<PAGE>
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, 2000
SIMON PROPERTY GROUP, L.P.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State of incorporation or organization)
33-11491
--------
(Commission File No.)
34-1755769
----------
(I.R.S. Employer Identification No.)
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
----------------------------
(Address of principal executive offices)
(317) 636-1600
--------------
(Registrant's telephone number, including area code)
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
<PAGE>
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,
2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations for the
three-month and six-month periods ended June 30, 2000
and 1999 4
Consolidated Condensed Statements of Cash Flows for the
six-month periods ended June 30, 2000 and 1999 5
Notes to Unaudited Consolidated Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3: Qualitative and Quantitative Disclosure About Market Risk 17
Part II - Other Information
Items 1 through 6 18
Signature 19
2
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SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
Investment properties, at cost $12,709,516 $12,640,146
Less - accumulated depreciation 1,265,610 1,093,103
----------- -----------
11,443,906 11,547,043
Cash and cash equivalents 133,830 153,743
Tenant receivables and accrued revenue, net 237,807 287,950
Notes and advances receivable from Management Company and affiliate 163,903 162,082
Note receivable from the SRC Operating Partnership (Interest at 8%, due 2009) 22,326 9,848
Investments in unconsolidated entities, at equity 1,462,460 1,519,504
Other investment 48,658 41,902
Goodwill, net 38,970 39,556
Deferred costs and other assets 235,110 249,168
Minority interest, net 39,828 35,931
----------- -----------
Total assets $13,826,798 $14,046,727
=========== ===========
LIABILITIES:
Mortgages and other indebtedness $ 8,805,667 $ 8,768,841
Accounts payable and accrued expenses 433,285 477,780
Cash distributions and losses in partnerships and joint ventures, at equity 35,895 32,995
Other liabilities 127,866 213,874
----------- -----------
Total liabilities 9,402,713 9,493,490
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
PARTNERS' EQUITY:
Preferred units, 22,049,570 and 22,066,056 units outstanding, respectively 1,028,300 1,032,320
General Partners, 172,064,824 and 171,494,311 units outstanding, respectively 2,546,427 2,631,618
Limited Partners, 65,436,414 and 65,444,680 units outstanding, respectively 968,408 1,004,263
Note receivable from SPG (Interest at 7.8%, due 2009) (92,825) (92,825)
Unamortized restricted stock award (26,225) (22,139)
----------- -----------
Total partners' equity 4,424,085 4,553,237
----------- -----------
Total liabilities and partners' equity $13,826,798 $14,046,727
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SIMON PROPERTY GROUP, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $291,321 $273,384 $584,895 $543,991
Overage rent 6,663 14,556 18,672 27,923
Tenant reimbursements 152,600 138,469 295,854 274,481
Other income 33,866 27,010 58,494 48,218
-------- -------- -------- --------
Total revenue 484,450 453,419 957,915 894,613
-------- -------- -------- --------
EXPENSES:
Property operating 78,303 71,295 152,950 139,145
Depreciation and amortization 98,199 88,836 195,751 177,414
Real estate taxes 48,739 43,573 96,339 89,841
Repairs and maintenance 16,106 16,850 35,498 36,652
Advertising and promotion 15,046 14,717 30,924 29,233
Provision for credit losses 2,182 2,914 4,357 4,708
Other 7,355 6,743 14,975 14,423
-------- -------- -------- --------
Total operating expenses 265,930 244,928 530,794 491,416
-------- -------- -------- --------
OPERATING INCOME 218,520 208,491 427,121 403,197
INTEREST EXPENSE 155,830 145,488 314,514 284,058
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST 62,690 63,003 112,607 119,139
MINORITY INTEREST (2,353) (3,688) (4,787) (5,503)
GAIN (LOSS) ON SALE OF ASSET, NET OF ASSET WRITE DOWNS
OF $10,572, $0, $10,572 AND $0, RESPECTIVELY 1,562 (4,188) 8,658 (4,188)
-------- -------- -------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES 61,899 55,127 116,478 109,448
INCOME FROM UNCONSOLIDATED ENTITIES 15,883 12,608 33,213 24,925
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 77,782 67,735 149,691 134,373
EXTRAORDINARY ITEMS - DEBT RELATED TRANSACTIONS -- (43) (440) (1,817)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 6) -- -- (12,311) --
-------- -------- -------- --------
NET INCOME 77,782 67,692 136,940 132,556
PREFERRED DIVIDENDS (19,368) (16,123) (38,740) (33,828)
-------- -------- -------- --------
NET INCOME AVAILABLE TO UNITHOLDERS $ 58,414 $ 51,569 $ 98,200 $ 98,728
======== ======== ======== ========
NET INCOME AVAILABLE TO UNITHOLDERS
ATTRIBUTABLE TO:
General Partners:
SPG (Managing General Partner) $ 14,336 $ 12,051 $ 24,052 $ 22,400
SPG Properties and SD Property Group (Note 10) 27,974 25,260 47,058 48,788
Limited Partners 16,104 14,258 27,090 27,540
-------- -------- -------- --------
Net income $ 58,414 $ 51,569 $ 98,200 $ 98,728
======== ======== ======== ========
BASIC EARNINGS PER UNIT:
Income before extraordinary items and
cumulative effect of accounting change $ 0.25 $ 0.22 $ 0.46 $ 0.44
Extraordinary items -- (0.00) (0.00) (0.01)
Cumulative effect of accounting change -- -- (0.05) --
-------- -------- -------- --------
Net income $ 0.25 $ 0.22 $ 0.41 $ 0.43
======== ======== ======== ========
DILUTED EARNINGS PER UNIT:
Income before extraordinary items and
cumulative effect of accounting change $ 0.25 $ 0.22 $ 0.46 $ 0.44
Extraordinary items -- (0.00) (0.00) (0.01)
