UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 33-98364
SIMON PROPERTY GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 35-1903854
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
115 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-1600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [X]
<PAGE> 01
SIMON PROPERTY GROUP, L.P.
FORM 10-Q
INDEX
Part I - Financial Information Page
Item 1: Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Consolidated Condensed Statements of
Operations for the three-month and six-month
periods ended June 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash
Flows for the six-month periods ended June
30, 1997 and 1996 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6
Item 2: Management's Discussion and
Analysis of Financial Condition and Results
of Operations 12
Part II - Other Information
Items 1 through 6 16
Signatures 17
<PAGE> 02
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per unit amounts)
June 30, December 31,
1997 1996
----------- -----------
ASSETS:
Investment properties, at cost $2,563,974 $2,467,779
Less _ accumulated depreciation 285,706 238,167
----------- -----------
2,278,268 2,229,612
Cash and cash equivalents 27,324 50,009
Restricted cash 28,539 0
Tenant receivables and accrued revenue, net 132,690 136,496
Notes and advances receivable from Management
Company 78,735 63,978
Investment in partnerships and joint ventures,
at equity 150,708 139,711
Deferred costs and other assets 138,349 129,665
Minority interest 9,602 9,712
----------- -----------
Total assets $2,844,215 $2,759,183
=========== ===========
LIABILITIES:
Mortgages and other indebtedness $2,141,302 $2,042,254
Advances from Simon DeBartolo Group, L.P. 339,338 259,382
Accounts payable and accrued expenses 115,482 113,027
Cash distributions and losses in partnerships
and joint ventures, at equity 19,054 17,106
Investment in Management Company and affiliates
16,610 18,519
Minority interest held by affiliates 67,235 12,128
Other liabilities 32,696 42,139
----------- -----------
Total liabilities 2,731,717 2,504,555
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY:
Preferred units, 4,000,000 units authorized,
issued and outstanding 99,923 99,923
General Partner, 958,429 units outstanding 169 1,601
Special Limited Partner, 95,356,834 units
outstanding 16,718 158,458
Unamortized restricted stock award (4,312) (5,354)
----------- -----------
Total partners' equity 112,498 254,628
----------- -----------
Total liabilities and partners' equity $2,844,215 $2,759,183
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 03
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per unit amounts)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- --------
REVENUE:
Minimum rent $ 87,521 $ 81,484 $174,010 $159,938
Overage rent 6,460 5,784 11,360 10,751
Tenant reimbursements 50,499 47,241 102,138 94,226
Other income 8,881 9,251 13,875 18,289
--------- --------- --------- ---------
Total revenue 153,361 143,760 301,383 283,204
--------- --------- --------- ---------
EXPENSES:
Property operating 26,460 25,759 53,836 50,606
Depreciation and amortization 27,321 26,635 53,794 51,307
Real estate taxes 15,170 14,535 30,411 28,364
Repairs and maintenance 5,315 5,468 11,868 12,541
Advertising and promotion 4,541 4,703 8,032 8,897
Provision for credit losses 904 254 2,192 1,751
Other 3,394 3,355 4,882 5,614
--------- --------- --------- ---------
Total operating expenses 83,105 80,709 165,015 159,080
--------- --------- --------- ---------
OPERATING INCOME 70,256 63,051 136,368 124,124
INTEREST EXPENSE 42,858 40,568 85,874 79,134
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST 27,398 22,483 50,494 44,990
MINORITY INTEREST (7,563) (672) (6,393) (1,175)
GAIN ON SALE OF ASSETS, NET (17) 0 20 0
--------- --------- --------- ---------
INCOME BEFORE UNCONSOLIDATED
ENTITIES 19,818 21,811 44,121 43,815
INCOME FROM UNCONSOLIDATED ENTITIES 1,387 2,157 3,161 3,985
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS 21,205 23,968 47,282 47,800
EXTRAORDINARY ITEMS (1,467) 0 (24,714) (265)
--------- --------- --------- ---------
NET INCOME 19,738 23,968 22,568 47,535
PREFERRED UNIT REQUIREMENT (2,032) (2,031) (4,063) (4,062)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO UNITHOLDERS $ 17,706 $ 21,937 $ 18,505 $ 43,473
========= ========= ========= =========
NET INCOME AVAILABLE TO UNITHOLDERS
ATTRIBUTABLE TO:
General Partner $ 177 $ 13,412 $ 185 $ 26,566
Limited Partners 17,529 8,525 18,320 16,907
--------- --------- --------- ---------
$ 17,706 $ 21,937 $ 18,505 $ 43,473
========= ========= ========= =========
EARNINGS PER UNIT:
Income before extraordinary items $ 0.20 $ 0.23 $ 0.45 $ 0.45
Extraordinary items (0.02) 0.00 (0.26) 0.00
--------- --------- --------- ---------
Net income $ 0.18 $ 0.23 $ 0.19 $ 0.45
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
<PAGE> 04
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
For the Six Months
Ended June 30,
-----------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- ----------
Net income $ 22,568 $ 47,535
Adjustments to reconcile net income to net cash
provided by operating activities_
Depreciation and amortization 57,618 55,303
Loss on extinguishments of debt 24,714 265
Gain on sale of assets, net (20) 0
Straight-line rent (103) 506
Minority interest 6,393 1,175
Equity in income of unconsolidated entities (3,161) (3,985)
Changes in assets and liabilities_
