------- --------
Mortgages and notes payable.......................................... 584,495 592,990
Other liabilities.................................................... 90,549 85,182
-------- --------
Total liabilities............................................ 675,044 678,172
-------- --------
Accumulated deficit............................................... (32,716) (26,659)
Less: Outside partners' equity....................................... 180 3,753
Advances to nonconsolidated joint ventures........................... 78,474 71,415
-------- --------
Net surplus in nonconsolidated joint ventures........................ $ 45,578 $ 41,003
======== ========
Net surplus (deficits) in nonconsolidated joint ventures is presented
in the accompanying consolidated balance sheets as follows:
Investments in nonconsolidated joint ventures........................ $ 38,251 $ 39,430
Advances to nonconsolidated joint ventures........................... 78,474 71,415
-------- --------
Total investments in and advances to nonconsolidated joint
ventures.......................................................... 116,725 110,845
Deficits in nonconsolidated joint ventures........................... (71,147) (69,842)
-------- --------
$ 45,578 $ 41,003
======== ========
</TABLE>
127
<PAGE> 165
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 21, JANUARY 1,
1994 TO 1994 TO DECEMBER
DECEMBER 31, DECEMBER 31, APRIL 20, 31,
1995 1994 1994 1993
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Revenues:
Minimum rents............................... $ 89,727 $ 60,978 $ 26,101 $ 80,971
Tenant recoveries........................... 44,293 30,967 12,709 40,589
Percentage rents............................ 6,058 4,833 1,406 7,932
Other....................................... 12,853 9,252 2,420 8,233
-------- -------- ------- --------
Total revenues...................... 152,931 106,030 42,636 137,725
-------- -------- ------- --------
Expenses:
Shopping Center expenses.................... 57,368 39,778 16,092 52,400
Interest expense............................ 57,561 37,038 15,942 58,615
Depreciation and amortization............... 24,078 16,351 6,885 22,307
-------- -------- ------- --------
139,007 93,167 38,919 133,322
-------- -------- ------- --------
Gain (loss) on sale of assets............... 166 1,196 (1) 1,380
-------- -------- ------- --------
Income before extraordinary item......... 14,090 14,059 3,716 5,783
Extraordinary item -- loss on early
extinguishment of debt................... (425) (388) -- --
-------- -------- ------- --------
Net income............................... $ 13,665 $ 13,671 $ 3,716 $ 5,783
======== ======== ======= ========
DeBartolo Realty Partnership, L.P.'s share of:
Revenues less shopping center expenses...... $ 41,987 $ 28,706 $ 12,541 $ 40,302
Interest expense............................ 20,035 12,902 8,206 29,801
Depreciation, amortization and other........ 12,826 8,318 3,493 11,319
Gain on land sales.......................... 164 445 -- 514
-------- -------- ------- --------
Income (loss) before extraordinary
item................................... 9,290 7,931 842 (304)
Extraordinary item -- loss on early
extinguishment of debt................... (425) (377) -- --
-------- -------- ------- --------
Net income (loss)........................ $ 8,865 $ 7,554 $ 842 $ (304)
======== ======== ======= ========
</TABLE>
128
<PAGE> 166
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- PROPERTY MANAGER
Summary financial information for the Property Manager is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
BALANCE SHEETS
Cash and cash equivalents.............................. $ 2,018 $ 2,816
Accounts receivable, substantially all due from related
parties............................................. 13,516 10,531
Other assets........................................... 8,003 2,692
------- -------
$23,537 $16,039
======= =======
Accounts payable and accrued liabilities............... $14,691 $11,421
Note payable to OP..................................... 4,018 --
Other long-term liabilities............................ 4,082 3,977
------- -------
Total Liabilities................................... 22,791 15,398
Shareholders' equity................................... 746 641
------- -------
$23,537 $16,039
======= =======
OP's share of Shareholders' equity..................... $ 709 $ 609
======= =======
Outside Shareholders' equity........................... $ 37 $ 32
======= =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 21,
YEAR ENDED 1994 TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS
Revenues:
Construction and development........................... $ 6,087 $ 4,541
Management and leasing................................. 16,768 12,194
Other.................................................. 3,223 1,507
------- -------
Total revenues......................................... 26,078 18,242
Expenses:
Salaries and employee benefits......................... 20,018 12,361
Other operating expenses............................... 5,784 2,485
Other expenses......................................... 171 2,162
------- -------
Total expenses...................................... 25,973 17,008
------- -------
Net income............................................. 105 1,234
======= =======
OP's share of net income............................... $ 100 $ 1,172
======= =======
</TABLE>
129
<PAGE> 167
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- DEFERRED CHARGES AND PREPAID EXPENSES
Deferred charges and prepaid expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Lease costs, net of accumulated amortization of $15,566
and $14,541 in 1995 and 1994, respectively............. $17,402 $17,077
Securitized Debt Financing costs, net of accumulated
amortization of $2,992 and $1,226 in 1995 and 1994,
respectively........................................... 9,374 11,135
Loan costs, net of accumulated amortization of $11,382
and $11,910 in 1995 and 1994, respectively............. 8,743 11,189
Interest rate protection agreements, net of accumulated
amortization of $2,249 and $2,103 in 1995 and 1994,
respectively........................................... 704 8,011
Interest rate buydowns, net of accumulated amortization
of $11,222 and $7,426 in 1995 and 1994, respectively... 30,993 44,256
Investment in West Town Mall Joint Venture............... 2,699 2,405
Prepaid expenses and other............................... 4,181 3,537
------- -------
$74,096 $97,610
======= =======
</TABLE>
Lease cost amortization totaled $3,288 in 1995; $2,280 from April 21, 1994
to December 31, 1994; $824 for the period January 1, 1994 to April 20, 1994; and
$2,796 in 1993.
Amortization of loan costs, interest rate protection agreements and
interest rate buydowns totaled $14,729 in 1995; $12,640 from April 21, 1994 to
December 31, 1994; $1,354 for the period January 1, 1994 to April 20, 1994; and
$4,390 in 1993.
On December 27, 1995, the OP assigned certain interest protection
agreements to an unrelated third party and replaced such agreements with
interest rate swap agreements. Accordingly, interest rate protection agreements
have been written-off with a charge to interest expense. Fair value of the
remaining interest rate protection agreement and the interest rate swap was $704
and $1,130, respectively, at December 31, 1995. Fair value of the interest rate
protection agreements at December 31, 1994 were $13,659.
130
<PAGE> 168
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- MORTGAGES AND NOTES PAYABLE
Mortgage debt, which is collateralized by substantially all investment
properties, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Commercial Mortgage pass-through certificates -- fixed
interest rate ranging from 7.59% to 9.24% (average
of 8.13% at December 31, 1995), due April, 2001..... $ 367,244 $ 367,800
Commercial Mortgage pass-through
certificates -- interest at LIBOR, subject to an
interest rate swap agreement, plus 56 basis points
(5.31% at December 31, 1995), due April, 2001....... 87,200 87,200
Revolving line of credit with interest at LIBOR plus
175 basis points (7.5% at December 31, 1995) due
December 1998....................................... 55,000 --
Primarily first mortgages with fixed interest rates
ranging from 6.79% to 9.92% (average of 7.9% at
December 31, 1995), due at various dates through
2012................................................ 692,162 804,362
First mortgages with variable interest rates at LIBOR,
subject to an interest rate swap agreement, plus 100
basis points (5.75% at December 31, 1995) due at
various dates through 2002.......................... 74,864 78,362
Bond payable collateralized by a mortgage to an
affiliate of EJDC on one property at an effective
rate of 8.0% due September 1996..................... 72,103 72,103
-------- --------
Total Mortgages and Notes Payable........... $1,348,573 $1,409,827
======== ========
</TABLE>
During December 1995, the OP entered into an interest rate swap agreement
to pay LIBOR at (i) 4.75% on approximately $218 million of debt through April
1997 and (ii) 5.71% on $87.2 million of debt from May 1997 through April 2001.