Cumulative effect of accounting change -- -- (0.05) --
-------- -------- -------- --------
Net income $ 0.25 $ 0.22 $ 0.41 $ 0.43
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SIMON PROPERTY GROUP, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 136,940 $ 132,556
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization 200,855 182,901
Extraordinary items - debt related transactions 440 1,817
(Gain) loss on sales of assets, net of asset write downs of $10,572
and $0, respectively (8,658) 4,188
Cumulative effect of accounting change 12,311 --
Straight-line rent (8,302) (8,875)
Minority interest 4,787 5,503
Equity in income of unconsolidated entities (33,213) (24,925)
Changes in assets and liabilities-
Tenant receivables and accrued revenue 46,769 (1,544)
Deferred costs and other assets 7,822 (6,427)
Accounts payable, accrued expenses and other liabilities (89,542) (4,961)
---------- ---------
Net cash provided by operating activities 270,209 280,233
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions -- (99,254)
Capital expenditures (216,711) (198,643)
Cash from acquisitions, and consolidation of joint ventures, net -- 10,812
Net proceeds from sales of assets 108,993 42,000
Investments in unconsolidated entities (103,876) (32,338)
Note payment from the SRC Operating Partnership -- 20,565
Loan to the SRC Operating Partnership (12,478) --
Distributions from unconsolidated entities 183,852 163,463
Investments in and advances to Management Company and affiliates (1,821) (13,063)
---------- ---------
Net cash used in investing activities (42,041) (106,458)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership contributions, net 289 1,253
Partnership distributions (279,136) (266,883)
Minority interest distributions, net (8,234) (8,142)
Note payment to the SRC Operating Partnership -- (11,899)
Mortgage and other note proceeds, net of transaction costs 790,007 1,091,808
Mortgage and other note principal payments (751,007) (964,787)
--------- ---------
Net cash used in financing activities (248,081) (158,650)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,913) 15,125
CASH AND CASH EQUIVALENTS, beginning of period 153,743 124,466
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 133,830 $ 139,591
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SIMON PROPERTY GROUP, L.P.
Notes to Unaudited Consolidated Condensed Financial Statements
(Dollars in thousands, except per unit amounts)
Note 1 - Organization
Simon Property Group, L.P. (the "SPG Operating Partnership"), a Delaware
limited partnership, is a majority owned subsidiary of Simon Property Group,
Inc. ("SPG"), a Delaware corporation. SPG is a self-administered and self-
managed real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). Each share of common stock of SPG is paired
("Paired Shares") with a beneficial interest in 1/100th of a share of common
stock of SPG Realty Consultants, Inc., also a Delaware corporation ("SRC").
Units of ownership interest ("Units") in the SPG Operating Partnership are
paired ("Paired Units") with a Unit in SPG Realty Consultants, L.P. (the "SRC
Operating Partnership" and together with the SPG Operating Partnership, the
"Operating Partnerships"). The SRC Operating Partnership is the primary
subsidiary of SRC.
The SPG 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, 2000, the SPG Operating Partnership owned or held an interest in 252
income-producing properties, which consisted of 165 regional malls, 74 community
shopping centers, five specialty retail centers, four mixed-use properties and
four value-oriented super-regional malls in 36 states (the "Properties") and
five additional retail real estate properties operating in Europe. The SPG
Operating Partnership also owned an interest in two properties under
construction and 10 parcels of land held for future development, which together
with the Properties are hereafter referred to as the "Portfolio Properties". The
SPG Operating Partnership also holds substantially all of the economic interest
in M.S. Management Associates, Inc. (the "Management Company").
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 necessary for fair presentation, consisting of
only normal recurring adjustments, have been included. The results for the
interim period ended June 30, 2000 are not necessarily indicative of the results
to be obtained for the full fiscal year. These unaudited financial statements
have been prepared in accordance with the accounting policies described in the
SPG Operating Partnership's annual report on Form 10-K for the year ended
December 31, 1999 and should be read in conjunction therewith.
The accompanying consolidated condensed financial statements of the SPG
Operating Partnership include all accounts of all entities owned or controlled
by the SPG Operating Partnership. All significant intercompany amounts have been
eliminated.
Net operating results of the SPG Operating Partnership are allocated after
preferred distributions, based on its partners' weighted average ownership
interests during the period. SPG's remaining direct and indirect weighted
average ownership interests in the SPG Operating Partnership for the three-month
periods ended June 30, 2000 and June 30, 1999 were 72.4%. SPG's remaining direct
and indirect weighted average ownership interests in the SPG Operating
Partnership for the six-month periods ended June 30, 2000 and June 30, 1999 were
72.4% and 72.1%, respectively.
6
<PAGE>
Note 3 - Reclassifications
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 2000 presentation. These
reclassifications have no impact on the net operating results previously
reported.