Tenant receivables and accrued revenue 4,951 5,889
Deferred costs and other assets (10,310) (3,171)
Accounts payable, accrued expenses and other
liabilities (6,986) (12,883)
---------- ----------
Net cash provided by operating activities 95,664 90,634
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition 0 (43,941)
Capital expenditures (96,818) (51,578)
Cash from consolidation of joint venture 0 1,695
Increase in restricted cash (28,539) 0
Proceeds from sale of assets 599 0
Investments in and advances to unconsolidated
entities (37,117) (9,123)
Distributions from unconsolidated entities 13,932 32,937
Other investing activity (5,400) 0
---------- ----------
Net cash used in investing activities (153,343) (70,010)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock, net 0 (62)
Minority interest distributions (17,013) (2,770)
Partnership distributions (100,137) (97,827)
Mortgage and other indebtedness proceeds, net
of transaction costs 435,798 230,085
Mortgage and other indebtedness principal
payments (342,610) (147,215)
Advances from affiliate 79,956 0
Other refinancing transaction (21,000) 0
---------- ----------
Net cash provided by (used in) financing
activities 34,994 (17,789)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (22,685) 2,835
CASH AND CASH EQUIVALENTS, beginning of period 50,009 62,721
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 27,324 $ 65,556
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 05
SIMON PROPERTY GROUP, L.P.
Notes to Unaudited Consolidated Condensed Financial Statements
(Dollars in thousands)
Note 1 - Organization
Simon DeBartolo Group, L.P. ("SDG, LP") is a subsidiary partnership of
Simon DeBartolo Group, Inc. (the "Company"), a self-administered and self-
managed real estate investment trust ("REIT"). Simon Property Group, L.P.
("SPG, LP" or the "Simon Operating Partnership") is a subsidiary partnership of
SDG, LP and of the Company. On August 9, 1996 (the "Merger Date"), the Company
acquired, through merger (the "Merger") the national shopping center business
of DeBartolo Realty Corporation ("DRC") (See Note 4). 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 June 30, 1997,
the Simon Operating Partnership owned or held an interest in 123 income-
producing properties, consisting of 63 regional malls, 53 community shopping
centers, three specialty retail centers, three mixed-use properties and one
value-oriented super-regional mall in 30 states (the "Properties"). The Simon
Operating Partnership also holds substantially all of the economic interest in
M.S. Management Associates, Inc. (the "Management Company") - (See Note 7.)
Note 2 - Basis of Presentation
The accompanying consolidated condensed financial statements are
unaudited; however, they have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring matters) necessary for a fair presentation of the consolidated
condensed financial statements for these interim periods have been included.
The results for the interim period ended June 30, 1997 are not necessarily
indicative of the results to be obtained for the full fiscal year. These
unaudited consolidated condensed financial statements should be read in
conjunction with the December 31, 1996 audited financial statements and notes
thereto included in the Simon Property Group, L.P. Annual Report on Form 10-K.
The accompanying consolidated condensed financial statements of the Simon
Operating Partnership include all accounts of the entities owned or controlled
by the Simon Operating Partnership. All significant intercompany amounts have
been eliminated. The accompanying consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles,
which requires management to make estimates and assumptions that affect the
reported amounts of the Simon Operating Partnership's assets, liabilities,
revenues and expenses during the reported periods. Actual results could differ
from these estimates.
Properties which are wholly-owned or owned less than 100% and are
controlled by the Simon Operating Partnership have been consolidated. The
Simon Operating Partnership's equity interests in certain partnerships and
joint ventures which represent noncontrolling 14.7% to 50.0% ownership
interests and the investment in the Management Company are accounted for under
the equity method of accounting. These investments are recorded initially at
cost and subsequently adjusted for net equity in income (loss) and cash
contributions and distributions.
Net operating results of the Simon Operating Partnership are allocated
after preferred distributions, based on its partners' remaining ownership
interests. The Company's remaining weighted average ownership interest in the
Simon Operating Partnership for the three-month periods ended June 30, 1997 and
1996 was 60.8% and 61.1%, respectively. The Company's remaining weighted
average ownership interest in the Simon Operating Partnership for the six-month
periods ended June 30, 1997 and 1996 was 60.8% and 61.1%, respectively. The
Company indirectly owned 60.8% of the Simon Operating Partnership as of June
30, 1997 and December 31, 1996.
<PAGE> 06
Note 3 - Reclassifications
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1997 presentation.
Note 4 -The Merger
On August 9, 1996, the Company acquired the national shopping center
business of DRC for an aggregate value of $3.0 billion. The acquired portfolio
consisted of 49 regional malls, 11 community centers and 1 mixed-use Property.
