<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 333-11491
SIMON PROPERTY GROUP, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 34-1755769
- --------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
115 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46204
- --------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 636-1600
Simon DeBartolo Group, L.P.
-----------------------------------------------------
(Former name of registrant)
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 [ ]
1
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Simon Property Group, L.P. hereby amends its Quarterly Report on Form 10-Q for
the period ended September 30, 1998 to correct the consolidated Balance Sheet
as of September 30, 1998 to reflect an adjustment required with regard to the
allocation of the purchase price in connection with the CPI Merger (see Note
3).
SIGNATURE
Pursuant to the requirements of the Securities and 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 Property Group, Inc.
General Partner
/s/ James M. Barkley
-----------------------------------
James M. Barkley,
Secretary/General Counsel
Date: March 29, 1999
2
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SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost $ 11,493,293 $ 6,867,354
Less-- accumulated depreciation 634,277 461,792
------------ ------------
10,859,016 6,405,562
Goodwill 58,134 --
Cash and cash equivalents 78,971 109,699
Restricted cash 1,685 8,553
Tenant receivables and accrued revenue, net 215,468 188,359
Due from SRC (Note 11) 4,093 --
Notes and advances receivable from Management Company and affiliate 131,956 93,809
Investment in partnerships and joint ventures, at equity 1,203,118 612,140
Investment in Management Company and affiliates 1,334 3,192
Other investment 48,239 53,785
Deferred costs and other assets 228,759 164,413
Minority interest 29,442 23,155
------------ ------------
Total assets $ 12,860,215 $ 7,662,667
============ ============
LIABILITIES:
Mortgages and other indebtedness $ 7,744,926 $ 5,077,990
Accounts payable and accrued expenses 413,903 245,121
Accrued distributions 84,496 ---
Cash distributions and losses in partnerships and joint ventures, at equity 25,836 20,563
Other liabilities 73,590 67,694
------------ ------------
Total liabilities 8,342,751 5,411,368
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
PARTNERS' EQUITY:
Preferred units, 16,053,580 units outstanding 1,057,178 339,061
General Partners, 161,490,077 and 109,643,001 units outstanding, respectively 2,491,919 1,231,031
Limited Partners, 64,181,981 and 61,850,762 units outstanding, respectively 990,378 694,437
Unamortized restricted stock award (22,011) (13,230)
------------ ------------
Total partners' equity 4,517,464 2,251,299
------------ ------------
Total liabilities and partners' equity $ 12,860,215 $ 7,662,667
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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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 Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $ 194,360 $ 152,320 $ 565,294 $ 449,693
Overage rent 2,283 8,650 22,766 26,214
Tenant reimbursements 101,834 81,413 283,805 231,444
Other income 23,510 17,400 60,754 39,901
--------- --------- --------- ---------
Total revenue 321,987 259,783 932,619 747,252
--------- --------- --------- ---------
EXPENSES:
Property operating 55,564 46,203 155,822 130,228
Depreciation and amortization 61,092 48,185 177,710 135,668
Real estate taxes 31,382 23,816 90,341 73,166
Repairs and maintenance 12,403 11,107 35,953 28,653
Advertising and promotion 11,270 8,396 27,992 20,296
Provision for credit losses (1,856) (135) 1,599 2,690
Other 4,806 4,639 16,983 12,818
--------- --------- --------- ---------
Total operating expenses 174,661 142,211 506,400 403,519
--------- --------- --------- ---------
OPERATING INCOME 147,326 117,572 426,219 343,733
INTEREST EXPENSE 97,327 68,940 281,748 203,934
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST 49,999 48,632 144,471 139,799
MINORITY INTEREST (1,108) (1,423) (4,704) (3,648)
GAIN (LOSS) ON SALES OF ASSETS (64) -- (7,283) 20
--------- --------- --------- ---------
INCOME BEFORE UNCONSOLIDATED ENTITIES 48,827 47,209 132,484 136,171
INCOME FROM UNCONSOLIDATED ENTITIES 3,808 7,077 8,789 9,599
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS 52,635 54,286 141,273 145,761
EXTRAORDINARY ITEMS (22) 27,215 7,002 2,501
--------- --------- --------- ---------
NET INCOME 52,613 81,501 148,275 148,262
PREFERRED UNIT REQUIREMENT (8,074) (9,101) (22,742) (21,914)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO UNITHOLDERS $ 44,539 $ 72,400 $ 125,533 $ 126,348
========= ========= ========= =========
NET INCOME AVAILABLE TO UNITHOLDERS
ATTRIBUTABLE TO:
General Partner $ 28,744 $ 44,642 $ 80,159 $ 77,826
Limited Partners 15,795 27,758 45,374 48,522
--------- --------- --------- ---------
$ 44,539 $ 72,400 $ 125,533 $ 126,348
========= ========= ========= =========
BASIC EARNINGS PER UNIT:
Income before extraordinary items $ 0.25 $ 0.28 $ 0.67 $ 0.78
Extraordinary items -- 0.17 0.04 0.02
--------- --------- --------- ---------
Net income $ 0.25 $ 0.45 $ 0.71 $ 0.80
========= ========= ========= =========
DILUTED EARNINGS PER UNIT:
Income before extraordinary items $ 0.25 $ 0.28 $ 0.67 $ 0.78
Extraordinary items -- 0.17 0.04 0.02
--------- --------- --------- ---------
Net income $ 0.25 $ 0.45 $ 0.71 $ 0.80
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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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,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,275 $ 148,262
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization 185,798 140,927
Extraordinary items (7,002) (2,501)
(Gain) loss on sales of assets, net 7,283 (20)
Straight-line rent (5,892) (6,378)
Minority interest 4,704 3,648
Equity in income of unconsolidated entities (8,789) (9,590)
Changes in assets and liabilities--
Tenant receivables and accrued revenue (5,280) (1,341)
Deferred costs and other assets (10,516) (18,906)
Accounts payable, accrued expenses and other liabilities 41,648 8,151
----------- -----------
Net cash provided by operating activities 350,229 262,252
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (1,881,183) (739,600)
Capital expenditures (233,200) (219,672)
Change in restricted cash 6,868 (8,829)
Cash from acquisitions 17,213 --
Net proceeds from sales of assets 46,087 599
Investments in unconsolidated entities (28,726) (63,656)
Distributions from unconsolidated entities 164,914 22,199
Investments in and advances to Management Company (19,915) --
Other investing activity -- (55,400)
----------- -----------
Net cash used in investing activities (1,927,942) (1,061,359)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 92,629 327,101
Minority interest distributions, net (10,991) (2,825)
Partnership distributions (310,318) (259,895)
Mortgage and other note proceeds, net of transaction costs 3,305,199 1,595,202
Mortgage and other note principal payments (1,529,534) (852,906)
Other refinancing transaction -- (21,000)
----------- -----------
Net cash provided by financing activities 1,546,985 785,677
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (30,728) (13,430)
CASH AND CASH EQUIVALENTS, beginning of period 109,699 64,309
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 78,971 $ 50,879
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SIMON PROPERTY GROUP, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 - ORGANIZATION
Simon Property Group, L.P. (the "Operating Partnership"), formerly Simon
DeBartolo Group, L.P., is a subsidiary partnership of Simon Property Group, Inc.