Note 4 - Per Unit Data
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. None of the convertible preferred Units issued and outstanding during
the comparative periods had a dilutive effect on earnings per Unit. The increase
in weighted average Units outstanding under the diluted method over the basic
method in every period presented for the SPG Operating Partnership is due
entirely to the effect of outstanding stock options. Basic earnings and diluted
earnings were the same for all periods presented. The following table presents
weighted average and diluted weighted average Units outstanding:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- ----------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted Average Units Outstanding 237,439,435 232,231,002 237,217,279 230,067,437
Diluted Weighted Average Units Outstanding 237,582,451 232,498,343 237,339,324 230,285,798
</TABLE>
Note 5 - Cash Flow Information
Cash paid for interest, net of amounts capitalized, during the six months
ended June 30, 2000 was $319,680 as compared to $270,768 for the same period in
1999. Accrued and unpaid distributions were $837 and $876 at June 30, 2000 and
December 31, 1999, respectively. See Note 10 for information about non-cash
transactions during the six months ended June 30, 2000.
Note 6 - Cumulative Effect of Accounting Change
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), which addressed certain revenue
recognition policies, including the accounting for overage rent by a landlord.
SAB 101 requires overage rent to be recognized as revenue only when each
tenant's sales exceeds its sales threshold. The SPG Operating Partnership
previously recognized overage rent based on reported and estimated sales through
the end of the period, less the applicable prorated base sales amount. The SPG
Operating Partnership adopted SAB 101 effective January 1, 2000 and recorded a
loss from the cumulative effect of an accounting change of $12,311, which
includes the SPG Operating Partnership's $1,765 share from unconsolidated
entities, during 2000. In addition, SAB 101 will impact the timing in which
overage rent is recognized throughout each year, but will not have a material
impact on the total overage rent recognized in each full year. The SPG Operating
Partnership estimates the pro forma negative impact of adopting SAB 101 on net
income for the three-month and six-month periods ended June 30, 2000 to be
approximately $6,300 and $11,300, respectively. The negative impact on earnings
per Unit for the three-month and six-month periods ended June 30, 2000 was
approximately $0.03 and $0.05, respectively.
Note 7 - Gain on Sales of Assets, net of Asset Write Downs
During the first six months of 2000, the SPG Operating Partnership sold its
interests in two regional malls, three community shopping centers and an office
building for a total of approximately $137,100, including the buyer's assumption
of approximately $25,900 of mortgage debt, which resulted in a net gain of
$19,230. The net proceeds of approximately $109,000, were used to reduce the
outstanding borrowings on its $1,250,000 unsecured revolving credit facility
(the "Credit Facility") and for general corporate purposes. In addition, during
the second quarter of 2000, the SPG Operating Partnership recognized a total
asset write down of $10,572 on two Properties. Both of the Properties are under
contract for sale. The estimated sale price, net of estimated closing costs, for
each of the Properties was the basis for determining the fair values of the
Properties and the related write down.
7
<PAGE>
Note 8 - Investments in Unconsolidated Entities
Summary financial information of the SPG Operating Partnership's investment
in partnerships and joint ventures accounted for using the equity method of
accounting and a summary of the SPG Operating Partnership's investment in and
share of income from such partnerships and joint ventures follow:
<TABLE>
<CAPTION>
June 30, December 31,
BALANCE SHEETS 2000 1999
---------- ------------
<S> <C> <C>
Assets:
Investment properties at cost, net $6,475,999 $6,471,992
Other assets 479,370 495,497
---------- ----------
Total assets $6,955,369 $6,967,489
========== ==========
Liabilities and Partners' Equity:
Mortgages and other notes payable $4,627,333 $4,484,598
Accounts payable, accrued expenses and other liabilities 232,024 291,213
---------- ----------
Total liabilities 4,859,357 4,775,811
Partners' equity 2,096,012 2,191,678
---------- ----------
Total liabilities and partners' equity $6,955,369 $6,967,489
========== ==========
The SPG Operating Partnership's Share of:
Total assets $2,826,284 $2,834,236
========== ==========
The SPG Operating Partnership's net Investment in Joint Ventures $1,406,689 $1,479,676
========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
STATEMENTS OF OPERATIONS 2000 1999 2000 1999
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
Minimum rent $183,652 $125,359 $364,451 $252,492
Overage rent 3,184 4,679 9,028 8,521
Tenant reimbursements 92,576 60,080 184,110 119,686
Other income 11,176 7,714 19,899 15,152
-------- -------- -------- --------
Total revenue 290,588 197,832 577,488 395,851
Operating Expenses:
Operating expenses and other 112,347 71,330 221,448 142,637
Depreciation and amortization 56,121 36,335 111,771 71,065
-------- -------- -------- --------
Total operating expenses 168,468 107,665 333,219 213,702
-------- -------- -------- --------
Operating Income 122,120 90,167 244,269 182,149
Interest Expense 86,730 49,928 171,138 97,216
-------- -------- -------- --------
Net Income 35,390 40,239 73,131 84,933
Third Party Investors' Share of Net Income 19,752 24,933 42,618 52,439
-------- -------- -------- --------
The SPG Operating Partnership's Share of Net Income $ 15,638 $ 15,306 $ 30,513 $ 32,494
Amortization of Excess Investment (See below) (5,310) (5,606) (10,583) (11,663)
======== ======== ======== ========
Income from Unconsolidated Entities $ 10,328 $ 9,700 $ 19,930 $ 20,831
======== ======== ======== ========
</TABLE>
As of June 30, 2000 and December 31, 1999, the unamortized excess of the
SPG Operating Partnership's investment over its share of the equity in the
underlying net assets of the partnerships and joint ventures ("Excess
Investment") was $568,731 and $592,457, respectively, which is amortized over
the life of the related Properties.