As part of this arrangement, the OP assigned the following interest rate
protection agreements (i) 4.75% through April 1996 and 5.25% from May 1996
through April 1997 on approximately $131 million of debt and (ii) 4.75% through
April 1996 on $87.2 million of debt. The OP has an interest rate protection
agreement which limits interest on $87.2 million of debt to no more than LIBOR
of 8.44% for the period May 1996 through March 2001.
The OP's proportionate share of the mortgages and notes payable are as
follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
DeBartolo Realty Partnership, L.P................... $1,305,564 $1,363,042
Outside partners.................................... 43,009 46,785
---------- ----------
$1,348,573 $1,409,827
========== ==========
</TABLE>
131
<PAGE> 169
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Annual principal payments and maturities as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
TOTAL OP'S SHARE
----------- -----------
<S> <C> <C>
1996..................................... $ 157,221 $ 157,139
1997..................................... 7,588 7,491
1998..................................... 63,253 63,149
1999..................................... 69,103 68,991
2000..................................... 8,661 8,540
Thereafter............................... 1,042,747 1,000,254
---------- ----------
$ 1,348,573 $ 1,305,564
========== ==========
</TABLE>
During 1995, the OP paid off mortgages of $117,227 at three properties and
obtained the release of mortgage liens at two properties. Additionally, the OP
refinanced three loans at one property totaling $44,098 with a $59,500 mortgage
note payable (of which $46,528 is currently outstanding), providing additional
borrowing capacity of up to $13,000 to be drawn upon over the subsequent twelve
months for expansion and renovation of that property. The OP refinanced $9,518
of construction loans at three community centers with permanent financing
totaling $15,000.
In December 1995, the OP amended and expanded its revolving line of credit
from $50,000 to $120,000, subject to certain conditions being met. As of
December 31, 1995, total current availability under this working line is
$94,500, of which $55,000 is outstanding. The facility is secured by the
mortgages of two properties and a negative pledge of a third property and is
recourse to the OP. The OP anticipates the facility to be increased to $150,000
and the availability will be increased to $144,500 during the first quarter of
1996 once certain conditions are met including additional collateral of a
mortgage on the negative pledged property. Interest is provided at the lesser of
LIBOR plus 175 basis points or the Base Rate, as defined. The facility matures
in December 1998, however, the OP has a one-year extension option. The facility
requires the OP to maintain a minimum net worth as defined, limits the OP's
indebtedness and provides for other restrictive covenants.
The OP restructured a $54,906 mortgage note payable having an interest rate
of 8 7/8% maturing January, 1998. The new mortgage matures January, 2005 and
bears interest at 7.42%. In connection with this transaction, the OP made a
partial paydown of $5,491 on a mortgage note of a nonconsolidated joint venture.
Commercial mortgage pass-through certificate covenants require the OP to
fund into escrow reserves for renovations, repairs and maintenance and tenant
improvements and requires the FP to maintain Minimum Debt Service coverage
ratios (as defined) and provides for other restrictive covenants.
Annual reserve funding requirements are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 7,600
1997....................................................... 10,400
1998....................................................... 6,933
1999....................................................... 5,200
2000....................................................... 5,200
Thereafter................................................. 1,734
-------
$37,067
=======
</TABLE>
DeBartolo Realty Partnership, L.P. has guaranteed $29,946 of the mortgages
and notes payable relating to three consolidated properties and three
nonconsolidated joint ventures. An affiliate of EJDC continues to
132
<PAGE> 170
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
provide a guarantee of 33 1/3% of the debt service obligation on a $100,000
floating rate mortgage at one nonconsolidated joint venture. The OP has agreed
to indemnify the EJDC affiliate for any loss or costs incurred or associated
with this guaranty.
DeBartolo, Inc., parent of EJDC, and certain of its affiliates have
guaranteed $100,000 of the OP's mortgages and notes payable.
Fair Value of Debt Related Financial Instruments:
The estimated fair value of debt related financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER, 1995 DECEMBER, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securitized Debt Financing...... $ 454,444 $ 477,083 $ 455,000 $ 446,936
Fixed rate mortgages and notes
payable....................... 764,265 796,231 876,465 805,553
Variable rate mortgages and
notes payable................. 74,864 74,864 78,362 78,362
Revolving loan.................. 55,000 55,000 -- --
---------- ---------- ---------- ----------
$1,348,573 $1,403,178 $1,409,827 $1,330,851
========== ========== ========== ==========
</TABLE>
The debt on the nonconsolidated joint ventures (see Note 5) was $584,495 at
December 31, 1995. The OP's pro rata share of that debt was $249,535 at December
31, 1995. The OP's proportionate share of mortgage notes and other notes payable
on both its consolidated and nonconsolidated properties was $1,555,099 at
December 31, 1995.
NOTE 9 -- RENTALS UNDER OPERATING LEASES
The properties receive rental income from the leasing of retail shopping
center space and an office tower under operating leases that expire at various
dates through 2026. Substantially all investment property is leased out under
operating leases. The minimum future rentals based on operating leases held are
as follows as of December 31, 1995:
<TABLE>
<CAPTION>
LEASES WITH
RELATED
ALL LEASES PARTIES (1)
---------- -----------
<S> <C> <C>
1996......................................... $ 181,438 $ 7,315
1997......................................... 165,984 6,975
1998......................................... 150,090 5,771
1999......................................... 130,068 5,419
2000......................................... 111,839 4,695
Thereafter................................... 486,197 23,905
---------- -------
$1,225,616 $54,080
========== =======
</TABLE>
- ---------------
(1) Represents stores whose parent company also owns units of the OP or stores
whose chief executive officers are on the Board of Directors of the Company.
133
<PAGE> 171
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Minimum future rentals do not include amounts which may be received under
the terms of certain leases based upon a percentage of the tenants' sales or as
reimbursement of shopping center expenses.
No single tenant or group of affiliated tenants collectively accounts for
more than 10% of the consolidated properties total revenues which include
minimum rents, tenant recoveries, percentage rents and other revenue. The tenant
base includes national and regional retail chains and local retailers and
consequently the consolidated properties credit risk is concentrated in the
retail industry. The DeBartolo Malls are located in 16 states, with 17 malls
located in Florida and 8 malls located in Ohio.
