<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 September 30, 1999
SIMON PROPERTY GROUP, INC. SPG REALTY CONSULTANTS, INC.
-------------------------- ----------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware Delaware
-------- --------
(State of incorporation or (State of incorporation or
organization) organization)
001-14469 001-14469-01
--------- ------------
(Commission File No.) (Commission File No.)
046268599 13-2838638
--------- ----------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
National City Center National City Center
115 West Washington Street, 115 West Washington Street,
Suite 15 East Suite 15 East
Indianapolis, Indiana 46204 Indianapolis, Indiana 46204
---------------------------- ----------------------------
(Address of principal executive (Address of principal executive
offices) offices)
(317) 636-1600 (317) 636-1600
-------------- --------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) 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 [_]
As of November 4, 1999, 173,479,710 shares of common stock, par value $0.0001
per share, 3,200,000 shares of Class B common stock, par value $0.0001 per
share, and 4,000 shares of Class C common stock, par value $0.0001 per share of
Simon Property Group, Inc. were outstanding, and were paired with 1,734,797
shares of common stock, par value $0.0001 per share, of SPG Realty Consultants,
Inc.
================================================================================
1
<PAGE>
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
<S> <C>
Item 1: Financial Statements - Introduction 3
Simon Property Group, Inc. and SPG Realty Consultants, Inc.:
Combined Condensed Balance Sheets as of September 30, 1999
and December 31, 1998 4
Combined Condensed Statements of Operations for the
three-month and nine-month periods ended September 30, 1999
and 1998 5
Combined Condensed Statements of Cash Flows for the
nine-month periods ended September 30, 1999 and 1998 6
Simon Property Group, Inc.:
Consolidated Condensed Balance Sheets as of
September 30, 1999 and December 31, 1998 7
Consolidated Condensed Statements of Operations for the
three-month and nine-month periods ended September 30, 1999
and 1998 8
Consolidated Condensed Statements of Cash Flows for the
nine-month periods ended September 30, 1999 and 1998 9
SPG Realty Consultants, Inc.:
Consolidated Condensed Balance Sheets as of
September 30, 1999 and December 31, 1998 10
Consolidated Condensed Statements of Operations for the
three-month and nine-month periods ended September 30, 1999
and 1998 11
Consolidated Condensed Statements of Cash Flows for the
nine-month periods ended September 30, 1999 and 1998 12
Notes to Unaudited Condensed Financial Statements 13
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 3: Qualitative and Quantitative Disclosure About Market Risk 31
Part II - Other Information
Items 1 through 6 32
Signature 33
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - Introduction
The following unaudited financial statements of Simon Property Group,
Inc. and its paired-share affiliate, SPG Realty Consultants, Inc., are provided
pursuant to the requirements of this Item. In the opinion of management, all
adjustments necessary for fair presentation, consisting of only normal recurring
adjustments, have been included. The financial statements presented herein have
been prepared in accordance with the accounting policies described in Simon
Property Group, Inc. and SPG Realty Consultants, Inc.'s combined annual report
on Form 10-K for the year ended December 31, 1998 and should be read in
conjunction therewith.
As described in Note 3 to the financial statements, Corporate Property
Investors, Inc. was acquired by Simon DeBartolo Group, Inc. as of the close of
business on September 24, 1998. Although Simon DeBartolo Group, Inc. became a
subsidiary of Corporate Property Investors, Inc., the shareholders of Simon
DeBartolo Group, Inc. became majority holders of the outstanding common stock of
Corporate Property Investors, Inc. Accordingly, Simon DeBartolo Group, Inc. is
the predecessor to Simon Property Group, Inc. for accounting and financial
reporting purposes. In connection with the acquisition, Corporate Property
Investors, Inc. and Corporate Realty Consultants, Inc. were renamed "Simon
Property Group, Inc." and "SPG Realty Consultants, Inc.", respectively. See Note
1 to the financial statements for a description of the basis of presentation of
the following unaudited financial statements.