(the "Company"). The Operating Partnership is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of real estate properties, primarily regional malls and community
shopping centers. The Company is a self-administered and self-managed real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. As of September 30, 1998, the Operating Partnership owned or held an
interest in 239 income-producing properties, which consisted of 152 regional
malls, 76 community shopping centers, three specialty retail centers, five
office and mixed-use properties and three value-oriented super-regional malls in
35 states (the "Properties"). The Operating Partnership also owned interests in
one regional mall, one specialty retail center and one value-oriented
super-regional mall under construction, an additional two community centers in
the final stages of pre-development and eight parcels of land held for future
development. In addition, the Operating Partnership holds substantially all of
the economic interest in M.S. Management Associates, Inc. (the "Management
Company" - See Note 8). The Operating Partnership also holds substantially all
of the economic interest in, and the Management Company holds substantially all
of the voting stock of, DeBartolo Properties Management, Inc. ("DPMI"), which
provides architectural, design, construction and other services to substantially
all of the Portfolio Properties, as well as certain other regional malls and
community shopping centers owned by third parties. The Company owned 71.6% of
the Operating Partnership at September 30, 1998 and 63.9% at December 31, 1997.
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 September 30, 1998 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, 1997 audited financial statements and notes
thereto included in the Simon DeBartolo Group, L.P. Annual Report, as amended,
on Form 10-K/A.
The accompanying consolidated condensed financial statements of the
Operating Partnership include all accounts of all entities owned or controlled
by the Operating Partnership. All significant intercompany amounts have been
eliminated. The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, which
requires management to make estimates and assumptions that affect the reported
amounts of the Operating Partnership's assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported periods. Actual results could differ
from these estimates.
Properties which are wholly-owned or owned less than 100% and are
controlled by the Operating Partnership are accounted for using the consolidated
method of accounting. 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 noncontrolling 14.7% to 80.0% ownership
interests and the investment in the Management Company 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.
Net operating results of the Operating Partnership are allocated to the
Company, based first on the Company's preferred unit preference and then on its
remaining ownership interest in the Operating Partnership during the period. The
Company's remaining weighted average ownership interest in the Operating
Partnership for the nine-month periods ended September 30, 1998 and 1997 was
63.8% and 61.6%, respectively. The Company's remaining weighted average
ownership interest in the Operating Partnership for the three-month periods
ended September 30, 1998 and 1997 was 64.5% and 61.8%, respectively.
NOTE 3 - CPI MERGER
6
<PAGE> 7
For financial reporting purposes, as of the close of business on September
24, 1998, pursuant to the Agreement and Plan of Merger dated February 18, 1998,
SPG Merger Sub, Inc., a substantially wholly-owned subsidiary of Corporate
Property Investors ("CPI"), merged with and into Simon DeBartolo Group, Inc.
("SDG") with SDG continuing as the surviving company (the "CPI Merger").
Pursuant to the terms of the CPI Merger, SDG became a majority-owned subsidiary
of CPI. The outstanding shares of common stock of SDG were exchanged for a like
number of shares of CPI. Additionally, beneficial interests in Corporate Realty
Consultants, Inc. ("CRC"), CPI's paired share affiliate, were acquired for
$22,000 in order to pair the common stock of CPI with 1/100th of a share of
common stock of CRC.
Immediately prior to the consummation of the CPI Merger, the holders of
CPI common stock were paid a merger dividend consisting of (i) $90 in cash, (ii)
1.0818 additional shares of CPI common stock and (iii) 0.19 shares of 6.50%
Series B convertible preferred stock of CPI. Immediately prior to the CPI
Merger, there were 25,496,476 shares of CPI common stock outstanding. The
aggregate value associated with the completion of the CPI Merger is
approximately $5.9 billion including transaction costs and liabilities assumed.
To finance the cash portion of the CPI Merger consideration, $1.4 billion
was borrowed under a new unsecured medium term bridge loan, which bears interest
at a base rate of LIBOR plus 65 basis points and matures in three mandatory
amortization payments (on June 22, 1999, March 24, 2000 and September 24, 2000).