These Properties included 47,052,267 square feet of retail gross leasable area
("GLA") and 558,636 of office GLA. The Merger was accounted for using the
purchase method of accounting. Of these Properties, 40 regional malls, 10
community centers and the mixed-use Property are being accounted for using the
consolidated method of accounting. The remaining Properties are being
accounted for using the equity method of accounting, with the exception of one
regional mall, which is accounted for using the cost method of accounting. As a
result of the merger, the Simon Operating Partnership became a subsidiary of
SDG, LP with 99% of the profits allocable to SDG, LP and 1% of the profits
allocable to the Company. Cash flow allocable to the Company's 1% profit
interest in SPG, LP is absorbed by public company costs and related expenses
incurred by the Company.
It is currently expected that subsequent to the first anniversary of the
date of the Merger, reorganizational transactions will be effected so that SDG,
LP will directly own all of the assets and partnership interests now owned by
the Simon Operating Partnership. In connection therewith, the Simon Operating
Partnership transferred partnership interests in certain properties ranging
from 1.0% to 49.5% in the form of a distribution to the partners of the Simon
Operating Partnership, SDG, LP and the Company. The distribution of the
partnership interests in the certain properties has been reflected for
financial reporting purposes as of January 1, 1997. The distribution was
determined based on the historical cost value of the partnership interests
transferred, which aggregated $65,603. The interest in the properties now held
directly by SDG, LP and the Company was $67,235 as of June 30, 1997, and is
reflected as minority interest held by affiliates in the accompanying
consolidated condensed balance sheets. Earnings related to these minority
interests held by SDG, LP and the Company for the three-month and six-month
periods ended June 30, 1997 were $7,262 and $5,360, respectively.
Note 5 - Cash Flow Information
Cash paid for interest, net of amounts capitalized, during the six months
ended June 30, 1997 was $86,809, as compared to $75,908 for the same period in
1996. All accrued distributions had been paid as of June 30, 1997 and December
31, 1996.
Note 6 - Per Unit Data
Per unit data is based on the weighted average number of units of
partnership interest in the Simon Operating Partnership ("Units") outstanding
during the period. As used herein, the term Units does not include units of
partnership interest entitled to preferential distribution of cash ("Preferred
Units"). The weighted average number of units used in the computation for the
three months ended June 30, 1997 and 1996 was 96,315,263 and 95,842,853,
respectively. The weighted average number of Units used in the computation for
the six months ended June 30, 1997 and 1996 was 96,315,263 and 95,753,829,
respectively. Additionally, Preferred Units may be converted into common stock
of the Company. The outstanding stock options and Preferred Units have not
been included in the computations of per Unit data as they did not have a
dilutive effect.
<PAGE> 07
Note 7 - Investment in Unconsolidated Entities
Partnerships and Joint Ventures
Summary financial information of partnerships and joint ventures accounted
for using the equity method of accounting and a summary of the Simon Operating
Partnership's investment in and share of income from such partnerships and
joint ventures follow:
June 30, December 31,
BALANCE SHEETS 1997 1996
Assets: ---------- ------------
Investment properties at cost, net $1,429,975 $1,328,600
Cash and cash equivalents 48,999 41,270
Tenant receivables 43,419 37,067
Other assets 38,348 54,981
---------- ------------
Total assets $1,560,741 $1,461,918
========== ============
Liabilities and Partners' Equity:
Mortgages and other indebtedness $ 697,769 $ 569,433
Accounts payable, accrued expenses and other
liabilities 102,095 161,552
---------- ------------
Total liabilities 799,864 730,985
Partners' equity 760,877 730,933
---------- ------------
Total liabilities and partners' equity $1,560,741 $1,461,918
========== ============
The Simon Operating Partnership's Share of:
Total assets $ 378,786 $ 340,449
========== ============
Investment in partnerships and joint ventures,
at equity $ 150,708 $ 139,711
Cash distributions and losses in partnerships
and joint ventures, at equity (19,054) (17,106)
---------- ------------
Partners' equity $ 131,654 $ 122,605
========== ============
For the three For the six months
months ended ended
June 30, June 30,
------------------ ------------------
STATEMENTS OF OPERATIONS 1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
Minimum rent $ 30,230 $ 25,876 $ 60,533 $ 53,840
Overage rent 321 927 1,190 1,689
Tenant reimbursements 13,697 13,380 27,697 27,448
Other income 2,970 1,653 4,305 6,422
-------- -------- -------- --------
Total revenue 47,218 41,836 93,725 89,399
Operating Expenses:
Operating expenses and other 17,919 15,282 35,597 32,849
Depreciation and amortization 11,061 9,916 22,971 20,586
-------- -------- -------- --------
Total operating expenses 28,980 25,198 58,568 53,435
-------- -------- -------- --------
Operating Income 18,238 16,638 35,157 35,964
Interest Expense 9,899 6,287 19,325 14,134
Extraordinary Losses 324 - 1,182 -
-------- -------- -------- --------
Net Income 8,015 10,351 14,650 21,830
Third Party Investors' Share of Net
Income 7,177 8,676 12,625 18,698
-------- -------- -------- --------
The Simon Operating Partnership's
Share of Net Income
$ 838 $ 1,675 $ 2,025 $ 3,132
======== ======== ======== ========
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.