The SPG Operating Partnership's share of consolidated net income of the
Management Company, after intercompany profit eliminations, was $5,555 and
$2,908 for the three-month periods ended June 30, 2000 and 1999, respectively,
and $13,283
8
<PAGE>
and $4,094 for the six-month periods ended June 30, 2000 and 1999, respectively.
The SPG Operating Partnership's investment in the Management Company was $19,876
and $6,833 as of June 30, 2000 and December 31, 1999, respectively.
Note 9 - Debt
At June 30, 2000, the SPG Operating Partnership had consolidated debt of
$8,805,667, of which $6,128,802 was fixed-rate debt and $2,676,865 was variable-
rate debt. The SPG Operating Partnership's pro rata share of indebtedness of the
unconsolidated joint venture Properties as of June 30, 2000 was $1,952,703. As
of June 30, 2000, the SPG Operating Partnership had interest-rate protection
agreements related to $376,000 of its consolidated variable-rate debt. The
agreements are generally in effect until the related variable-rate debt matures.
The SPG Operating Partnership's hedging activity did not materially impact
interest expense in the comparative periods.
On March 24, 2000, the SPG Operating Partnership refinanced $450,000 of
unsecured debt, which became due and bore interest at LIBOR plus 65 basis
points. The new facility matures March 2001 and also bears interest at LIBOR
plus 65 basis points.
9
<PAGE>
Note 10 - Partners' Equity
The following table summarizes the changes in the Partners' equity since
December 31, 1999.
<TABLE>
<CAPTION>
General Partners
-------------------------
Managing SPG Unamortized Note Total
Preferred General Properties and Limited Restricted Receivable Partners'
Units Partner SD(1) Partners Stock Award from SPG Equity
---------- -------- -------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $1,032,320 $887,214 $1,744,404 $1,004,263 $ (22,139) $(92,825) $4,553,237
Managing General Partner
Contributions (13,360 Units) 385 385
Conversion of 2,212 Series A Preferred
Units into 84,046 Units (2) (2,827) 2,819 (8)
Units issued as dividend (1,242
Units)(2) 31 31
Conversion of 14,274 Series B
Preferred Units into 36,913
Units (3) (1,327) 1,324 (3)
Stock incentive program (434,952
Units, net of forfeitures) 10,187 (181) (10,046) (40)
Amortization of stock incentive 5,960 5,960
Other (Accretion of Preferred Units,
and 8,266 limited partner Units 134 (209) (75)
redeemed)
Adjustment to allocate net equity of
the SPG Operating Partnership (4,016) 2,563 1,453 --
Distributions (38,740) (59,479) (114,813) (66,066) (279,098)
---------- -------- -------------- ---------- ----------- ---------- ----------
Subtotal 989,560 838,465 1,631,973 939,441 (26,225) (92,825) 4,280,389
Comprehensive Income:
---------------------
Unrealized gain on investment (4) 1,656 3,223 1,877 6,756
Net income 38,740 24,052 47,058 27,090 136,940
---------- -------- -------------- ---------- ----------- ---------- ----------
Total Comprehensive Income 38,740 25,708 50,281 28,967 -- -- 143,696
---------- -------- -------------- ---------- ----------- ---------- ----------
Balance at June 30, 2000 $1,028,300 $864,173 $1,682,254 $ 968,408 $(26,225) $(92,825) $4,424,085
========== ======== ============== ========== =========== ========== ==========
</TABLE>
(1) SPG Properties, Inc. ("SPG Properties") and SD Property Group, Inc. ("SD"),
the nonmanaging general partners, merged on February 29, 2000.
(2) Effective June 16, 2000, 2,212 Series A Convertible Preferred Units were
converted into 84,046 Units. In addition, the SPG Operating Partnership
issued 1,242 Units to the holders of the converted Units in lieu of the
cash dividends allocable to those preferred Units. At June 30, 2000, 51,059
Series A Convertible Preferred Units remained outstanding.
(3) On March 1, 2000, 14,274 Series B Convertible Preferred Units were
converted into 36,913 Units. At June 30, 2000, 4,830,057 Series B
Convertible Preferred Units remained outstanding.
(4) Amounts consist of the SPG 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. The investment in Chelsea is being reflected in the
accompanying balance sheets in other investments.
10
<PAGE>
The Simon Property Group 1998 Stock Incentive Plan
At the time of the CPI Merger, the SPG Operating Partnership and SPG
adopted The Simon Property Group 1998 Stock Incentive Plan (the "1998 Plan").
The 1998 Plan provides for the grant of equity-based awards during the ten-year
period following its adoption in the form of options to purchase Paired Shares
("Options"), stock appreciation rights ("SARs"), restricted stock grants and
performance unit awards (collectively, "Awards"). Options may be granted which
are qualified as "incentive stock options" within the meaning of Section 422 of
the Code and Options which are not so qualified. During 2000, 457,625 Paired
Shares of restricted stock were awarded to executives related to 1999
performance. As of June 30, 2000, 2,260,038 Paired Shares of restricted stock,
net of forfeitures, were deemed earned and awarded under the 1998 Plan.
Approximately $2,936 and $2,654 relating to these programs were amortized in the
three-month periods ended June 30, 2000 and 1999, respectively. Approximately
$5,960 and $5,367 relating to these programs were amortized in the six-month
periods ended June 30, 2000 and 1999, respectively. The cost of restricted stock
grants, which is based upon the stock's fair market value at the time such stock
is earned, awarded and issued, is charged to partners' equity and subsequently
amortized against earnings of the SPG Operating Partnership over the vesting
period.