The revenues of the OP may be adversely affected by the inability to
collect rent due to bankruptcy or insolvency of tenants or otherwise. Two
department store companies operating six department stores or other large retail
stores in excess of 60,000 square feet ("Anchor") at the consolidated DeBartolo
Properties are operating under the protection of the United States Bankruptcy
Code. At December 31, 1995, leases (excluding rejected leases) of Anchor tenants
open and operating in bankruptcy comprise approximately 1% of total gross
leasable area ("GLA"). Annual rentals paid by these Anchor tenants comprised
2.5% of minimum rents paid by Anchor tenants. At December 31, 1995, leases
(excluding rejected leases) of mall store tenants at consolidated DeBartolo
Properties open and operating in bankruptcy comprise approximately 6.4% of mall
GLA. Annual rentals paid by these mall store tenants comprised 6.1% of minimum
rents paid by mall store tenants. Substantially all of these tenants are
currently meeting their contractual obligations. At the time a tenant files for
bankruptcy protection it is difficult to determine to what extent these tenants
will reject their leases or seek other concessions as a condition to continued
occupancy. The OP expects certain of these tenants to reject their leases. Based
on past experience, the OP has been able to offset, over a reasonable period of
time, the impact on minimum rents caused by a tenant in bankruptcy.
NOTE 10 -- GROUND LEASES
Certain properties, as lessees, have ground leases expiring at various
dates through 2087. Following is a schedule of future minimum rental payments
required under these ground leases as of:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1996............................................ $ 2,267
1997............................................ 2,347
1998............................................ 2,347
1999............................................ 2,347
2000............................................ 2,347
Thereafter...................................... 225,607
--------
$237,262
========
</TABLE>
134
<PAGE> 172
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- TRANSACTIONS WITH AFFILIATES
Management and Other Fees: The Property Manager has contracted to provide
management, leasing, development and construction management services to the OP.
Amounts included in the consolidated financial statements related to agreements
with the Property Manager are as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 21, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
------ ------------ ----------- ------
<S> <C> <C> <C> <C>
Management fees.................. $5,369 $3,044 $ 2,179 $7,167
Leasing fees..................... 3,261 1,872 552 3,319
Development and construction..... 4,872 1,844 717 3,013
Other reimbursements............. 835 254 180 664
</TABLE>
During 1995, the Property Manager earned development and construction
revenues of $893 from affiliates of a partner in the OP.
Insurance: The OP has first dollar commercial general liability coverage
and special cause of loss property insurance with a $5 deductible. Prior to 1995
the OP's insurance carrier reinsured certain coverages with an affiliate of
EJDC. Charges to the OP for the reinsured amounts totaled $3,462 from April 21,
1994 to December 31, 1994. Prior to April 21, 1994, the DeBartolo Retail Group
had first dollar commercial general liability insurance of which an affiliated
insurance company reinsured the first $250 per occurrence. Additionally, the
DeBartolo Retail Group had "All Risk" Property insurance. The insurance company
reinsured the first $95 per occurrence with an affiliate of EJDC. Charges for
the reinsured amounts totaled $1,374 for the period January 1, 1994 to April 20,
1994 and $4,355 for 1993.
Affiliate Leases: On November 6, 1995, Fun-N-Games, an affiliate of EJDC
which operated amusement centers in DeBartolo Properties, was sold to an
independent third party operator which continues to operate these stores. These
properties have recorded total revenues and operating expense reimbursements of
$1,771 from January 1, 1995 through November 6, 1995, $1,571 from April 21, 1994
to December 31, 1994, $776 for the period from January 1, 1994 to April 20, 1994
and $2,287 for 1993.
Affiliates of certain Anchor tenants and small shops in various properties
are partners in various properties or are partners in the OP. As of December 31,
1995, these tenants own or lease space in 29 consolidated properties. These
properties recorded rental income and operating expense reimbursements of
$10,933 in 1995; $8,926 from April 21, 1994 to December 31, 1994; $3,314 for the
period January 1, 1994 to April 20, 1994; and $12,674 for 1993.
Affiliated Receivables (Payables): At December 31, 1995, the affiliated
receivable represents a $4,018 revolving loan receivable from the Property
Manager bearing interest at prime plus 200 basis points offset by amounts due to
the Property Manager for normal operating costs. Interest earned by the OP on
this revolver totaled $258 in 1995. At December 31, 1994, affiliated receivables
represent amounts due to the Property Manager for normal monthly operating costs
offset by dividends receivable from the Property Manager of $809. At December
31, 1993, net affiliated receivables (which are primarily non-interest bearing)
are due from EJDC. Concurrent with the offering, these affiliated receivables
were distributed to EJDC. Interest expense includes interest charged to
properties by EJDC on net amounts due to EJDC totaling $760 for the period
January 1, 1994 to April 20, 1994 and $2,754 in 1993.
135
<PAGE> 173
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Property Manager leases office space from EJDC under an operating
lease. Rent charged under the lease totaled $1,092 in 1995 and $755 in 1994.
The Property Manager performs legal, tax and other services for EJDC under
a corporate service agreement. Fees for these services totaled $570 in 1995 and
$425 in 1994.
NOTE 12 -- STOCK INCENTIVE PLAN
The Company and the OP adopted the DeBartolo Realty Corporation 1994 Stock
Incentive Plan (the "Stock Incentive Plan") to provide incentives to attract and
retain officers, directors and key employees.
The Stock Incentive Plan provides for the grants of nonqualified and
incentive stock options to purchase a specified number of shares of Common Stock
("Options") or rights to future grants of Common Stock ("Deferred Stock"). Under
the Stock Incentive Plan, 3,100,000 shares of Common Stock are available for
grant.
The Compensation Committee of the Company's Board of Directors has approved
the grant of approximately 2,743,000 shares in the form of Deferred Stock in
connection with a two-part, long-term incentive compensation program.
Deferred Stock Awards upon Completion of the Offering. Upon completion of
the IPO, approximately 71,000 shares of Deferred Stock were granted to certain
employees of the Company and the Property Manager, and will vest ratably over a
five-year period. The vesting of this initial Deferred Stock award is based only
on service and will not depend on the Company's financial performance.
Long-Term Incentive Deferred Stock Awards. The second and more significant
component of the Company and the OP's long-term compensation proposal is a
Deferred Stock grant for which vesting is tied to the attainment of annual and
cumulative targets for growth in the Company's funds from operations ("FFO") per
share (which is substantially equivalent to cash generated before debt
repayments and capital expenditures, including peripheral land sales) after
adjusting for a reserve (not to exceed a specified amount) set annually to cover
tenant allowances and the use of floating rate debt through 1998. This long-term
incentive Deferred Stock grant includes senior management and approximately 130
key employees of the Property Manager. Any Deferred Stock award earned upon
attainment of an annual and cumulative growth target will be distributed over
the three-year period subsequent to the period that the award was earned,
provided the employee remains in the employ of the Company or the Property
Manager. Deferred Stock awarded to employees over the three-year period will be
unrestricted.
The awards eligible to be earned in any given year will be earned only if
the annual and cumulative adjusted FFO per share growth target for such year is
reached. As defined, the adjusted FFO per share growth target from the current
adjusted FFO base was $1.54 in 1995 and increases 7% for each year ending
December 31, 1996 through 1998. The percentage of the total Deferred Stock award
eligible to be earned upon attainment of these targets is 10% for 1994, 15% for
1995, 20% for 1996, 25% for 1997 and 30% for 1998. The following table provides
the adjusted FFO target for award of the Common Stock reserved for issuance
under the Stock Incentive Plan.