<PAGE> 08
The Management Company
The Management Company, including its consolidated subsidiaries, provides
management, leasing, development, accounting, legal, marketing and management
information systems services to 33 non-wholly owned Properties, Melvin Simon &
Associates, Inc., and certain other nonowned properties. Certain subsidiaries
of the Management Company provide architectural, design, construction,
insurance and other services primarily to certain of the Properties. The
Management Company also invests in other businesses to provide other
synergistic services to the Properties. The Simon Operating Partnership's
share of consolidated net income of the Management Company, after intercompany
profit eliminations, was $549 and $482 for the three-month periods ended June
30, 1997 and 1996, respectively, and was $1,136 and $853 for the six-month
periods ended June 30, 1997 and 1996, respectively.
Note 8 - Debt
On January 31, 1997, the Simon Operating Partnership completed a
refinancing transaction involving debt on four consolidated Properties. The
transaction consisted of the payoff of one loan totaling $43,375, a restatement
of the interest rate on the three remaining loans, the financing transaction
which included the acquisition of the contingent interest feature on all four
loans for $21,000, and $3,904 of principal reductions on two additional loans.
This transaction, which was funded using the Credit Facility (as defined
below), resulted in an extraordinary loss of $23,247, including the write-off
of deferred mortgage costs of $2,247.
On April 14, 1997, the Simon Operating Partnership, as co-borrower with
SDG, LP, obtained improvements to its unsecured revolving credit facility (the
"Credit Facility"). The Credit Facility agreement was amended to reduce the
interest rate from LIBOR plus 0.90% to LIBOR plus 0.75%. In addition, the
Credit Facility's competitive bid feature, which can further reduce interest
costs, was increased from $150,000 to $300,000.
On May 15, 1997, SDG, LP established a Medium-Term Note ("MTN") program.
On June 24, 1997, SDG, LP completed the sale of $100,000 of notes under the MTN
program. The notes sold bear interest at 7.125% and have a stated maturity of
June 24, 2005. The net proceeds of approximately $99,000 from this sale were
used primarily to pay down the Credit Facility. These notes are guaranteed by
the Simon Operating Partnership.
Also on May 15, 1997, approximately $140,000 in existing debt on The Forum
Shops at Caesar's was refinanced. The new debt consists of three classes of
notes totaling $180,000, with $90,000 bearing interest at 7.125% and $90,000
bearing interest at LIBOR plus 0.30%, all of which mature on May 15, 2004.
Approximately $40,000 of the borrowings were placed in escrow to pay for
construction costs required in connection with the expansion of this project,
which is scheduled to open on August 28, 1997. As of June 30, 1997, $28,539
remains in escrow, which is reflected in restricted cash in the accompanying
consolidated condensed balance sheet.
On June 30, 1997, SDG, LP closed an unsecured loan which bears interest at
LIBOR plus 0.75% and matures on September 29, 1998. The proceeds were advanced
to SPG, LP and used to retire an existing $55,000 mortgage on East Towne Mall,
which bore interest at LIBOR plus 1.125%.
At June 30, 1997, the Simon Operating Partnership had consolidated debt of
$2,141,302, of which $1,368,093 was fixed-rate debt and $773,209 was variable-
rate debt. As of June 30, 1997 and December 31, 1996, the Simon Operating
Partnership had interest-rate protection agreements related to $289,374 and
$306,879 principal amount of debt, respectively. The agreements are generally
in effect until the related variable-rate debt matures. As a result of the
various interest rate protection agreements, interest savings were $76 and $359
for the three months ended June 30, 1997 and 1996, respectively, and $306 and
$812 for the six-month periods ended June 30, 1997 and 1996, respectively. The
Simon Operating Partnership's pro rata share of indebtedness of the
unconsolidated joint venture Properties as of June 30, 1997 and December 31,
1996 was $234,700 and $193,310, respectively.
Net advances due SDG, LP of $339,338 result primarily from debt and equity
instruments issued by SDG, LP for which a portion of the proceeds were advanced
to the Simon Operating Partnership to retire mortgages and other indebtedness
and amounts under the Credit Facility. The Simon Operating Partnership has
recognized interest costs based on the terms of the instruments issued by SDG,
LP.
<PAGE> 09
Note 9 - Partners' Equity
The following table summarizes the change in the Simon Operating
Partnership's partners' equity since December 31, 1996.