Note 11 - Commitments and Contingencies
Litigation
Triple Five of Minnesota, Inc., a Minnesota corporation, v. Melvin Simon,
et. al. On or about November 9, 1999, Triple Five of Minnesota, Inc. ("Triple
Five") commenced an action in the District Court for the State of Minnesota,
Fourth Judicial District, against, among others, Mall of America, certain
members of the Simon family and entities allegedly controlled by such
individuals, and the SPG Operating Partnership. Two transactions form the basis
of the complaint: (i) the sale by Teachers Insurance and Annuity Association of
America of one-half of its partnership interest in Mall of America Company and
Minntertainment Company to the SPG Operating Partnership and related entities
(the "Teachers Sale"); and (ii) a financing transaction involving a loan in the
amount of $312,000 obtained from The Chase Manhattan Bank ("Chase") that is
secured by a mortgage placed on Mall of America's assets (the "Chase Mortgage").
The complaint, which contains twelve counts, seeks remedies of damages,
rescission, constructive trust, accounting, and specific performance. Although
the complaint names all defendants in several counts, the SPG Operating
Partnership is specifically identified as a defendant in connection with the
Teachers Sale.
The SPG Operating Partnership has agreed to indemnify Chase and other
nonparties to the litigation that are related to the offering of certificates
secured by the Chase Mortgage against, among other things, (i) any and all
litigation expenses arising as a result of litigation or threatened litigation
brought by Triple Five, or any of its owners or affiliates, against any person
regarding the Chase Mortgage, the Teachers Sale, any securitization of the Chase
Mortgage or any transaction related to the foregoing and (ii) any and all
damages, awards, penalties or expenses payable to or on behalf of Triple Five
(or payable to a third party as a result of such party's obligation to pay
Triple Five) arising out of such litigation. These indemnity obligations do not
extend to liabilities covered by title insurance.
The SPG Operating Partnership believes that the Triple Five litigation is
without merit and intends to defend the action vigorously. The SPG Operating
Partnership believes that neither the Triple Five litigation nor any potential
payments under the indemnity, if any, will have a material adverse effect on the
SPG Operating Partnership. Given the early stage of the litigation it is not
possible to provide an assurance of the ultimate outcome of the litigation or an
estimate of the amount or range of potential loss, if any.
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., an indirect 99%-owned subsidiary
of SPG, and DeBartolo Properties Management, Inc., a subsidiary of the
Management Company, 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 DeBartolo Realty Corporation ("DRC") Stock
Incentive Plan (the "DRC Plan") and that these grants immediately vested under
the DRC Plan's "change in control" provision as a result of the DRC Merger.
Plaintiffs asserted that the defendants' refusal to issue them approximately
542,000 shares of DRC common stock, which is equivalent to approximately 370,000
Paired Shares 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 plaintiffs
and the defendants each filed motions for summary judgment. On October 31, 1997,
the Court of Common Pleas entered a judgment in
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favor of the defendants granting their motion for summary judgment. The
plaintiffs appealed this judgment to the Seventh District Court of Appeals in
Ohio. On August 18, 1999, the District Court of Appeals reversed the summary
judgement order in favor of the defendants entered by the Common Pleas Court and
granted plaintiffs' cross motion for summary judgement, remanding the matter to
the Common Pleas Court for the determination of plaintiffs' damages. The
defendants petitioned the Ohio Supreme Court asking that they exercise their
discretion to review and reverse the Appellate Court decision, but the Ohio
Supreme court did not grant the petition for review. The case has been remanded
to the Court of Common Pleas of Mahoning County, Ohio, to conduct discovery
relevant to each plaintiff's damages and the counterclaims asserted by the SPG
Operating Partnership. The Trial Court referred these matters to a Magistrate.
Plaintiffs have filed a Supplemental Motion for Summary Judgement on the
question of damages. That motion has been fully briefed and is pending before
the Magistrate. The Magistrate has ruled on the counterclaims and found in
Defendants' favor on one of them. This ruling would result in a set-off of
approximately $2,000 against any damage award assessed in favor of two of the
plaintiffs. As a result of the appellate court's decision, the SPG Operating
Partnership recorded a $12,000 loss in the third quarter of 1999 related to this
litigation as an unusual item.
Roel Vento et al v. Tom Taylor et al. An affiliate of the SPG 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 was 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, tortious 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 SPG Operating Partnership
appealed the verdict and on May 6, 1999, the Thirteenth Judicial District
(Corpus Christi) of the Texas Court of Appeals issued an opinion reducing the
trial court verdict to $3,364 plus interest. The SPG Operating Partnership filed
a petition for a writ of certiorari to the Texas Supreme Court requesting that
they review and reverse the determination of the Appellate Court. The Texas
Supreme Court has not yet determined whether it will take the matter up on
appeal. Management, based upon the advice of counsel, believes that the ultimate
outcome of this action will not have a material adverse effect on the SPG
Operating Partnership.
The SPG 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 such routine litigation and administrative
proceedings will not have a material adverse impact on the SPG Operating
Partnership's financial position or its results of operations.
Note 12 - New Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 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. SFAS
133 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 formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133 will be effective for the SPG Operating Partnership beginning with
the 2001 fiscal year and may not be applied retroactively. Management is
currently evaluating the impact of SFAS 133, which it believes could increase
volatility in earnings and other comprehensive income.
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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. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the SPG 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; substantial
indebtedness; conflicts of interests; maintenance of REIT status; and
environmental/safety requirements.