An additional $237,000 was also borrowed under the Company's existing $1.25
billion credit facility. In connection with the CPI Merger, CPI was renamed
'Simon Property Group, Inc.'. Its paired share affiliate, Corporate Realty
Consultants, Inc., was renamed 'SPG Realty Consultants, Inc.'("SRC"). In
addition SDG and Simon DeBartolo Group, LP were renamed 'SPG Properties, Inc.',
and 'Simon Property Group, L.P.', respectively.
Upon completion of the CPI Merger, the Company transferred substantially
all of the CPI assets acquired, which consisted primarily of 23 regional malls,
one community center, two office buildings and one regional mall under
construction (other than one regional mall, Ocean County Mall, and certain net
leased properties valued at approximately $153,100) and liabilities assumed
(except that the Company remains a co-obligor with respect to the Merger
Facility) of approximately $2.3 billion to the Operating Partnership or one or
more subsidiaries of the Operating Partnership in exchange for 47,790,550
limited partnership interests and 5,053,580 preferred partnership interests in
the Operating Partnership. The preferred partnership interests carry the same
rights and equal the number of preferred shares issued and outstanding as a
direct result of the CPI Merger. Likewise, the assets of SRC were transferred to
the SPG Realty Consultants, L.P. (the "SRC Operating Partnership") in exchange
for partnership interests.
As a result of the CPI Merger, the Company owns a 71.6% interest in the
Operating Partnerships as of September 30, 1998.
The Company accounted for the merger between SDG and the CPI merger
subsidiary as a reverse purchase in accordance with Accounting Principles Board
Opinion No. 16. Although paired shares of the former CPI and CRC were issued to
SDG common stock holders and SDG became a substantially wholly owned subsidiary
of CPI following the CPI Merger, CPI is considered the business acquired for
accounting purposes. SDG is the acquiring company because the SDG common
stockholders hold a majority of the common stock of the Company post-merger. The
value of the consideration paid by SDG has been allocated on a preliminary basis
to the estimated fair value of the CPI assets acquired and liabilities assumed
which resulted in goodwill of $58,134. Goodwill will be amortized over the
estimated life of the properties of 35 years. The allocation of the purchase
will be finalized when the Operating Partnership completes its evaluation of the
assets acquired and liabilities assumed and finalizes its operating plan.
The Operating Partnership contributed cash to CRC and the SRC Operating
Partnership on behalf of the SDG common stockholders and the limited partners of
SDG, LP to obtain the beneficial interests in CRC, which were paired with the
shares of common stock issued by the Company, and to obtain units of ownership
interest ("Units") in the SRC Operating Partnership so that the limited partners
of the Operating Partnership would hold the same proportionate interest in the
SRC Operating Partnership that they hold in the Operating Partnership. The cash
contributed on behalf of its partners was accounted for as a distribution by
the Operating Partnership. The cash contributed to CRC and the SRC Operating
Partnership in exchange for an ownership interest therein have been
appropriately accounted for as capital infusion or equity transactions. The
assets and liabilities of CRC have been reflected at historical cost. Adjusting
said assets and liabilities to fair value would only have been appropriate if
the SDG stockholders' beneficial interests in CRC exceeded 80%.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1998 presentation. These
reclassifications have no impact on the net operating results previously
reported.
NOTE 5 - PER UNIT DATA
7
<PAGE> 8
In accordance with SFAS No. 128 (Earnings Per Share), basic earnings per
Unit is based on the weighted average number of Units outstanding during the
period and diluted earnings per Unit is based on the weighted average number of
Units outstanding combined with the incremental weighted average Units that
would have been outstanding if all dilutive potential Units would have been
converted into Units at the earliest date possible. The weighted average number
of Units used in the computation for the three-month periods ended September 30,
1998 and 1997 was 180,987,067 and 159,795,424, respectively. The weighted
average number of Units used in the computation for the nine-month periods ended
September 30, 1998 and 1997 was 176,752,302 and 158,752,289, respectively. The
diluted weighted average number of Units used in the computation for the
three-month periods ended September 30, 1998 and 1997 was 181,312,399 and
160,180,477, respectively. The diluted weighted average number of Units used in
the computation for the nine-month periods ended September 30, 1998 and 1997 was
177,120,748 and 159,133,133, respectively. Each of the series of preferred Units
outstanding during the comparative periods either were not convertible or their
conversion would not have had a dilutive effect on earnings per Unit.
Accordingly, the increase in weighted average Units outstanding under the
diluted method over the basic method in every period presented for the Operating
Partnership is due entirely to the effect of outstanding options under the
Company's Employee Plan and Director Plan. Basic and diluted earnings were the
same for all periods presented.
NOTE 6 - CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, during the nine months
ended September 30, 1998 was $256,611, as compared to $199,285 for the same
period in 1997. Unpaid distributions as of September 30, 1998 totaled $84,496
and included $83,978 to Unitholders, and $518 to the holders of the Series B
Convertible Preferred Units issued in connection with the CPI Merger. All
accrued distributions were paid as of December 31, 1997. See Notes 1, 7 and 10
for information about non-cash transactions during the nine months ended
September 30, 1998.
NOTE 7 - OTHER ACQUISITIONS, DISPOSITIONS AND DEVELOPMENTS
On January 26, 1998, the Operating Partnership acquired Cordova Mall in
Pensacola, Florida for approximately $87,300, which included the assumption of a
$28,935 mortgage, which was later retired, and the issuance of 1,713,016 Units,
valued at approximately $55,500. This 874,000 square-foot regional mall is
wholly-owned by the Operating Partnership.