136
<PAGE> 174
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
LONG-TERM INCENTIVE DEFERRED STOCK AWARD TARGETS
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED GROWTH CUMULATIVE GROWTH TARGET FFO PER SHARE
DECEMBER 31, TARGET FROM PLAN INCEPTION GROWTH TARGET
------------------------ ------ ------------------------ -------------
<S> <C> <C> <C>
1996................. 7.0% 16.8% $1.65
1997................. 7.0% 25.0% $1.77
1998................. 7.0% 33.7% $1.89
</TABLE>
If the annual target is not met, the percentage of the award attributable
to that annual target may be earned in a subsequent year if the cumulative
growth target is met including the shortfall in the prior year(s). The
Compensation Committee of the Company's Board of Directors has the right to make
partial awards if targets are not met.
At December 31, 1995, approximately 2,672,300 shares of the total 3,100,000
shares of Common Stock reserved for issuance under the Stock Incentive Plan were
allocated among senior management and approximately 130 key employees in
connection with the long-term incentive award. The remaining shares have been
held for future allocations under the stock incentive plan to both current and
future employees. The Compensation Committee has discretion to waive the
additional three-year employment requirement upon certain terminations of
employment (e.g., retirement, death, disability or termination without cause).
The awards vest over a period of eight years, with the majority vesting in the
fourth through eighth years after the IPO.
The OP did not meet the FFO growth target in 1995; accordingly, the
financial statement reflects expense of $210 relating to the vested portion of
the 70,696 shares under the Deferred Stock plan. The OP achieved its 1994 FFO
target and accordingly expensed $3,848 relating to 245,200 shares awarded under
the long-term incentive deferred stock plan and $210 relating to the 1994 vested
portion of the Deferred Stock award.
Stock Option Plan:
The Company and the OP has a stock option plan in place covering each
Director of the Company who is not otherwise an employee of the Company or any
of its subsidiaries or affiliates. Each such Director, upon joining the
Company's Board of Directors, received an initial grant of Options to purchase
1,000 shares of Common Stock having an exercise price equal to 100% of the fair
market value of the Common Stock as of such date. Commencing on December 31,
1994, and on each December 31st thereafter, each Director also will
automatically receive an annual grant of options to purchase 500 shares of
Common Stock having an exercise price equal to 100% of the fair market value of
the Common Stock at the date of grant of such Option. The options can be
exercised any time during the ten years after grant.
NOTE 13 -- GAIN ON SALE OF ASSETS
During 1995, the OP has recognized a $3,750 gain from the sale of a
partnership interest in an undeveloped mall site located in Strongsville, Ohio,
which was acquired in 1994 from the DeBartolo Group through the exercise of an
option for $6,250 and immediately sold. The remaining gains primarily represent
the sale of land adjacent to three properties.
NOTE 14 -- EXTRAORDINARY ITEM
The extraordinary charge in 1995 resulted from prepayment penalties of
$3,390 and the write-off of unamortized deferred financing costs of $7,877
related to the early retirement of mortgage notes payable. The
137
<PAGE> 175
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
extraordinary item in 1994 resulted from prepayment penalties and the write-off
of unamortized deferred financing costs related to the satisfaction of mortgage
notes payable in connection with the OP's reorganization.
NOTE 15 -- CONTINGENT LIABILITIES
Certain of the properties are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the properties believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the
consolidated financial statements.
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the OP's financial position or results of operations.
Management is unaware of any instances in which it would incur significant
environmental costs if any or all properties were sold, disposed of or
abandoned.
NOTE 16 -- SUBSEQUENT EVENTS
The OP transferred ownership of one property to its lender, as of March 1,
1996, fully satisfying the property's mortgage note payable. This property no
longer met the OP's criteria for its ongoing strategic plan. The OP will
recognize an extraordinary gain on this transaction of approximately $8.0
million in the first quarter of 1996.
On January 31, 1996, the Property Manager was assigned a 33% partnership
interest in one of the nonconsolidated joint ventures and a 25% partnership
interest in another nonconsolidated joint venture from an unrelated joint
venture partner. As a result, the OP effectively owns 65% and 74% of these joint
ventures.
NOTE 16.1 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S
REPORT
The Company entered into an Agreement and Plan of Merger, dated as of March
26, 1996 (the "Agreement"), among Simon Property Group, Inc., a Maryland
corporation ("SPG"), its merger subsidiary and the Company, pursuant to which
the Company agreed to merge with the merger subsidiary. The Agreement provides
for the exchange of all outstanding Company common stock for SPG common stock,
$0.0001 par value (the "SPG Common Stock"), at an exchange ratio of 0.68 shares
of SPG Common Stock for each share of Company common stock. The merger is
subject to the approval of shareholders of both SPG and the Company and other
conditions. The new entity will be renamed Simon DeBartolo Group, Inc.
138
<PAGE> 176
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 17 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
DEBARTOLO REALTY PARTNERSHIP, L.P.
------------------------------------------------
JANUARY 1 APRIL 1 JULY 1 OCTOBER 1
TO TO TO TO
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating Data:
Total revenues.................... $79,229 $81,223 $ 84,099 $88,106
Income before extraordinary
items.......................... 11,739 9,826 13,343 11,435
Extraordinary items............... -- -- (5,629) (5,638)
------- ------- ------- -------
Net income........................ $11,739 $ 9,826 $ 7,714 $ 5,797
======= ======= ======= =======
Earning Per Unit Data:
Income before extraordinary
items.......................... $ 0.14 $ 0.12 $ 0.15 $ 0.12
Extraordinary items............... -- -- (0.07) (0.06)
------- ------- ------- -------
Net income........................ $ 0.14 $ 0.12 $ 0.08 $ 0.06
======= ======= ======= =======
Cash Dividends Per Unit............. $ 0.315 $ 0.315 $ 0.315 $ 0.315
======= ======= ======= =======
Weighted Average Units
Outstanding....................... 83,150 83,150 84,567 89,150
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994
DEBARTOLO REALTY PARTNERSHIP, L.P.
-------------------------------------
APRIL 21 JULY 1 OCTOBER 1
TO TO TO
JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------------ -----------
<S> <C> <C> <C>
Operating Data:
Total revenues............................. $ 61,227 $ 80,412 $87,304
Income before extraordinary items.......... 5,123 10,519 12,026
Extraordinary items........................ (8,932) -- --
------- ------- -------
Net income......................... $ (3,809) $ 6,180 $12,026
======= ======= =======
Earning Per Unit Data:
Income before extraordinary items.......... $ 0.06 $ 0.13 $ 0.15
Extraordinary items........................ (0.11) -- --
------- ------- -------
Net income (loss).................. $ (0.05) $ 0.13 $ 0.15
======= ======= =======
Cash Dividends Per Unit...................... $ 0.245 $ 0.315 $ 0.315
Weighted Average Units Outstanding........... 81,590 82,906 82,908
</TABLE>
NOTE 18 -- UNAUDITED PRO FORMA FINANCIAL INFORMATION
As a result of the IPO and the related transactions entered into in
connection with the formation of the Company and the OP, 1994 historical results
of operations and earnings per unit may not be indicative of future results of
operations and earnings per share. This unaudited Pro Forma Condensed
Consolidated Statement of Operations assumed that the Company qualifies as a
real estate investment trust for federal income tax purposes and also assumed
(i) completion of the asset contributions in the formation of the Company; (ii)
the completion of the IPO, including the exercise of the underwriters
over-allotment option and the Securitized Debt Financing; (iii) the completion
of debt exchange transactions with BJS Capital
139
<PAGE> 177
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Partners, L.P. and MS Youngstown General Partnership; (iv) the contribution by
JCP Realty, Inc. and the EJDC employees of their interests in certain DeBartolo
Properties; and (v) the completion of certain refinancings of mortgage
indebtedness of the DeBartolo Properties (collectively defined as the "REIT
Formation") as of the beginning of 1994. In management's opinion, all necessary
adjustments to reflect the effects of these transactions have been made as of
January 1, 1994.