Overview
The following Property acquisitions, openings and dispositions (the
"Property Transactions") impacted the SPG Operating Partnership's consolidated
results of operations in the comparative periods. During 1999, the SPG Operating
Partnership acquired the remaining ownership interests in five Properties for
approximately $213.9 million, which resulted in the consolidation of each of
those Properties. In November 1999, the SPG Operating Partnership opened the
wholly-owned Properties; The Shops at North East Mall and Waterford Lakes Town
Center. During 2000, the SPG Operating Partnership sold its interests in six
Properties for approximately $137.1 million, including the buyer's assumption of
$25.9 million of mortgage debt.
Cumulative Effect of Accounting Change
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), which addressed certain revenue
recognition policies, including the accounting for overage rent by a landlord.
SAB 101 requires overage rent to be recognized as revenue only when each
tenant's sales exceeds its sales threshold. The SPG Operating Partnership
previously recognized overage rent based on reported and estimated sales through
the end of the period, less the applicable prorated base sales amount. The SPG
Operating Partnership adopted SAB 101 effective January 1, 2000 and recorded a
loss from the cumulative effect of an accounting change of $12.3 million in the
first quarter of 2000. In addition, SAB 101 will impact the timing in which
overage rent is recognized throughout each year, but will not have a material
impact on the total overage rent recognized in each full year.
Results of Operations
Three Months ended June 30, 2000 vs. Three Months Ended June 30, 1999
Operating income increased $10.0 million or 4.8% for the three months ended
June 30, 2000, as compared to the same period in 1999. This increase includes
the net result of the Property Transactions ($3.6 million). Excluding these
transactions, operating income increased approximately $6.5 million, primarily
resulting from a $11.8 million increase in minimum rents, a $3.2 million
increase in consolidated revenues realized from marketing initiatives throughout
the Portfolio and a $5.1 million increase in miscellaneous income, partially
offset by a $7.2 million increase in depreciation and amortization and a $7.9
million decrease in overage rents. The increase in minimum rent primarily
results from increased occupancy levels, the replacement of expiring tenant
leases with renewal leases at higher minimum base rents, and a $2.2 million
increase in rents from tenants operating under license agreements. The increase
in depreciation and amortization is primarily due to an increase in depreciable
real estate realized through renovation and expansion activities. The decrease
in overage rent was primarily the result of the SPG Operating Partnership's
adoption of SAB 101 effective January 1, 2000, which changed the timing in which
overage rents were recognized throughout the year. The negative impact to
consolidated overage rents in 2000 as compared to 1999 was estimated to be
approximately $5.5 million.
Interest expense increased $10.3 million, or 7.1% for the three months
ended June 30, 2000, as compared to the same period in 1999. This increase is
primarily a result of overall increases in interest rates during the comparative
periods of approximately $4.5 million, the Property Transactions ($2.5 million)
and incremental interest on borrowings under the Credit Facility to complete the
1999 acquisition of ownership interests in 14 regional malls from New England
Development Company (the "NED Acquisition") ($3.2 million) and acquire an
ownership interest in Mall of America ($1.0 million), with the remainder being
primarily from borrowings for Property redevelopments that opened in the
comparative periods.
The $1.6 million net gain on the sales of assets in 2000 results from the
sale of the SPG Operating Partnership's interests in an office building, a
regional mall and three community shopping centers for approximately $89.8
million, partially
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offset by a $10.6 million asset write down on two Properties recognized in the
second quarter of 2000. In 1999 the SPG Operating Partnership recognized a net
loss of $4.2 million on the sale of a community shopping center.
Income from unconsolidated entities increased from $12.6 million in 1999 to
$15.9 million in 2000, resulting from a $2.6 million increase in income from the
Management Company and a $0.6 million increase in income from unconsolidated
partnerships and joint ventures. The increase in Management Company income is
primarily the result of a $2.9 million increase in management fees.
Net income was $77.8 million for the three months ended June 30, 2000,
which reflects an increase of $10.1 million over the same period in 1999,
primarily for the reasons discussed above. Net income was allocated to the
partners of the SPG Operating Partnership based on their preferred Unit
preferences and weighted average ownership interests in the SPG Operating
Partnership during the period.
Preferred distributions of the SPG Operating Partnership represent
distributions on preferred Units issued in connection with the NED Acquisition.
Preferred dividends of subsidiary represent distributions on preferred stock of
SPG Properties, Inc., a 99.999% owned subsidiary of SPG.
Six Months ended June 30, 2000 vs. Six Months Ended June 30, 1999
Operating income increased $23.9 million or 5.9% for the six months ended
June 30, 2000, as compared to the same period in 1999. This increase includes
the net result of the Property Transactions ($8.4 million). Excluding these
transactions, operating income increased approximately $15.5 million, primarily
resulting from a $24.3 million increase in minimum rents, $4.3 million increase
in consolidated revenues realized from marketing initiatives throughout the
Portfolio and a $6.7 million increase in miscellaneous income, partially offset
by a $12.5 million increase in depreciation and amortization and a $9.4 million
decrease in overage rents. The increase in minimum rent primarily results from
increased occupancy levels, the replacement of expiring tenant leases with
renewal leases at higher minimum base rents, and a $4.3 million increase in
rents from tenants operating under license agreements. The increase in
depreciation and amortization is primarily due to an increase in depreciable
real estate realized through renovation and expansion activities. The decrease
in overage rent was primarily the result of the SPG Operating Partnership's
adoption of SAB 101 effective January 1, 2000, which changed the timing in which
overage rents were recognized throughout the year. The negative impact to
consolidated overage rents in 2000 as compared to 1999 was estimated to be
approximately $9.9 million.