In March of 1998, the Operating Partnership opened the approximately
$13,300 Muncie Plaza in Muncie, Indiana. The Operating Partnership owns 100% of
this 196,000 square-foot community center. In addition, phase I of the
approximately $34,000 Lakeline Plaza opened in April 1998 in Austin, Texas.
Phase II of this 360,000 square-foot community center is scheduled to open in
1999. Each of these new community centers is adjacent to an existing regional
mall in the Operating Partnership's portfolio.
On April 15, 1998, the Operating Partnership purchased the remaining 7.5%
ownership interest in Buffalo Grove Towne Center for $255. This 134,000
square-foot community center is in Buffalo Grove, Illinois.
Effective May 5, 1998, in a series of transactions, the Operating
Partnership acquired the remaining 50.1% interest in Rolling Oaks Mall for
519,889 shares of the Company's common stock, valued at approximately $17,176.
The Operating Partnership issued 519,889 Units to the Company in exchange for
the shares of common stock.
Effective June 30, 1998, the Operating Partnership sold Southtown Mall for
$3,250 and recorded a $7,219 loss on the transaction.
On September 29, 1997, the Operating Partnership completed its cash tender
offer for all of the outstanding shares of beneficial interests of The Retail
Property Trust ("RPT"), a private REIT. RPT owned 98.8% of Shopping Center
Associates ("SCA"), which owned or had interests in twelve regional malls and
one community center, comprising approximately twelve million square feet of GLA
in eight states (the "SCA Properties"). Following the completion of the tender
offer, the SCA portfolio was restructured. The Operating Partnership exchanged
its 50% interests in two SCA Properties to a third party for similar interests
in two other SCA Properties, in which it had 50% interests, with the result that
SCA then owned interests in a total of eleven Properties. Effective November 30,
1997, the Operating Partnership also acquired the remaining 50% ownership
interest in another of the SCA Properties. In addition, an affiliate of the
Operating Partnership acquired the remaining 1.2% interest in SCA. During 1998,
the Operating Partnership sold the community center and The Promenade for $9,550
and $33,500, respectively. These Property sales were accounted for as an
adjustment to the allocation of the purchase price. At the completion of these
transactions, the Operating Partnership owns 100% of eight of the nine SCA
Properties, and a noncontrolling 50% ownership interest in the remaining
Property.
PRO FORMA
The following unaudited pro forma summary financial information excludes
any extraordinary items and includes the consolidated results of operations of
the Operating Partnership as if the CPI Merger and the RPT acquisition had
occurred as of January 1, 1997, and were carried forward through September 30,
1998. Preparation of the pro forma summary information was based upon
assumptions deemed appropriate by management. The pro forma summary information
is not necessarily indicative of the results which actually would have occurred
if the CPI Merger and the RPT acquisition had been consummated at January 1,
1997, nor does it purport to represent the results of operations for future
periods. Pro forma net income includes net gains on sales of assets of $37,973
and $114,799 during the nine months ended September 30, 1998 and 1997,
respectively.
8
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<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------------- ------------
<S> <C> <C>
Revenue $ 1,227,234 $ 1,140,084
=============== ============
Net income available to Unitholders $ 120,731 $ 173,305
=============== ============
Net income per Unit $ 0.54 $ 0.83
=============== ============
Net income per Unit - assuming dilution $ 0.54 $ 0.83
=============== ============
Weighted average number of Units outstanding 223,492,510 208,941,885
=============== ============
Weighted average number of Units outstanding - 223,860,956 209,322,729
assuming dilution =============== ============
</TABLE>
NOTE 8 - INVESTMENT IN UNCONSOLIDATED ENTITIES
Partnerships and Joint Ventures
On February 27, 1998, the Operating Partnership, in a joint venture
partnership with The Macerich Company ("Macerich"), acquired a portfolio of
twelve regional malls and two community centers (the "IBM Properties")
comprising approximately 10.7 million square feet of GLA at a purchase price of
$974,500, including the assumption of $485,000 of indebtedness. The Operating
Partnership and Macerich, as noncontrolling 50/50 partners in the joint venture,
were each responsible for one half of the purchase price, including indebtedness
assumed and each assumed leasing and management responsibilities for six of the
regional malls and one community center. The Operating Partnership funded its
share of the cash portion of the purchase price using borrowings from a new
$300,000 unsecured revolving credit facility. (See Note 9)
In March 1998, the Operating Partnership transferred its 50% ownership
interest in The Source, an approximately 730,000 square-foot regional mall, to a
newly formed limited partnership in which it has a 50% ownership interest, with
the result that the Operating Partnership now owns an indirect noncontrolling
25% ownership interest in The Source. In connection with this transaction, the
Operating Partnership's partner in the newly formed limited partnership is
entitled to a preferred return of 8% on its initial capital contribution, a
portion of which was distributed to the Operating Partnership. The Operating
Partnership applied the distribution against its investment in The Source.
On June 4, 1998, the Operating Partnership, Harvard Private Capital Group
("Harvard") and Argo II, an investment fund established by J.P. Morgan and The
O'Connor Group, announced that they have collectively committed to acquire a 44
percent ownership position in Groupe BEG, S.A. ("BEG"). BEG is a fully
integrated retail real estate developer, lessor and manager headquartered in
Paris, France. The Operating Partnership and its affiliated Management Company
have contributed $15,000 of equity capital for a noncontrolling 22% ownership
interest and are committed to an additional investment of $37,500 over the next
9 to 15 months, subject to certain financial and other conditions. The agreement
with BEG is structured to allow the Operating Partnership, Argo II and Harvard
to collectively acquire a controlling interest in BEG over time.