<TABLE>
Special Unamortized Total
Preferred General Limited Restricted Partners'
Units Partner Partner Stock Award Equity
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 99,923 $ 1,601 $158,458 $ (5,354) $ 254,628
Amortization of stock
incentive 1,042 1,042
Adjustment to allocate net
equity of the Simon
Operating Partnership (5) 5 -
Net income 4,063 185 18,320 22,568
Distributions (4,063) (1,612) (160,065) (165,740)
--------- --------- --------- ----------- ---------
Balance at June 30, 1997 $ 99,923 $ 169 $ 16,718 $ (4,312) $ 112,498
========= ========= ========= =========== =========
</TABLE>
Note 10 - Commitments and Contingencies
Litigation
Roel Vento et al v. Tom Taylor et al. An affiliate of the Simon Operating
Partnership is a defendant in litigation entitled Roel Vento et al v. Tom
Taylor et al, in the District Court of Cameron County, Texas, in which a
judgment in the amount of $7,800 has been entered against all defendants. This
judgment includes approximately $6,500 of punitive damages and is based upon a
jury's findings on four separate theories of liability including fraud,
intentional infliction of emotional distress, tortuous interference with
contract and civil conspiracy arising out of the sale of a business operating
under a temporary license agreement at Valle Vista Mall in Harlingen, Texas.
The Simon Operating Partnership is seeking to overturn the award and has
appealed the verdict. Although the Simon Operating Partnership is optimistic
that it may be able to reverse or reduce the verdict, there can be no assurance
thereof. Management, based upon the advice of counsel, believes that the
ultimate outcome of this action will not have a material adverse effect on the
Company or the Simon Operating Partnership.
The Company or the Simon Operating Partnership currently are not subject
to any other material litigation other than routine litigation and
administrative proceedings arising in the ordinary course of business. On the
basis of consultation with counsel, management believes that these items will
not have a material adverse impact on the Company's or the Simon Operating
Partnership's financial position or results of operations.
Note 11 - Significant Subsequent Events
Series C Preferred Shares
On July 9, 1997 the Company sold 3,000,000 shares of 7.89% Series C
Cumulative Step-Up Premium RateSM Preferred Stock (the "Series C Preferred
Shares") in a public offering at $50.00 per share. Beginning October 1, 2012,
the rate increases to 9.89% of the liquidation preference per annum. The
Series C Preferred Shares are not redeemable prior to September 30, 2007.
Beginning September 30, 2007, the Series C Preferred Shares may be redeemed at
the option of the Company in whole or in part, at a redemption price of $50.00
per share, plus accrued and unpaid distributions, if any, thereon. The
redemption price of the Series C Preferred Shares may only be paid from the
sale proceeds of other capital stock of the Company, which may include other
classes or series of preferred stock. Additionally, the Series C Preferred
Shares have no stated maturity and are not subject to any mandatory redemption
provisions, nor are they convertible into any other securities of the Company.
The Company contributed the net proceeds of this offering of approximately
$146,000 to SDG, LP in exchange for Preferred Units, the economic terms of
which are substantially identical to the Series C Preferred Shares. SDG, LP
used the proceeds to increase its ownership interest in West Town Mall, to pay
down the Credit Facility and for general working capital purposes.
<PAGE> 10
Debt Securities Offering
On July 17, 1997, SDG, LP completed a $250,000 public offering of two
tranches of its seven-year and twelve-year non-convertible senior unsecured
debt securities (the "Notes"). The first tranche was for $100,000 at 6 3/4%
with a maturity of July 15, 2004. The second tranche was for $150,000 at 7%
with a maturity of July 15, 2009. The Notes, which are guaranteed by SPG, LP,
pay interest semi-annually, and contain covenants relating to minimum leverage,
EBITDA and unencumbered EBITDA ratios. The Notes were issued under SDG, LP's
$750,000 debt shelf registration.
Shelf Registration
On August 13, 1997, SDG, LP filed a shelf registration statement with the
SEC to provide for the offering, from time to time, of up to $1,000,000
aggregate public offering price of unsecured debt securities of SDG, LP. The
net proceeds of such offerings may be used to fund acquisition or development
activity, retire existing debt or for any other purpose deemed appropriate by
SDG, LP. Any securities issued under this registration would be guaranteed by
SPG, LP, although management has no immediate plans to issue securities under
the program.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Simon Operating Partnership to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, which
will, among other things, affect demand for retail space or retail goods,
availability and creditworthiness of prospective tenants, lease rents and the
terms and availability of financing; adverse changes in the real estate markets
including, among other things, competition with other companies and technology;
risks of real estate development and acquisition; governmental actions and
initiatives; and environmental/safety requirements.
Overview
The Simon Operating Partnership acquired additional interest in two
regional malls and opened one regional mall during the comparative periods (the
"Property Transactions"). The following is a description of such transactions.
On April 11, 1996, the Simon Operating Partnership acquired the remaining 50%
economic ownership interest in Ross Park Mall in Pittsburgh, Pennsylvania, and
subsequently began accounting for the Property using the consolidated method of
accounting. On July 31, 1996, the Simon Operating Partnership opened
Cottonwood Mall in Albuquerque, New Mexico. The Simon Operating Partnership
owns 100% of this regional mall and accounts for it using the consolidated
method of accounting. On October 4, 1996, the Simon Operating Partnership
acquired an additional 30% interest in North East Mall and subsequently began
accounting for the Property using the consolidated method of accounting. The
Simon Operating Partnership owned 80% of North East Mall after this
acquisition. On October 4, 1996, SDG, LP acquired the remaining 20% interest in
this Property.