The unaudited Pro Forma Condensed Statement of Operations is not
necessarily indicative of what actual results of operations of the OP would have
been assuming such transactions had been completed at January 1, 1994, nor does
it purport to represent the results of operations of future periods.
The following is the DeBartolo Realty Partnership, L.P. Pro Forma Condensed
Consolidated Statement of Operations for the twelve months ended December 31,
1994:
<TABLE>
<CAPTION>
DEBARTOLO
DEBARTOLO REALTY
DEBARTOLO DEBARTOLO REALTY PARTNERSHIP, L.P.
RETAIL GROUP RETAIL GROUP PARTNERSHIP, L.P. FOR THE TWELVE
JANUARY 1, 1994 TO PRO FORMA APRIL 21, 1994 TO MONTHS ENDED
APRIL 20, 1994(A) ADJUSTMENTS DECEMBER 31, 1994 DECEMBER 31, 1994
-------------------- ------------ ----------------- -----------------
(DOLLARS IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
Revenues(B)....................... $ 95,272 $ 1,125 $ 228,943 $ 325,340
Shopping center expenses(C)....... 35,648 500 80,635 116,783
Deferred stock compensation
expense......................... -- -- 4,058 4,058
Interest expense(D)............... 44,119 (7,316) 87,040 123,843
Depreciation and amortization..... 16,616 -- 39,578 56,194
------- ------- -------- --------
96,383 (6,816) 211,311 300,878
------- ------- -------- --------
Gain on sale of assets (primarily
land)........................... 3,286 -- 1,952 5,238
Income from nonconsolidated joint
ventures(E)..................... 842 2,033 7,554 10,429
Minority partners' interest in
consolidated joint
ventures(F)..................... 888 (977) 530 441
------- ------- -------- --------
Income before extraordinary
items........................ 3,905 8,997 27,668 40,570
Extraordinary item -- loss on
early extinguishment of debt.... -- -- (8,932) (8,932)
------- ------- -------- --------
Net income.............. $ 3,905 $ 8,997 $ 18,736 $ 31,638
======= ======= ======== ========
Pro forma earnings per unit (based
upon pro forma weighted average
units outstanding)
Income before extraordinary
items........................... $ 0.49
Extraordinary loss on early
extinguishment of debt.......... (0.11)
--------
Net Income.............. $ 0.38
========
</TABLE>
140
<PAGE> 178
DEBARTOLO REALTY PARTNERSHIP, L.P. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND
DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
- ---------------
(A) The pro forma adjustments reflect the historical combined operations of the
Predecessor to the OP (the "DeBartolo Retail Group") for the period from
January 1, 1994 through April 20, 1994.
(B) Represents pro forma impact of the Property Manager. The OP accounts for
its investment in the Property Manager on the equity basis of accounting.
Pro forma adjustments also include interest income on $60,000 of cash from
the REIT Formation from January 1, 1994 through April 20, 1994.
(C) The pro forma adjustment reflects the elimination of certain taxes
associated with the change of ownership structure from a corporation to a
partnership. The pro forma adjustments also reflect the Company's prorated
share of estimated annual cost of $2,000 associated with operating as a
public company.
(D) Reflects the reduction of interest expense associated with the reduction of
debt and restructuring resulting from the IPO and related transactions.
(E) The pro forma adjustment reflects the changes in ownership interest,
structure, and refinancing of debt in the nonconsolidated joint ventures
which are recorded on the equity method.
(F) Increase reflects the minority partners' share of the net effect of the
REIT Formation.
141
<PAGE> 179
REPORT OF INDEPENDENT AUDITORS
To the Partners of
DeBartolo Realty Partnership, L.P.
We have audited the accompanying combined balance sheets of the
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. as of
December 31, 1995 and 1994 and the related combined statements of operations,
accumulated deficit and cash flows for the year ended December 31, 1995 and for
the period from April 21, 1994 to December 31, 1994 and the combined statements
of operations, accumulated deficit and cash flows of the Uncombined Joint
Ventures of DeBartolo Retail Group as described in Note 1 for the period January
1, 1994 to April 20, 1994 and for the year ended December 31, 1993. These
financial statements are the responsibility of DeBartolo Realty Partnership,
L.P.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a best basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Nonconsolidated Joint Ventures of DeBartolo Realty Partnership, L.P. at December
31,1995 and 1994 and the combined results of their operations and their cash
flows for the year ended December 31, 1995 and for the period April 21, 1994 to
December 31, 1994, and the combined results of operations and cash flows of the
Uncombined Joint Ventures of DeBartolo Retail Group for the period January 1,
1994 to April 20, 1994 and for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 14, 1996
142
<PAGE> 180
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Investment properties (Notes 3 and 5).................................. $784,211 $767,345
Less accumulated depreciation........................................ 184,977 162,839
-------- --------
599,234 604,506
Cash and cash equivalents.............................................. 5,507 6,043
Restricted cash........................................................ 2,089 2,016
Accounts receivable, net of allowance for doubtful accounts of $2,883
and $2,718, in 1995 and 1994......................................... 17,506 18,321
Deferred charges and prepaid expenses (Note 4)......................... 17,992 20,627
-------- --------
$642,328 $651,513
======== ========
LIABILITIES AND ACCUMULATED EQUITY (DEFICIT)
Liabilities:
Mortgages and notes payable (Note 5)................................. $584,495 $592,990
Accounts payable and accrued expenses................................ 14,113 12,217
Affiliate payables (Note 8).......................................... 76,436 72,965
-------- --------
675,044 678,172
======== ========
Commitments and contingencies (Notes 5, 6, 7, and 9)................... -- --
Accumulated deficit.................................................... (32,716) (26,659)
-------- --------
$642,328 $651,513
======== ========
Accumulated equity (deficit):
DeBartolo Realty Partnership, L.P.................................... $(32,896) $(30,412)
Outside partners..................................................... 180 3,753
-------- --------
$(32,716) $(26,659)
======== ========
</TABLE>
See accompanying notes.