In August 1998, the Operating Partnership sold one-half of its 75%
ownership in The Shops at Sunset Place construction project. The Operating
Partnership now holds a 37.5% noncontrolling interest in this project, which is
scheduled to open in December 1998. The Operating Partnership applied the
distribution against its investment in the project.
Through September 30, 1998, in a series of transactions, the Operating
Partnership has acquired additional 30% ownership interests in Lakeline Mall and
Lakeline Plaza for 319,390 Units valued at approximately $10,500 and $2,100 in
cash. These transactions increased the Operating Partnership's ownership
interest in these Properties to a noncontrolling 80%. On October 28, 1998, the
Operating Partnership acquired an additional 5% noncontrolling ownership
interest in Lakeline Mall and Lakeline Plaza for $2,100.
Summary unaudited financial information of the Operating Partnership's
investment in partnerships and joint ventures accounted for using the equity
method of accounting and a summary of the Operating Partnership's investment in
and share of income from such partnerships and joint ventures follow:
<TABLE>
<CAPTION>
September 30, December 31,
BALANCE SHEETS 1998 1997
---------- ----------
<S> <C> <C>
ASSETS:
Investment properties at cost, net $4,131,774 $2,880,094
Cash and cash equivalents 144,919 101,582
Tenant receivables 141,360 87,008
Other assets 129,983 71,548
---------- ----------
Total assets $4,548,036 $3,140,232
========== ==========
LIABILITIES AND PARTNERS' EQUITY:
Mortgages and other indebtedness $2,819,094 $1,888,512
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts payable, accrued expenses and other liabilities 227,631 212,543
---------- ----------
Total liabilities 3,046,725 2,101,055
Partners' equity 1,501,311 1,039,177
---------- ----------
Total liabilities and partners' equity $4,548,036 $3,140,232
========== ==========
THE OPERATING PARTNERSHIP'S SHARE OF:
Total assets $1,803,056 $1,082,232
========== ==========
Partners' equity $ 523,518 $ 297,866
Add: Excess Investment (See below) 653,764 293,711
---------- ----------
The Operating Partnership's Net Investment in Joint Ventures $1,177,282 $ 591,577
========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the three months For the nine months
ended ended
September 30, September 30,
------------------------ -----------------------
STATEMENTS OF OPERATIONS 1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $108,924 $ 62,613 $ 306,486 $ 168,817
Overage rent 426 2,319 8,236 5,633
Tenant reimbursements 51,775 27,913 138,433 77,491
Other income 5,985 5,384 17,205 12,747
----------- ---------- ----------- ----------
Total revenue 167,110 98,229 470,360 264,688
OPERATING EXPENSES:
Operating expenses and other 59,044 33,660 166,547 94,575
Depreciation and amortization 33,324 18,518 94,949 53,579
----------- ---------- ----------- ----------
Total operating expenses 92,368 52,178 261,496 148,154
----------- ---------- ----------- ----------
OPERATING INCOME 74,742 46,051 208,864 116,534
INTEREST EXPENSE 45,569 21,577 130,747 63,155
EXTRAORDINARY LOSSES 2,060 -- 2,102 1,182
----------- ---------- ----------- ----------
NET INCOME 27,113 24,474 76,015 52,197
THIRD PARTY INVESTORS' SHARE OF NET
INCOME 21,820 17,970 55,849 38,347
----------- ---------- ----------- ----------
THE OPERATING PARTNERSHIP'S SHARE OF
NET INCOME $ 5,293 $ 6,504 $20,166 $13,850
AMORTIZATION OF EXCESS INVESTMENT
(SEE BELOW) (3,636) (2,823) (9,038) (8,792)
=========== ========== =========== ==========
INCOME FROM UNCONSOLIDATED ENTITIES $ 1,657 $ 3,681 $11,128 $ 5,058
=========== ========== =========== ==========
</TABLE>
As of September 30, 1998 and December 31, 1997, the unamortized excess of
the Operating Partnership's investment over its share of the equity in the
underlying net assets of the partnerships and joint ventures ("Excess
Investment") was $653,764 and $293,711, respectively. This Excess Investment,
which resulted primarily from the CPI Merger and the August 9, 1996 acquisition,
through merger (the "DRC Merger"), of the national shopping center business of
DeBartolo Realty Corporation ("DRC"), is being amortized generally over the life
of the related Properties. Amortization included in income from unconsolidated
entities for the three-month periods ended September 30, 1998 and September 30,
1997 was $3,636 and $2,823, respectively. Amortization included in income from
unconsolidated entities for the nine-month periods ended September 30, 1998 and
September 30, 1997 was $9,038 and $8,792, respectively.
The net income or net loss for each partnership and joint venture is
allocated in accordance with the provisions of the applicable partnership or
joint venture agreement. The allocation provisions in these agreements are not
always consistent with the ownership interest held by each general or limited
partner or joint venturer, primarily due to partner preferences.
The Management Company
The Management Company, including its consolidated subsidiaries, provides
management, leasing, development, accounting, legal, marketing and management
information systems services to one wholly-owned Property, 41 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
Operating Partnership's share of consolidated net income (loss) of the
Management Company, after intercompany profit eliminations, was $2,151 and
$3,396 for the three-month periods ended September 30, 1998 and 1997,
respectively, and was ($2,339) and $4,532 for the nine-month periods ended
September 30, 1998 and 1997, respectively.