Results of Operations
For the Three Months Ended June 30, 1997 vs. the Three Months Ended June 30,
1996
Total revenue increased $9.6 million or 6.7% for the three months ended
June 30, 1997, as compared to the same period in 1996. This increase is
primarily the result of the Property Transactions ($7.5 million). Excluding
these transactions, total revenues increased $2.1 million, which includes a
$1.8 million increase in minimum rent, a $0.8 million increase in overage rent,
and a $1.1 million increase in tenant reimbursements, partially offset by a
$1.6 million decrease in other income. The $1.8 million increase in minimum
rents results primarily from increased occupancy levels and the replacement of
expiring tenant leases with renewal leases at higher minimum base rents. The
$1.6 million decrease in other income is primarily the result of an adjustment
recorded in the prior year to reflect the collectability of notes receivable
($2.0 million).
Total operating expenses increased $2.4 million, or 3.0%, for the three
months ended June 30, 1997, as compared to the same period in 1996. This
increase is primarily the result of the Property Transactions ($3.6 million),
partially offset by a net decrease in depreciation and amortization ($0.8
million).
Interest expense increased $2.3 million, or 5.6% for the three months
ended June 30, 1997, as compared to the same period in 1996. This increase is
primarily as a result of the Property Transactions ($1.6 million) and an
increase in the average debt outstanding during the comparative periods.
Additional borrowings have been primarily used to fund acquisition and
development activities.
Minority interest share of operating income was $7.6 million for the three
months ended June 30, 1997, as compared to $0.7 million for the same period in
1996, reflecting an increase of $6.9 million. Of this increase, $7.3 million
is a result of transfers of ownership interest in certain of the Properties
from SPG, LP to SDG, LP. (See Note 4)
The $1.5 million loss from extraordinary items for the three months ended
June 30, 1997 is the result of the write-off of mortgage costs associated with
early extinguishments of debt.
Net income was $19.7 million for the three months ended June 30, 1997, as
compared to $24.0 million for the same period in 1996, reflecting a decrease of
$4.2 million, for the reasons discussed above, and was allocated to the Company
based on the Units and Preferred Units owned by the Company during the period,
and to the remaining Unitholders based upon their respective ownership
interests.
<PAGE> 12
For the Six Months Ended June 30, 1997 vs. the Six Months Ended June 30, 1996
Total revenue increased $18.2 million or 6.4% for the six months ended
June 30, 1997, as compared to the same period in 1996. This increase is
primarily the result of the Property Transactions ($18.7 million).
Total operating expenses increased $5.9 million, or 3.7%, for the six
months ended June 30, 1997, as compared to the same period in 1996. This
increase is primarily the result of the Property Transactions ($9.7 million),
partially offset by net decreases in depreciation and amortization ($1.3
million), repairs and maintenance ($1.1 million) and advertising and promotion
($1.4 million).
Interest expense increased $6.7 million, or 8.5% for the six months ended
June 30, 1997, as compared to the same period in 1996. This increase is
primarily as a result of the Property Transactions ($5.7 million) and an
increase in the average debt outstanding during the comparative periods.
Additional borrowings have been primarily used to fund acquisition and
development activities.
Minority interest share of operating income was $6.4 million for the six
months ended June 30, 1997, as compared to $1.2 million for the same period in
1996, reflecting an increase of $5.2 million. Of this increase, $5.4 million
is a result of transfers of ownership interest in certain of the Properties
from SPG, LP to SDG, LP. (See Note 4)
The $24.7 million loss from extraordinary items in 1997 is the result of
the acquisition of the contingent interest feature on four loans for $21.0
million and write-off of mortgage costs associated with early extinguishments
of debt.
Net income was $22.6 million for the six months ended June 30, 1997, as
compared to $47.5 million for the same period in 1996, reflecting an decrease
of $25.0 million, for the reasons discussed above, and was allocated to the
Company based on the Units and Preferred Units owned by the Company during the
period, and to the remaining Unitholders based upon their respective ownership
interests.
Liquidity and Capital Resources
As of June 30, 1997, the Simon Operating Partnership's balance of
unrestricted cash and cash equivalents was $27.3 million. In addition to its
cash balance, the Simon Operating Partnership, as co-borrower with SDG, LP has
a $750 million Credit Facility with approximately $379 million available after
outstanding borrowings and letters of credit. As of August 11, 1997, the
amount of borrowing availability under the Credit Facility was approximately
$559 million. The Company and SDG, LP also have access to public and private
equity and debt markets.