143
<PAGE> 181
NONCONSOLIDATED JOINT VENTURES OF DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DEBARTOLO REALTY
PARTNERSHIP, L.P. DEBARTOLO RETAIL GROUP
------------------------- ----------------------------
APRIL 21, JANUARY 1,
TO TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
-------- ------------ --------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues (Note 8):
Minimum rents........................... $ 89,727 $ 60,978 $26,101 $ 80,971
Tenant recoveries....................... 44,293 30,967 12,709 40,589
Percentage rents........................ 6,058 4,833 1,406 7,932
Other................................... 12,853 9,252 2,420 8,233
-------- -------- ------- --------
Total revenues 152,931 106,030 42,636 137,725
-------- -------- ------- --------
Expenses:
Shopping Center Expenses:
Property operating................... 14,381 10,178 4,247 13,289
Repairs and maintenance.............. 12,065 7,888 3,437 11,563
Real estate taxes.................... 18,630 13,052 5,185 16,898
Advertising and promotion............ 4,972 3,307 684 3,904
Management fees to affiliate (Note
8)................................. 4,984 3,377 1,545 4,731
Provision for doubtful accounts...... 997 276 496 1,078
Ground leases (Note 7)............... 130 88 37 125
Other................................ 1,209 1,612 461 812
-------- -------- ------- --------
Total shopping center
expenses...................... 57,368 39,778 16,092 52,400
Interest expense.......................... 57,561 37,038 15,942 58,615
Depreciation and amortization............. 24,078 16,351 6,885 22,307
-------- -------- ------- --------
139,007 93,167 38,919 133,322
-------- -------- ------- --------
Gain (loss) on sale of assets............. 166 1,196 (1) 1,380
Income before extraordinary item.......... 14,090 14,059 3,716 5,783
Extraordinary item (Note 10).............. (425) (388) -- --
-------- -------- ------- --------
Net income...................... $ 13,665 $ 13,671 $13,716 $ 5,783
======== ======== ======= ========
</TABLE>
See accompanying notes.
144
<PAGE> 182
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF ACCUMULATED DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1992...................................................... $ 1,843
Contributions..................................................................... 6,258
Distributions..................................................................... (31,040)
Net income........................................................................ 5,783
--------
Balance at December 31, 1993...................................................... (17,156)
Contributions..................................................................... 4,398
Distributions..................................................................... (11,532)
Net income........................................................................ 3,716
--------
Balance at April 20, 1994......................................................... (20,574)
Contributions..................................................................... 1,279
Distributions..................................................................... (21,035)
Net income........................................................................ 13,671
--------
Balance at December 31, 1994...................................................... (26,659)
Contributions..................................................................... 9,097
Distributions..................................................................... (28,819)
Net income........................................................................ 13,665
--------
Balance at December 31, 1995...................................................... $(32,716)
========
</TABLE>
See accompanying notes.
145
<PAGE> 183
NONCONSOLIDATED JOINT VENTURES OF DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DEBARTOLO REALTY
PARTNERSHIP, L.P. DEBARTOLO RETAIL GROUP
------------------------- --------------------------
APRIL 21, TO JANUARY 1, TO
DECEMBER 31, APRIL 20,
1995 1994 1994 1993
-------- ------------ ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................... $ 13,665 $ 13,671 $ 3,716 $ 5,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of financing costs included in
interest expense............................... 1,941 1,184 367 877
(Gain) loss on sale of assets.................... (166) (1,196) 1 (1,380)
Depreciation and amortization.................... 24,078 16,351 6,885 22,307
Extraordinary items.............................. 425 388 -- --
(Increase) decrease in restricted cash........... (73) 699 (1,548) (1,168)
(Increase) decrease in accounts receivable....... 815 (3,899) 767 (3,568)
Decrease (increase) in prepaid expenses and
other.......................................... 39 2,007 (2,001) (175)
Increase (decrease) in accounts payable and
accrued expenses............................... 1,012 (5,881) 6,322 3,405
Other............................................ -- 139 459 --
Net Cash Provided By Operating Activities........ 41,736 23,463 14,968 26,081
Cash Flows From Investing Activities:
Additions to investment properties.................. (9,750) (24,524) (1,961) (9,270)
Additions to lease costs............................ (1,268) (701) (156) (1,170)
Proceeds from sale of land.......................... 193 1,407 1 1,560
Net Cash Used In Investing Activities............ (10,825) (23,818) (2,116) (8,880)
Cash Flows From Financing Activities:
Proceeds from issuance of debt...................... -- 19,667 4,445 88,300
Scheduled principal payments on mortgages........... (3,004) (1,888) (871) (2,443)
Other payments on debt.............................. (5,491) (48,167) -- (84,327)
Loan costs paid..................................... (126) (8,889) (320) (2,573)
Capital contributions............................... 2,522 1,279 4,398 6,258
Partner distributions............................... (28,819) (21,036) (11,532) (31,040)
(Increase) decrease in affiliate receivables (net of
affiliated payables)............................. 3,471 56,962 (2,508) 9,987
Net Cash Used in Financing Activities............ (31,447) (2,072) (6,388) (15,838)
Net Increase (Decrease) In Cash and Cash
Equivalents.................................... (536) (2,427) 6,464 1,363
Cash and Cash Equivalents:
Beginning of year................................... 6,043 8,470 2,006 643
End of year......................................... $ 5,507 $ 6,043 $ 8,470 $ 2,006
Supplemental Information:
Interest paid....................................... $ 56,125 $ 36,032 $ 15,319 $ 55,894
Supplemental Schedule of Non-Cash and Financing
Activities:
Step-up in basis associated with the acquisition of
partnership interests in three properties........ $ 6,734 $ -- $ -- $ --
</TABLE>
See accompanying notes
146
<PAGE> 184
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
DeBartolo Realty Partnership, L.P. (the "Operating Partnership" or "OP")
was formed as a Delaware limited partnership in 1993 in connection with
DeBartolo Realty Corporation's (the "Company") initial public offering (the
"IPO"). The OP owns 50% or less of twelve joint ventures and accounts for its
investment in these joint ventures under the equity method. Prior to April 21,
1994, each of these joint ventures were owned 50% or less by The Edward J.
DeBartolo Corporation ("EJDC") and certain affiliates.
The accompanying combined financial statements of the nonconsolidated joint
ventures of DeBartolo Realty Partnership, L.P. and uncombined joint ventures of
DeBartolo Retail Group consist of the assets, liabilities and results of
operations identified with the joint ventures which are owned 50% or less by the
OP.
The transaction relating to the acquisition of the investments in joint
ventures is accounted for as a reorganization of entities under common control
and accordingly the assets and liabilities of all combined joint ventures will
be carried forward at historical cost.
In conjunction with the IPO, the OP received options to acquire the
interests of the estate of Edward J. DeBartolo and other members of his family
and affiliates in three nonconsolidated joint ventures. On July 1, 1995, the OP
exercised these options and acquired a 12.8% interest in Miami International
Mall, and 0.1% interests in Coral Square and Lakeland Square. The purchase price
of approximately $6.7 million was payable in limited partnership interests in
the OP.
The joint ventures included in these combined financial statements and the
OP's and DeBartolo Retail Group's ownership interest in each are as follows:
<TABLE>
<CAPTION>
OP'S PERCENTAGE
OWNERSHIP AT
VENTURE PROPERTY DECEMBER 31, 1995
- -------------------------------------- ------------------------- -----------------
<S> <C> <C>
Aventura Mall Venture Aventura Mall 33.3%
Biltmore Square Associates Biltmore Square 33.3%
Century III Associates Century III Mall 50.0%
Chesapeake-JCP Associates, Ltd. Chesapeake Square 50.0%
Coral-CS/LTD Associates Coral Square 50.0%
Florida Mall Associates The Florida Mall 50.0%
HD Lakeland Mall Joint Venture Lakeland Square 50.0%
Jacksonville Avenues Limited
Partnership The Avenues 25.0%
Northfield Center Limited Partnership Northfield Square 31.6%
Palm Beach Mall (A Tenancy in Common) Palm Beach Mall 50.0%
Philadelphia Center Associates Great Northeast Plaza 50.0%
West Dade County Associates Miami International Mall 50.0%
</TABLE>
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Properties:
Investment properties are stated at cost less accumulated depreciation,
which in the opinion of management is not in excess of net realizable value.