Interest expense increased $30.5 million, or 10.7% for the six months ended
June 30, 2000, as compared to the same period in 1999. This increase is
primarily the result of overall increases in interest rates during the
comparative periods (approximately $7.9 million), the Property Transactions
($6.8 million) and incremental interest on borrowings under the Credit Facility
to complete the NED Acquisition ($6.2 million) and acquire an ownership interest
in Mall of America ($1.9 million), with the remainder being primarily from
borrowings for Property redevelopments that opened in the comparative periods.
The $8.7 million net gain on the sales of assets in 2000 results from the
sale of the SPG Operating Partnership's interests in an office building, two
regional malls and three community shopping centers for approximately $137.1
million, partially offset by a $10.6 million asset write down on two Properties
recognized in the second quarter of 2000. In 1999 the SPG Operating Partnership
recognized a net loss of $4.2 million on the sale of a community shopping
center.
Income from unconsolidated entities increased from $24.9 million in 1999 to
$33.2 million in 2000, resulting from a $9.2 million increase in income from the
Management Company, partially offset by a $0.9 million decrease in income from
unconsolidated partnerships and joint ventures. The increase in Management
Company income is primarily the result of a $5.9 million increase in management
fees and $3.3 million decrease in the income tax provision, which is primarily
due to a $2.0 million tax refund receivable recognized in 2000.
During the first quarter of 2000, the SPG Operating Partnership recorded a
$12.3 million expense resulting from the cumulative effect of an accounting
change as described above.
Net income was $136.9 million for the six months ended June 30, 2000, which
reflects an increase of $4.4 million over the same period in 1999, primarily for
the reasons discussed above. Net income was allocated to the partners of the SPG
Operating Partnership based on their preferred Unit preferences and weighted
average ownership interests in the SPG Operating Partnership during the period.
Preferred distributions of the SPG Operating Partnership represent
distributions on preferred Units issued in connection with the NED Acquisition.
Preferred dividends of subsidiary represent distributions on preferred stock of
SPG Properties, Inc., a 99.999% owned subsidiary of SPG.
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Liquidity and Capital Resources
As of June 30, 2000, the SPG Operating Partnership's balance of
unrestricted cash and cash equivalents was $133.8 million, including $35.8
million related to the SPG Operating Partnership's gift certificate program,
which management does not consider available for general working capital
purposes. The SPG Operating Partnership's Credit Facility had available credit
of $566 million at June 30, 2000. The Credit Facility bears interest at LIBOR
plus 65 basis points and has an initial maturity of August 2002, with an
additional one-year extension available at the SPG Operating Partnership's
option. SPG and the SPG Operating Partnership also have access to public equity
and debt markets.
Management anticipates that cash generated from operating performance will
provide the necessary funds on a short- and long-term basis for its operating
expenses, interest expense on outstanding indebtedness, recurring capital
expenditures, and distributions to shareholders. 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 raised in the public
markets.
Financing and Debt
At June 30, 2000, the SPG Operating Partnership had consolidated debt of
$8,806 million, of which $6,129 million is fixed-rate debt bearing interest at a
weighted average rate of 7.27% and $2,677 million is variable-rate debt bearing
interest at a weighted average rate of 7.43%. As of June 30, 2000, the SPG
Operating Partnership had interest rate protection agreements related to $376
million of consolidated variable-rate debt. The SPG Operating Partnership's
interest rate protection agreements did not materially impact interest expense
or weighted average borrowing rates during the comparative periods.
The SPG Operating Partnership's share of total scheduled principal payments
of mortgage and other indebtedness, including unconsolidated joint venture
indebtedness, over the next five years is $5,965 million, with $4,624 million
thereafter. The SPG Operating Partnership, together with SPG and the SRC
Operating Partnership have a combined ratio of consolidated debt-to-market
capitalization of 58.7% and 58.1% at June 30, 2000 and December 31, 1999,
respectively.
On March 24, 2000, the SPG Operating Partnership refinanced $450 million of
unsecured debt, which became due and bore interest at LIBOR plus 65 basis
points. The new facility matures March 2001 and also bears interest at LIBOR
plus 65 basis points.
Acquisitions
Management continues to review and evaluate a limited number of individual
property and portfolio acquisition opportunities. Management believes, however,
that due to the rapid consolidation of the regional mall business, coupled with
the current status of the capital markets, that acquisition activity in the near
term will be a less significant component of the SPG Operating Partnership's
growth strategy. Management believes that funds on hand and amounts available
under the Credit Facility provide the means to finance certain acquisitions. No
assurance can be given that the SPG Operating Partnership will not be required
to, or will not elect to, even if not required to, obtain funds from outside
sources, including through the sale of debt or equity securities, to finance
significant acquisitions, if any.
Dispositions
During the first six months of 2000, the SPG Operating Partnership sold its
interests in two regional malls, three community shopping centers and an office
building for a total of approximately $137.1 million, including the buyer's
assumption of $25.9 million of mortgage debt, which resulted in a net gain of
$19.2 million. The net proceeds of approximately $109.0 million were used to
reduce the outstanding borrowings on the Credit Facility and for general working
capital purposes.
In addition to the Property sales described above, as a continuing part of
the SPG Operating Partnership's long-term strategy, management continues to
pursue the sale of its remaining non-retail holdings and a number of retail
assets that are no longer aligned with the SPG Operating Partnership's strategic
criteria, including eight Properties currently under contract for sale.
Management expects the sale prices of its non-core assets, if sold, will not
differ materially from the carrying value of the related assets.