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<PAGE> 11
NOTE 9 - DEBT
On February 28, 1998, the Operating Partnership obtained an unsecured
revolving credit facility in the amount of $300,000, to finance the acquisition
of the IBM Properties (See Note 8). The new facility bore interest at LIBOR plus
0.65% and had a maturity of August 27, 1998. The Operating Partnership drew
$242,000 on this facility during 1998 and subsequently retired and canceled the
facility using borrowing's from the Credit Facility (See below).
On June 18, 1998, the Operating Partnership refinanced a $33,878 mortgage
on a regional mall Property and recorded a $7,024 extraordinary gain on the
transaction, including debt forgiveness of $5,162 and the write-off of a premium
of $1,862. The new mortgage, which totals $35,000, bears interest of 7.33% and
matures on June 18, 2008. The retired mortgage bore interest at 9.25% with a
maturity of January 1, 2011.
On June 22, 1998, the Operating Partnership completed the sale of
$1,075,000 of senior unsecured debt securities. The issuance included three
tranches of senior unsecured notes as follows (1) $375,000 bearing interest at
6.625% and maturing on June 15, 2003 (2) $300,000 bearing interest at 6.75% and
maturing on June 15, 2005 and (3) $200,000 bearing interest at 7.375% and
maturing on June 15, 2018. This offering also included a fourth tranche of
$200,000 of 7.00% Mandatory Par Put Remarketed Securities ("MOPPRS") due June
15, 2028, which are subject to redemption on June 16, 2008. The premium received
relating to the MOPPRS of approximately $5,302 is being amortized over the life
of the debt securities. The net proceeds of approximately $1,062,000 were
combined with approximately $40,000 of working capital and used to retire and
terminate the $300,000 unsecured revolving credit facility (See Above) and to
reduce the outstanding balance of the Operating Partnership's $1,250,000
unsecured revolving credit facility (the "Credit Facility"). The Credit Facility
has an initial maturity of September 1999 with an optional one-year extension.
The debt retired had a weighted average interest rate of 6.29%.
In conjunction with the CPI Merger, the Operating Partnership and the
Company, as co-borrowers, closed a $1,400,000 medium term unsecured bridge loan
(the "Merger Facility"). The Merger Facility bears interest at a base rate of
LIBOR plus 65 basis points and will mature at the following intervals (i)
$450,000 on the nine-month anniversary of the closing (ii) $450,000 on the
eighteen-month anniversary of the closing and (iii) $500,000 on the two-year
anniversary of the closing. The Merger Facility is subject to covenants and
conditions substantially identical to those of the Credit Facility. The
Operating Partnership drew the entire $1,400,000 available on the Merger
Facility along with $237,000 on the Credit Facility to pay for the cash portion
of the dividend declared in conjunction with the CPI Merger, as well as certain
other costs associated with the CPI Merger. Financing costs of $9,456, which
were incurred to obtain the Merger Facility, are being amortized over the Merger
Facility's average life of 18-months.
In connection with the CPI Merger, RPT, a REIT and the 99.999% owned
subsidiary of the Operating Partnership, took title for substantially all of the
CPI assets and assumed $825,000 of unsecured notes (the "CPI Notes"), as
described in Note 3. As a result, the CPI Notes are structurally senior in right
of payment to holders of other unsecured notes of the Operating Partnership to
the extent of the assets and related cash flow of RPT only, with over 99.999% of
the excess cash flow plus any capital event transactions available for the
Operating Partnership's other unsecured notes. The CPI Notes pay interest
semiannually, and bear interest rates ranging from 7.05% to 9.00% (weighted
average of 8.03%), and have various due dates through 2016 (average maturity of
9.6 years). The CPI Notes contain leverage ratios, annual real property
appraisal requirements, debt service coverage ratios and minimum Net Worth
ratios. Additionally, consolidated mortgages totaling $2,093, and a pro-rata
share of $194,952 of nonconsolidated joint venture indebtedness were assumed in
the CPI Merger, and as a result of acquiring the remaining interest in Palm
Beach Mall in connection with the CPI Merger, the Operating Partnership began
accounting for that Property using the consolidated method of accounting, adding
$50,700 to consolidated indebtedness. A net premium of $19,165 was recorded in
accordance with the purchase method of accounting to adjust the CPI Notes and
mortgage indebtedness assumed in the CPI Merger to fair value, which is being
amortized over the remaining lives of the related indebtedness.
At September 30, 1998, the Operating Partnership had consolidated debt of
$7,744,926, of which $5,361,294 was fixed-rate debt and $2,383,632 was
variable-rate debt. The Operating Partnership's pro rata share of indebtedness
of the unconsolidated joint venture Properties as of September 30, 1998 and
December 31, 1997 was $1,307,974 and $770,776, respectively. As of September 30,
1998 and December 31, 1997, the Operating Partnership had interest-rate
protection agreements related to $1,224,493 and $415,254 of its pro rata share
of indebtedness, respectively. The agreements are generally in effect until the
related variable-rate debt matures. As a result of the various interest rate
protection agreements, consolidated interest savings were $122 and $285 for the
three months ended September 30, 1998 and 1997, respectively, and were $301 and
$1,371 for the nine months ended September 30, 1998 and 1997, respectively.
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<PAGE> 12
NOTE 10- PARTNERS' EQUITY
The following table summarizes the change in the Operating Partnership's
partners' equity since December 31, 1997.