At June 30, 1997, the Simon Operating Partnership had consolidated debt of
$2,141 million, of which $1,368 million was fixed-rate debt and $773 million
was variable-rate debt. The Simon Operating Partnership's pro rata share of
indebtedness of the unconsolidated joint venture Properties as of June 30, 1997
and December 31, 1996 was $235 million and $193 million, respectively. As of
June 30, 1997 and December 31, 1996, the Simon Operating Partnership had
interest-rate protection agreements related to $289 million and $307 million of
its pro rata share of indebtedness, respectively. The agreements are generally
in effect until the related variable-rate debt matures.
On April 14, 1997, certain improvements were made to the Credit Facility.
The Credit Facility agreement was amended to reduce the interest rate from
LIBOR plus 0.90% to LIBOR plus 0.75%. In addition, the Credit Facility's
competitive bid feature, which has further reduced interest costs, was
increased from $150 million to $300 million.
On May 15, 1997, SDG, LP established a Medium-Term Note ("MTN") program.
On June 24, 1997, SDG, LP completed the sale of $100 million of notes under the
MTN program. The notes sold bear interest at 7.125% and have a stated maturity
of June 24, 2005. The net proceeds of this sale were used primarily to pay
down the Credit Facility. All debt issued under the MTN program is guaranteed
by SPG, LP.
Additionally, on May 15, 1997, approximately $140 million in existing debt
on The Forum Shops at Caesar's was refinanced. The new debt consists of three
classes of notes totaling $180 million, with $90 million bearing interest at
7.125% and the other $90 million bearing interest at LIBOR plus 0.3 %, all of
which will mature on May 15, 2004. Approximately $40 million of the borrowings
were placed in escrow to pay for construction costs required in connection with
the development of the expansion of this project, which is scheduled to open on
August 28, 1997. As of June 30, 1997, $28.5 million remains in escrow.
<PAGE> 13
On June 30, 1997, SDG, LP closed an unsecured loan which bears interest at
LIBOR plus 0.75% and matures on September 29, 1998. The proceeds were advanced
to SPG, LP and used to retire an existing $55 million mortgage on East Towne
Mall, which bore interest at LIBOR plus 1.125%.
On July 9, 1997 the Company sold 3,000,000 shares of 7.89% Series C
Cumulative Step-Up Premium RateSM Preferred Stock (the "Series C Preferred
Shares") in a public offering at $50.00 per share. Beginning October 1, 2012,
the rate increases to 9.89% of the liquidation preference per annum. The
Series C Preferred Shares are not redeemable prior to September 30, 2007.
Beginning September 30, 2007, the Series C Preferred Shares may be redeemed at
the option of the Company in whole or in part, at a redemption price of $50.00
per share, plus accrued and unpaid distributions, if any, thereon. The
redemption price of the Series C Preferred Shares may only be paid from the
sale proceeds of other capital stock of the Company, which may include other
classes or series of preferred stock. Additionally, the Series C Preferred
Shares have no stated maturity and are not subject to any mandatory redemption
provisions, nor are they convertible into any other securities of the Company.
The Company contributed the net proceeds of this offering of approximately $146
million to SDG, LP in exchange for Preferred Units, the economic terms of which
are substantially identical to the Series C Preferred Shares. SDG, LP used the
proceeds to increase its ownership interest in West Town Mall, to pay down the
Credit Facility and for general working capital purposes.
On July 17, 1997, SDG, LP completed a $250 million public offering of
two tranches of its seven-year and twelve-year non-convertible senior unsecured
debt securities (the "Notes"). The first tranche was for $100 million at 6
3/4% with a maturity of July 15, 2004. The second tranche was for $150 million
at 7% with a maturity of July 15, 2009. The Notes, which are guaranteed by
SPG, LP, pay interest semi-annually, and contain covenants relating to minimum
leverage, EBITDA and unencumbered EBITDA ratios. The Notes were issued under
SDG, LP's $750 million debt shelf registration. Up to $150 million in
additional debt securities may currently be issued under this registration,
however SDG, LP is in the process of amending this registration to increase its
capacity to $180 million.
On August 13, 1997, SDG, LP filed a shelf registration statement with the
SEC to provide for the offering, from time to time, of up to $1 billion
aggregate public offering price of unsecured debt securities of SDG, LP. The
net proceeds of such offerings may be used to fund acquisition or development
activity, retire existing debt or for any other purpose deemed appropriate by
SDG, LP. Any securities issued under this registration would be guaranteed by
SPG, LP, although management has no immediate plans to issue securities under
the program.
Development, Expansions and Renovations. The Simon Operating Partnership
is involved in several development, expansion and renovation efforts.
Construction continues on the following development projects: The Source,
an approximately $150 million value-oriented retail and entertainment
development project containing 730,000 square feet of GLA, is expected to open
in September 1997 in Westbury (Long Island), New York. Arizona Mills, an
approximately $190 million retail development project containing 1.2 million
square feet of GLA, is expected to open in November 1997 in Tempe, Arizona.