Costs incurred for the acquisition, development, construction and improvement of
properties, including significant renovations, are capitalized. Interest costs
147
<PAGE> 185
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
and real estate taxes incurred with respect to qualified expenditures relating
to the construction of assets are capitalized during the development period.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Depreciation and Amortization:
The cost of buildings, improvements and equipment are depreciated on the
straight-line method over estimated useful lives, as follows:
Buildings -- 30 to 40 years
Improvements -- shorter of lease term or useful life
Equipment -- 3 to 10 years
Tenant allowances paid to tenants for construction are capitalized and
amortized over the terms of each specific lease. Maintenance and repairs are
charged to expense when incurred.
Deferred Charges:
Deferred charges consist principally of financing costs and leasing
commissions which are amortized over the terms of the respective agreements.
Capitalized Interest:
Interest is capitalized on projects during the construction period.
Interest capitalized was $708 in 1995, $798 from April 21, 1994 to December 31,
1994, and $24 for the period January 1, 1994 to April 20, 1994. No interest was
capitalized during 1993.
Cash and Cash Equivalents:
Highly liquid investments with maturities of three months or less are
considered cash equivalents.
Restricted Cash:
Restricted cash is being restricted primarily for payment of expenditures
for improvements relating to a shopping center.
Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of financial instruments:
The fair value of cash and cash equivalents and restricted cash
approximate the carrying value due to the short term nature of these
instruments.
The fair value of the fixed rate mortgages and notes payable is based
on current rates available to the OP for debt of similar terms. Fair value
of variable rate debt is considered to be the carrying amount.
148
<PAGE> 186
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Revenue Recognition:
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method over the terms of
leases. Percentage rents are recognized on an accrual basis as earned. Real
estate tax and operating expense recoveries are recognized in the period the
applicable costs are incurred.
Income Taxes:
The allocable share of the taxable income or loss of the joint ventures is
includable in the income tax returns of the partners; accordingly, income taxes
are not reflected in the combined financial statements.
Impact of Recently Issued Accounting Standards:
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The OP will adopt Statement 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
NOTE 3 -- INVESTMENT PROPERTIES
Investment properties consist of shopping center properties, including
peripheral land and properties under development. Investment properties are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Land................................................... $ 80,670 $ 79,651
Shopping center buildings, improvements and
equipment............................................ 697,058 684,412
Properties under expansion/renovation.................. 6,336 3,107
Peripheral land parcels................................ 147 175
-------- --------
784,211 767,345
Accumulated depreciation............................... 184,977 162,839
-------- --------
Total investment properties.................. $599,234 $604,506
======== ========
</TABLE>
Peripheral land parcels primarily consist of undeveloped land parcels
adjacent to certain shopping centers.
Depreciation expense totaled $22,283 in 1995; $14,982 from April 21, 1994
to December 31, 1994; $6,395 for the period January 1, 1994 to April 20, 1994
and $20,706 for 1993.
149
<PAGE> 187
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- DEFERRED CHARGES AND PREPAID EXPENSES
Deferred charges and prepaid expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Lease costs net of accumulated amortization of $10,836
and $10,242 in 1995 and 1994, respectively............. $ 7,996 $ 8,343
Loan costs net of accumulated amortization of $3,285 and
$3,834 in 1995 and 1994, respectively.................. 3,319 3,887
Interest rate buydowns, net of accumulated amortization
of $2,068 and $904 in 1995 and 1994, respectively...... 6,101 7,811
Prepaid expenses and other............................... 576 586
------- -------
$17,992 $20,627
======= =======
</TABLE>
Lease cost amortization totaled $1,795 in 1995; $1,369 from April 21, 1994
to December 31, 1994; $490 for the period January 1, 1994 to April 20, 1994; and
$1,601 in 1993.
Amortization of loan costs and interest rate buydowns totaled $1,941 in
1995; $1,184 from April 21, 1994 to December 31, 1994; $367 for the period
January 1, 1994 to April 20, 1994; and $877 in 1993.
NOTE 5 -- MORTGAGES AND NOTES PAYABLE
Mortgage debt, which is collateralized by substantially all investment
properties, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Primarily first mortgages with fixed interest rates
ranging from 6.0% to 9.52% (average of 7.6%) at
December 31, 1995, due at various dates through
2003................................................. $401,595 $408,890
First mortgages with variable interest rates (average
of 7.03% at December 31, 1995) due at various dates
through 1998......................................... 107,900 109,100
Commercial paper secured by a first mortgage due to an
affiliate of EJDC on a property under a 10 year
credit facility through 1998 (effective rate
including original issue discount at December 31,
1995 of 7.11%)....................................... 75,000 75,000
-------- --------
Total Mortgages and Notes Payable............ $584,495 $592,990
======== ========
</TABLE>
150
<PAGE> 188
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The OP's proportionate share of the mortgages and notes payable are as
follows as of December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
DeBartolo Realty Partnership, L.P...................... $249,535 $246,365
Outside partners....................................... 334,960 346,625
-------- --------
$584,495 $592,990
======== ========
</TABLE>
Annual principal payments and maturities are as follows as of December 31,
1995:
<TABLE>
<CAPTION>
OP'S
TOTAL SHARE
-------- --------
<S> <C> <C>
1996................................................... $ 28,873 $ 12,880
1997................................................... 6,214 2,445
1998................................................... 178,510 72,319
1999................................................... 3,795 1,608
2000................................................... 80,854 35,799
Thereafter............................................. 286,249 124,484
-------- --------
$584,495 $249,535
======== ========
</TABLE>
A lender on two properties is entitled to receive in addition to any
amounts due pursuant to the terms of the loan, 33 1/3% of net sales or
refinancing proceeds as defined upon sale or refinancing of the properties.
DeBartolo Realty Partnership, L.P. has guaranteed $21,726 of the mortgages
and notes payable relating to three nonconsolidated joint ventures. An affiliate
of EJDC continues to provide a guarantee of 33 1/3% of the debt service
obligation on a $100 million floating rate mortgage at one of the joint
ventures. The OP has agreed to indemnify the EJDC affiliate for any loss or
costs incurred or associated with this guaranty.
Fair Value of Debt Related Financial Instruments:
The estimated fair value of financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER, 1995 DECEMBER, 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Fixed rate mortgages and notes payable........ $401,595 $ 415,563 $408,890 $ 366,041
Variable rate mortgages and notes payable..... 182,900 182,900 184,100 184,100
-------- -------- -------- --------
$584,495 $ 598,463 $592,990 $ 550,141
======== ======== ======== ========
</TABLE>
151
<PAGE> 189
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- RENTALS UNDER OPERATING LEASES
The properties receive rental income from the leasing of retail shopping
center space under operating leases that expire at various dates through 2020.