<TABLE>
<CAPTION>
Unamortized
Preferred General Limited Restricted Total
Units Partners Partners Stock Award Partners' Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 339,061 $1,231,031 $ 694,437 $ (13,230) $2,251,299
General partner
contributions
(3,009,036 Units) -- 93,650 -- -- 93,650
CPI Merger(1) 717,916 1,605,551 -- -- 2,323,467
Units issued in
connection with
acquisitions (519,889
and 2,336,699 Units,
respectively) -- 17,176 76,114 -- 93,290
Stock incentive program
(516,641 Units, net
of forfeitures) -- 16,080 -- (16,080) --
Amortization of stock
incentive -- -- -- 7,299 7,299
Other (2,900 general
partner Units issued
and 2,580 limited
partner Units
redeemed) 201 (90) (84) -- 27
Adjustment to allocate
net equity
of the Operating
Partnership -- (310,842) 310,842 -- --
Distributions (22,742) (237,116) (134,439) -- (394,297)
---------- ---------- ---------- ---------- ----------
Subtotal 1,034,436 2,415,440 946,870 (22,011) 4,374,735
Comprehensive Income:
Net income 22,742 80,159 45,374 -- 148,275
Unrealized loss on
investment (1) -- (3,680) (1,866) -- (5,546)
---------- ---------- ---------- ---------- ----------
Total Comprehensive Income 22,742 76,479 43,508 -- 142,729
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1998 $1,057,178 $2,491,919 $ 990,378 $ (22,011) $4,517,464
========== ========== ========== ========== ==========
</TABLE>
(1) Amounts consist of the Operating Partnership's pro rata share of the
unrealized gain resulting from the change in market value of 1,408,450
shares of common stock of Chelsea GCA Realty, Inc. ("Chelsea"), a publicly
traded REIT, which the Operating Partnership purchased on June 16, 1997.
The investment in Chelsea is being reflected in the accompanying
consolidated condensed balance sheets in other investments.
(2) In connection with the CPI Merger, 47,790,550 Units were issued. Notes
receivable and permanent restrictions relating to common shares purchased
by former employees of CPI of approximately $26,100 have been deducted from
capital in excess of par.
Stock Incentive Programs
In March 1995, an aggregate of 1,000,000 shares of restricted stock was
granted to 50 executives, subject to the performance standards, vesting
requirements and other terms of the Stock Incentive Program. Prior to the DRC
Merger, 2,108,000 shares of DRC common stock were deemed available for grant to
certain designated employees of DRC, also subject to certain performance
standards, vesting requirements and other terms of DRC's stock incentive program
(the "DRC Plan"). In April 1998, 492,478 shares were awarded to executives
relating to 1997 performance, and another 24,163 awarded in August 1998. Through
September 30, 1998, 1,290,285 shares of common stock of the Company, net of
forfeitures, were deemed earned and awarded under the Stock Incentive Program
and the DRC Plan. Approximately $2,852 and $1,086 relating to these programs
were amortized in the three-month periods ended September 30, 1998 and 1997,
respectively and approximately $7,299 and $4,110 relating to these programs were
amortized in the nine-month periods ended September 30, 1998 and 1997,
respectively. The cost of restricted stock grants, based upon the stock's fair
market value at the time such stock is earned, awarded and issued, is charged to
shareholders' equity and subsequently amortized against earnings of the
Operating Partnership over the vesting period.
On September 24, 1998, in conjunction with the CPI Merger, a new stock
incentive plan, 'The Simon Property Group 1998 Stock Incentive Plan' ("The 1998
Plan"), was approved by a vote of the Company's shareholders. The 1998 Plan
replaced the existing Stock Incentive Program, the DRC Plan and the existing
employee and director stock option plans. The 1998 Plan provides
12
<PAGE> 13
for the grant of equity-based awards during the ten-year period following its
adoption, in the form of options to purchase common stock of The Company, stock
appreciation rights, restricted stock awards and performance unit awards. A
total of 6,300,000 shares of common stock of the Company have been approved for
issuance under The 1998 Plan, including approximately 2,230,875 shares reserved
for the exercise of options granted and award of restricted stock allocated
under the previously existing Stock Incentive Program and DRC Plan.
Common Stock Issuances
During 1998, the Company issued 2,957,335 shares of its common stock in
private offerings generating combined net proceeds of approximately $91,398. The
net proceeds were contributed to the Operating Partnership in exchange for a
like number of Units. The Operating Partnership used the net proceeds for
general working capital purposes.
Preferred Units
As a result of the CPI Merger, the Company has issued and outstanding
209,249 shares of 6.50% Series A Convertible Preferred Stock. Each share of
Series A Convertible Preferred Stock is convertible into 37.995 shares of common
stock of the Company, subject to adjustment under certain circumstances
including (i) a subdivision or combination of shares of common stock of the
Company, (ii) a declaration of a distribution of additional shares of common
stock of the Company, issuances of rights or warrants by the Company and (iii)
any consolidation or merger, which the Company is a part of or a sale or
conveyance of all or substantially all of the assets of the Company to another
person or any statutory exchange of securities with another person. The Series A
Convertible Preferred Stock is not redeemable, except as needed to maintain or
bring the direct or indirect ownership of the capital stock of the Company into
conformity with REIT requirements. The Operating Partnership has issued and
outstanding a like number of preferred units with terms identical to those of
the Company's Series A Preferred Stock, with the Company as the holder.
In addition, 4,844,331 shares of 6.50% Series B Convertible Preferred
Stock were issued in connection with the CPI Merger. Each share of Series B
Convertible Preferred Stock is convertible into 2.586 shares of common stock of
the Company, subject to adjustment under circumstances identical to those of the
Series A Preferred Stock described above. The Company may redeem the Series B
Preferred Stock on or after September 24, 2003 at a price beginning at 105% of
the liquidation preference plus accrued dividends and declining to 100% of the
liquidation preference plus accrued dividends any time on or after September 24,
2008. The Operating Partnership has issued and outstanding a like number of
preferred units with terms identical to those of the Company's Series B
Preferred Stock, with the Company as the holder.