Grapevine Mills, an approximately $200 million retail development project
containing approximately 1.4 million square feet of GLA, is expected to open in
October 1997 in Grapevine (Dallas/Fort Worth), Texas. The Shops at Sunset
Place, an approximately $150 million destination-oriented retail and
entertainment project containing approximately 500,000 square feet of GLA, is
scheduled to open in 1998 in South Miami, Florida.
In addition, the Simon Operating Partnership has begun construction on two
new community center projects at an aggregate cost of approximately $50
million. Muncie Plaza, a wholly-owned project, is scheduled to open in April
of 1998 in Muncie, Indiana. Lakeline Plaza, a 50%-owned joint venture project,
is scheduled to open in two phases in May and November of 1998 in Austin,
Texas. Each of these projects is immediately adjacent to existing regional
mall Properties.
A key objective of the Simon Operating Partnership is to increase the
profitability and market share of its Properties through the completion of
strategic renovations and expansions. The Simon Operating Partnership
currently has a number of expansion projects under construction and in the
preconstruction development stage. It is anticipated that the cost of these
projects will be financed principally with the Credit Facility, project-
specific indebtedness, access to debt and equity markets, and cash flows from
operations.
Distributions. During the first quarter of 1997, the Simon Operating
Partnership paid a distribution of $0.4925 per Unit to Unitholders of record on
February 7, 1997. On each of May 6, 1997 and July 28, 1997, the Simon
Operating Partnership declared distributions of $0.505 per Unit, an increase of
$.0125 per Unit over the previous distributions. Future distributions will be
determined based on actual results of operations and cash available for
distribution. In addition, Preferred Unit distributions of $1.0156 per Series
A Preferred Unit were paid during the first six months of 1997.
<PAGE> 14
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 Unitholders
in accordance with tax requirements applicable to REITs. Sources of capital
for nonrecurring capital expenditures, such as major building renovations and
expansions, as well as for scheduled principal payments, including balloon
payments, on outstanding indebtedness are expected to be obtained from: (i)
excess cash generated from operating performance; (ii) working capital
reserves; (iii) additional debt financing; and (iv) additional equity sold in
the public markets by the Company.
Investing and Financing Activities
Cash flows from investing activities for the six months ended June 30,
1997 included, $96.8 million of capital expenditures, which included
construction costs of $15.0 million at The Shops at Sunset Place and $9.2
million for the acquisition of the land for the construction of North East
Plaza. Also included in capital expenditures is renovation and expansion
costs, tenant costs and other operational capital expenditures. The $28.5
million net increase in restricted cash represents an escrow for costs
associated with the expansion of Forum. In addition, investments in and
advances to unconsolidated entities of $37.1 million included $14.8 million,
$14.0 million and $6.2 million to the Management Company, Grapevine Mills and
The Source, respectively. Other investing activities represents the purchase
of bonds.
Cash flows from financing activities for the six months ended June 30,
1997 included partnership distributions of $100.1 million, and minority
interest distributions of $17.0 million. Net borrowings of $173.1 million,
including $80.0 million from SDG, LP, were used primarily to fund development
and other investment activity. The other refinancing transaction of $21.0
million was for the acquisition of a contingent interest feature on four
mortgage loans.
Inflation
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the Properties.
Nonetheless, substantially all of the tenants' leases contain provisions
designed to lessen the impact of inflation. Such provisions include clauses
enabling the 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.
<PAGE> 15
Part II - Other Information
Item 1: Legal Proceedings
None.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
One Form 8-K was filed during the current period.
On May 16, 1997 under Item 5 - Other Events, SPG, LP reported
that SDG, LP established a program for the issuance from time to
time of up to $300 million aggregate principal amount of Medium
Term Notes, which is guaranteed by SPG, LP. In addition, under
Item 7, the Simon Operating Partnership provided as exhibits,
certain documents relating to the establishment of the program.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMON PROPERTY GROUP, L.P.
BY: SIMON DEBARTOLO GROUP, INC.
General Partner
Date: August 14, 1997 /s/ Stephen E. Sterrett
-----------------------
Senior Vice President and Treasurer
(Principal Financial Officer)
Date: August 14, 1997
/s/ John Dahl
-----------------------
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
<PAGE> 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 27,324
<SECURITIES> 0
<RECEIVABLES> 132,690<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 2,563,974
<DEPRECIATION> 285,706
<TOTAL-ASSETS> 2,844,215
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 2,141,302
0
99,923
<COMMON> 0
<OTHER-SE> 12,575
<TOTAL-LIABILITY-AND-EQUITY> 2,844,215
<SALES> 0
<TOTAL-REVENUES> 301,383
<CGS> 0
<TOTAL-COSTS> 165,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,192
<INTEREST-EXPENSE> 85,874
<INCOME-PRETAX> 47,282
<INCOME-TAX> 47,282
<INCOME-CONTINUING> 47,282
<DISCONTINUED> 0
<EXTRAORDINARY> (24,714)
<CHANGES> 0
<NET-INCOME> 22,568
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<FN>
<F1>Receivables are stated net of allowances and also include accrued revenues.
<F2>The Registrant does not report using a classified balance sheet.
</FN>
</TABLE>