Substantially all investment property is leased out under operating leases. The
minimum future rentals based on operating leases held are as follows as of
December 31, 1995:
<TABLE>
<CAPTION>
LEASES
WITH RELATED
ALL LEASES PARTIES(1)
---------- ------------
<S> <C> <C>
1996................................................. $ 83,243 $ 3,009
1997................................................. 77,076 2,989
1998................................................. 71,221 2,762
1999................................................. 64,362 2,762
2000................................................. 56,124 2,762
Thereafter........................................... 201,102 15,060
-------- --------
$ 553,128 $ 29,344
======== ========
</TABLE>
- ---------------
(1) Represents stores whose parent company also owns units of the OP or stores
whose chief executive officers are on the Board of Directors of the Company.
Minimum future rentals do not include amounts which may be received under
the terms of certain leases based upon a percentage of the tenants' sales or as
reimbursement of shopping center expenses.
No single tenant or group of affiliated tenants collectively accounts for
more than 10% of the combined properties total revenues which include minimum
rents, tenant recoveries, percentage rents and other revenue. The tenant base
includes national and regional retail chains and local retailers and
consequently the combined properties credit risk is concentrated in the retail
industry.
The revenues of the joint ventures may be adversely affected by the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise. At December 31, 1995, leases (excluding rejected leases) of mall
store tenants of the joint ventures open and operating in bankruptcy comprise
approximately 5.1% of mall gross leasable area ("GLA"). Annual rentals paid by
these Mall Store tenants comprised 5.0% of minimum rents paid by mall store
tenants. Substantially all of these tenants are currently meeting their
contractual obligations. At the time a tenant files for bankruptcy protection it
is difficult to determine to what extent these tenants will reject their leases
or seek other concessions as a condition to continued occupancy. The OP expects
certain of these tenants to reject their leases. Based on past experience, the
OP has been able to offset, over a reasonable period of time, the impact on
minimum rents caused by a tenant in bankruptcy.
152
<PAGE> 190
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- GROUND LEASES
One joint venture, as lessee, has a ground lease expiring in 2012.
Following is a schedule of future minimum rental payments required under this
ground lease as of December 31, 1995:
<TABLE>
<S> <C>
1996................................................ $ 120
1997................................................ 120
1998................................................ 120
1999................................................ 120
2000................................................ 120
Thereafter.......................................... 1,380
------
$1,980
======
</TABLE>
NOTE 8 -- TRANSACTIONS WITH AFFILIATES
Management and Other Fees: The Property Manager, an affiliate of the OP,
has contracted to provide management, leasing, development and construction
management services to the joint ventures. One joint venture is managed by a
partner in that joint venture who is unrelated to the OP. Amounts included in
the nonconsolidated financial statements related to agreements with the Property
Manager are as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 21, 1994 JANUARY 1, 1994
DECEMBER 31, TO DECEMBER 31, TO APRIL 20, DECEMBER 31,
1995 1994 1994 1993
------------ --------------- --------------- ------------
<S> <C> <C> <C> <C>
Management fees...................... $4,075 $ 2,871 $ 1,353 $4,271
Leasing fees......................... 986 550 156 1,117
Development and Construction......... 969 802 312 589
Other Reimbursements................. 119 163 55 302
</TABLE>
Insurance: The joint ventures have first dollar commercial general
liability coverage and special cause of loss property insurance with a $5
deductible. Prior to 1995 the joint ventures' insurance carrier reinsured
certain coverages with an affiliate of EJDC. Charges to the joint ventures for
the reinsured amounts totaled $936 from April 21, 1994 to December 31, 1994.
Prior to April 21, 1994, the joint ventures had first dollar commercial general
liability insurance of which an affiliated insurance company reinsured the first
$250 per occurrence. Additionally, the joint ventures had "All Risk" Property
insurance. The insurance company reinsured the first $95 per occurrence with an
affiliate of EJDC. Charges for the reinsured amounts totaled $371 for the period
January 1, 1994 to April 20, 1994 and $1,074 for 1993.
Affiliate Leases: On November 6, 1995, Fun-N-Games, an affiliate of EJDC
which operated amusement centers in the joint venture properties, was sold to an
independent third party operator who continues to operate these stores. The
joint ventures recorded total revenues and operating expense reimbursements of
$559 through November 6, 1995; $504 from April 21, 1994 to December 31, 1994;
$254 for the period from January 1, 1994 to April 20, 1994 and $725 for 1993.
Affiliates of certain anchor tenants and small shops in various properties
are partners in those properties or are partners in the Operating Partnership.
As of December 31, 1995, these tenants own or lease space in 10 properties.
These properties recorded rental income and operating expense reimbursements of
$3,451 in 1995; $3,223 from April 21, 1994 to December 31, 1994; $1,443 for the
period January 1, 1994 to April 20, 1994 and $4,320 in 1993.
153
<PAGE> 191
NONCONSOLIDATED JOINT VENTURES OF
DEBARTOLO REALTY PARTNERSHIP, L.P.
AND UNCOMBINED JOINT VENTURES OF DEBARTOLO RETAIL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Affiliate Payables: At December 31, 1995, affiliate payables represent
amounts due to the Property Manager for normal monthly operating costs and
advances from DeBartolo Realty Partnership, L.P. Concurrent with the offering,
net affiliate payables, which were primarily non-interest bearing, were
distributed to EJDC. Interest expense including interest charged to properties
by affiliates of venturers totaled $6,689 in 1995; $7,681 from April 21, 1994 to
December 31, 1994; $1,976 for the period from January 1, 1994 to April 20, 1994
and $6,098 in 1993.
NOTE 9 -- CONTINGENT LIABILITIES
Certain of the properties are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the properties believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the combined
financial statements.
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the OP's financial position or results of operations.
Management is unaware of any instances in which it would incur significant
environmental costs if any or all properties were sold, disposed of or
abandoned.
NOTE 10 -- EXTRAORDINARY ITEM
The extraordinary charge in 1995 represents the write-off of unamortized
deferred financing costs of $425 relating to the partial paydown of mortgage
debt of one property. The extraordinary charge in 1994 resulted from prepayment
penalties and the write-off of unamortized deferred financing costs related to
the satisfaction of mortgage notes payable.
NOTE 11 -- SUBSEQUENT EVENT
On January 31, 1996, the Property Manager was assigned a 33% partnership
interest in one of the nonconsolidated joint ventures and a 25% partnership
interest in another nonconsolidated joint venture from an unrelated joint
venture partner.
154
<PAGE> 192
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE OPERATING PARTNERSHIP OR THE AGENTSS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS NOR
ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE OPERATING
PARTNERSHIP SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors........................... S-3
Description of Notes................... S-4
Special Provisions Relating to Foreign
Currency Notes....................... S-24
Certain United States Federal Income
Tax Consideratoins................... S-27
Plan of Distribution................... S-35
Legal Matters.......................... S-37
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
The Operating Partnership.............. 4
The Merger............................. 6
Use of Proceeds........................ 8
Ratio of Earnings to Fixed Charges..... 8
Description of Debt Securities......... 9
Plan of Distribution................... 19
Legal Matters.......................... 20
Experts................................ 20
Certain Information with respect to
Simon DeBartolo Group, L.P. ......... 21
Certain Information with respect to
Simon Property Group, L.P. .......... 49
Certain Information with respect to
DeBartolo Realty Partnership,
L.P. ................................ 108
</TABLE>
======================================================
======================================================
LOGO
$300,000,000
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC
CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
UBS SECURITIES
MAY 15, 1997
======================================================