NOTE 11 - RELATED PARTY TRANSACTIONS
In preparation for the CPI Merger, on July 31, 1998, CPI, with assistance
from the Operating Partnership, completed the sale of the General Motors
Building in New York, New York for approximately $800,000. The Operating
Partnership and certain third parties each received a $2,500 brokerage fee from
CPI in connection with the sale.
The amount due from SRC of $4,093 at September 30, 1998 represents
expenses paid by CPI in 1998, including legal, accounting, investment advisory
and other costs on behalf of SRC in connection with the CPI Merger.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
LITIGATION
Richard E. Jacobs, et al. v. Simon DeBartolo Group, L.P. On September 3,
1998, a complaint was filed in the Court of Common Pleas in Cuyahoga County,
Ohio, captioned Richard E. Jacobs, et al. v. Simon DeBartolo Group, L.P. The
plaintiffs are all principals or affiliates of The Richard E. Jacobs Group, Inc.
("Jacobs"). The plaintiffs allege in their complaint that Simon DeBartolo Group,
L.P. (now Simon Property Group, L.P. or the Operating Partnership) engaged in
malicious prosecution, abuse of process, defamation, libel, injurious
falsehood/unlawful disparagement, deceptive trade practices under Ohio law,
tortious interference and unfair competition in connection with the Operating
Partnership's acquisition by tender offer of shares in RPT, a Massachusetts
business trust, and certain litigation instituted in September, 1997, by the
Operating Partnership against Jacobs in federal district court in New York,
wherein the Operating Partnership alleged that Jacobs and other parties had
engaged, or were engaging in activity which violated Section 10(b) of the
Securities Exchange Act of 1934, as well as certain rules promulgated
thereunder. Plaintiffs in the Ohio action are seeking compensatory damages in
excess of $200,000, punitive damages and reimbursement for fees and expenses. It
is difficult to predict the ultimate outcome of this action and there can be no
assurance that the Operating Partnership will receive a favorable verdict. Based
upon the information known at this time, in the opinion of management, it is not
expected that this action will have a material adverse effect on the Operating
Partnership.
Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. On October 16,
1996, a complaint was filed in the Court of Common Pleas of Mahoning County,
Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. The
named defendants are SD Property Group, Inc., a indirect 99%-owned subsidiary of
the Company, and DPMI, and the plaintiffs are 27 former employees of the
defendants. In the complaint, the plaintiffs alleged that they were recipients
of deferred stock grants under the DRC Plan and that these grants immediately
vested under the DRC Plan's "change in control" provision as a result of the DRC
13
<PAGE> 14
Merger. Plaintiffs asserted that the defendants' refusal to issue them
approximately 661,000 shares of DRC common stock, which is equivalent to
approximately 450,000 shares of common stock of the Company computed at the 0.68
exchange ratio used in the DRC Merger, constituted a breach of contract and a
breach of the implied covenant of good faith and fair dealing under Ohio law.
Plaintiffs sought damages equal to such number of shares of DRC common stock, or
cash in lieu thereof, equal to all deferred stock ever granted to them under the
DRC Plan, dividends on such stock from the time of the grants, compensatory
damages for breach of the implied covenant of good faith and fair dealing, and
punitive damages. The complaint was served on the defendants on October 28,
1996. The plaintiffs and the Operating Partnership each filed motions for
summary judgment. On October 31, 1997, the Court entered a judgment in favor of
the Operating Partnership granting the Operating Partnership's motion for
summary judgment. The plaintiffs have appealed this judgment and the matter is
pending. While it is difficult to predict the ultimate outcome of this action,
based on the information known to date, it is not expected that this action will
have a material adverse effect on the Operating Partnership.
Roel Vento et al v. Tom Taylor et al. An affiliate of the Operating
Partnership is a defendant in litigation entitled Roel Vento et al v. Tom Taylor
et al, in the District Court of Cameron County, Texas, in which a judgment in
the amount of $7,800 has been entered against all defendants. This judgment
includes approximately $6,500 of punitive damages and is based upon a jury's
findings on four separate theories of liability including fraud, intentional
infliction of emotional distress, tortuous interference with contract and civil
conspiracy arising out of the sale of a business operating under a temporary
license agreement at Valle Vista Mall in Harlingen, Texas. The Operating
Partnership is seeking to overturn the award and has appealed the verdict. The
appeal is pending. Although management is optimistic that the Operating
Partnership 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 the Operating Partnership.
The Operating Partnership currently is not subject to any other material
litigation other than routine litigation and administrative proceedings arising
in the ordinary course of business. On the basis of consultation with counsel,
management believes that these items will not have a material adverse impact on
the Operating Partnership's financial position or results of operations.
NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards
Board ("FASB") released EITF 98-9, which clarified its position relating to the
timing of recognizing contingent rent. The Operating Partnership adopted this
pronouncement prospectively, beginning May 22, 1998, which has reduced overage
rent by approximately $5,600 through September 30, 1998.
On June 15, 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
Statement 133 will be effective for the Operating Partnership beginning
with the 1999 fiscal year and may not be applied retroactively. Management does
not expect the impact of Statement 133 to be material to the financial
statements. However, the Statement could increase volatility in earnings and
other comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure about Segments of an Enterprise and Related Information. The
Statement establishes standards for the way public companies report information
about operating segments in annual financial statements and also requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This statement is effective for
financial statements for fiscal years beginning after December 15, 1997.
Management is currently evaluating the impact, if any, the Statement will have
on the Operating Partnership's 1998 annual financial statements.
14