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Development Activity
New Developments. Development activities are an ongoing part of the SPG
Operating Partnership's business. The SPG Operating Partnership opened Orlando
Premium Outlets in Orlando, Florida in May 2000. In addition, Arundel Mills is
scheduled to open this year in Anne Arundel, Maryland and Bowie Town Center is
scheduled to open in the fall of 2001 in Bowie, Maryland. The SPG Operating
Partnership invested approximately $79 million on new developments during the
first six months of 2000 and expects to invest a total of approximately $130
million on new developments in 2000.
Strategic Expansions and Renovations. A key objective of the SPG Operating
Partnership is to increase the profitability and market share of the Properties
through the completion of strategic renovations and expansions. The SPG
Operating Partnership has a number of renovation and/or expansion projects
currently under construction, or in preconstruction development. The SPG
Operating Partnership invested approximately $105 million on renovations and
expansions during the first six months of 2000 and expects to invest a total of
approximately $270 million on renovations and expansions in 2000.
Technology Initiatives. The SPG Operating Partnership is involved in a
number of activities designed to take advantage of new retail opportunities of
the digital age. Elements of the strategy include digitizing the existing assets
of the Properties by implementing internet web sites for each of the Properties
and creating products that leverage the digitalization of consumers and mall
merchants through an enhanced broadband network called MerchantWired. In June of
2000 the SPG Operating Partnership, along with several other retail REIT
industry leaders formed an LLC to continue the operations of MerchantWired. The
SPG Operating Partnership owns an approximate 52% interest in the LLC and
accounts for it using the equity method of accounting. In addition, the SPG
Operating Partnership recently announced it is joining with leading real estate
companies across a broad range of property sectors to form Constellation Real
Technologies, which is designed to form, incubate and sponsor real estate-
related Internet, e-commerce and technology enterprises; acquire interests in
existing "best of breed" companies; and act as a consolidator of real estate
technology across property sectors.
These new activities may generate losses in the initial years of operation,
while programs are being developed and customer bases are being established. The
SPG Operating Partnership has investments totaling approximately $17 million
related to such programs through June 30, 2000. The SPG Operating Partnership
has made additional funding commitments of approximately $41 million related to
these programs over the next two years, and has guaranteed MerchantWired
equipment lease payments up to $46 million. As part of the LLC Agreement, the
other MerchantWired members have committed to a pro rata share of the lease
guarantee equal to their respective ownership percentages in the LLC, which
aggregates approximately $22 million.
Distributions. The SPG Operating Partnership declared a distribution of
$0.505 per Unit in the second quarter of 2000. The current annual distribution
rate is $2.02 per Unit. Future distributions will be determined based on actual
results of operations and cash available for distribution. In addition,
preferred distributions of $32.765 per Series A Preferred Unit and $3.25 per
Series B Preferred Unit were paid during 2000.
Investing and Financing Activities
On July 31, 2000, the SPG Operating Partnership sold its 1,408,450 shares
of common stock of Chelsea for $50 million, which equaled the SPG Operating
Partnership's original investment. No gain or loss was recognized on the
transaction. The net proceeds will be used for general corporate purposes.
Pursuant to a stock repurchase program previously authorized by the Board
of Directors of SPG, on August 8, 2000, the SPG Operating Partnership purchased
1,596,100 Paired Shares at an average price of $25.00 per Paired Share. The
purchase is part of a plan announced by management earlier in the year to make
opportunistic repurchases of Paired Shares during 2000 funded solely by a
portion of the net proceeds realized from the sales of its non-core assets.
Cash used in investing activities of $42 million for the six months ended
June 30, 2000 primarily includes capital expenditures of $217 million;
investments in unconsolidated joint ventures of $104 million, which includes $45
million related to a financing transaction with the remainder consisting
primarily of development funding; a $12 million loan to the SRC Operating
Partnership, and a $2 million advance to the Management Company. These cash uses
are partially offset by net proceeds of $109 million from the sale of the SPG
Operating Partnership's interest in six Properties and distributions from
unconsolidated entities of $184 million. Distributions from unconsolidated
entities includes approximately $61 million related to financing transactions,
with the remainder resulting primarily from operating activities.
Cash used in financing activities for the six months ended June 30, 2000
was $248 million and includes net distributions of $287 million, partially
offset by net borrowings of $39 million.
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Inflation
Inflation has remained relatively low 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 SPG 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 SPG 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 SPG
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 SPG 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.
Seasonality
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.
Item 3. Qualitative and Quantitative Disclosure About Market Risk
Sensitivity Analysis. The SPG Operating Partnership's future earnings, cash
flows and fair values relating to financial instruments are primarily dependent
upon prevalent market rates of interest, primarily LIBOR. Based upon
consolidated indebtedness and interest rates at June 30, 2000, a 0.25% increase
in the market rates of interest would decrease future earnings and cash flows by
approximately $6.2 million, and would decrease the fair value of debt by
approximately $166 million. A 0.25% decrease in the market rates of interest
would increase future earnings and cash flows by approximately $6.2 million, and
would increase the fair value of debt by approximately $177 million.
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Part II - Other Information
Item 1: Legal Proceedings
Please refer to Note 11 of the financial statements for a summary of
material pending litigation and routine litigation and administrative
proceedings arising in the ordinary course of business.
Item 6: Exhibits and Reports on Form 8-K
None.
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SIGNATURE
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 Property Group, Inc.
General Partner
/s/ John Dahl
-------------
John Dahl,
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Date: August 10, 2000
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