3
<PAGE>
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
COMBINED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost $12,613,937 $11,850,014
Less -- accumulated depreciation 997,781 722,371
----------- -----------
11,616,156 11,127,643
Goodwill, net 40,787 58,134
Cash and cash equivalents 98,916 129,195
Tenant receivables and accrued revenue, net 263,402 218,581
Notes and advances receivable from Management Company and affiliate 139,738 115,378
Investment in partnerships and joint ventures, at equity 1,359,623 1,306,753
Investment in Management Company and affiliates 21,092 10,037
Other investment 44,542 50,176
Deferred costs and other assets 261,077 228,965
Minority interests, net 35,605 32,138
----------- -----------
$13,880,938 $13,277,000
=========== ===========
LIABILITIES:
Mortgages and other indebtedness $ 8,541,721 $ 7,973,372
Accounts payable and accrued expenses 472,179 415,186
Cash distributions and losses in partnerships and joint ventures, at equity 31,494 29,139
Other liabilities 154,127 95,131
----------- -----------
Total liabilities 9,199,521 8,512,828
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
LIMITED PARTNERS' INTEREST IN THE OPERATING PARTNERSHIPS 1,004,973 1,015,634
LIMITED PARTNERS' PREFERRED INTERESTS IN THE SPG OPERATING PARTNERSHIP (Note 10) 86,154 --
PREFERRED STOCK OF SUBSIDIARY 339,530 339,329
SHAREHOLDERS' EQUITY:
CAPITAL STOCK OF SIMON PROPERTY GROUP, INC.:
Series A convertible preferred stock, 209,249 shares authorized,
53,271 and 209,249 issued and outstanding, respectively 68,073 267,393
Series B convertible preferred stock, 5,000,000 shares authorized,
4,844,331 issued and outstanding 450,523 450,523
Series C & D preferred stock (Note 10) -- --
Common stock, $.0001 par value, 400,000,000 shares authorized,
and 170,275,710 and 163,571,031 issued and outstanding, respectively 17 16
Class B common stock, $.0001 par value, 12,000,000 shares authorized, 3,200,000
issued and outstanding 1 1
Class C common stock, $.0001 par value, 4,000 shares authorized, issued and
outstanding -- --
CAPITAL STOCK OF SPG REALTY CONSULTANTS, INC.:
Common stock, $.0001 par value, 7,500,000 shares authorized, 1,734,797
and 1,667,750 issued and outstanding, respectively -- --
Capital in excess of par value 3,276,046 3,083,213
Accumulated deficit (515,101) (372,313)
Unrealized gain (loss) on long-term investment (3,938) 126
Unamortized restricted stock award (24,861) (19,750)
Total shareholders' equity 3,250,760 3,409,209
----------- -----------
$13,880,938 $13,277,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
--------------------------------------- ---------------------------------------
1999 1998 1999 1998
------------------ --------------- --------------- -------------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $280,920 $194,623 $ 831,163 $565,557
Overage rent 12,307 2,290 40,333 22,773
Tenant reimbursements 156,514 101,927 433,352 283,898
Other income 21,430 23,498 66,422 60,742
-------- -------- ---------- --------
Total revenue 47,171 322,338 1,371,270 932,970
-------- -------- ---------- --------
EXPENSES:
Property operating 76,172 55,600 216,679 155,858
Depreciation and amortization 93,402 61,107 272,927 177,725
Real estate taxes 48,151 31,428 139,194 90,387
Repairs and maintenance 15,365 12,424 52,253 35,974
Advertising and promotion 15,883 11,283 45,435 28,005
Provision for (recovery of) credit losses 2,043 (1,857) 6,837 1,598
Other 5,373 4,816 19,622 16,993
-------- -------- ---------- --------
Total operating expenses 256,389 174,801 752,947 506,540
-------- -------- ---------- --------
OPERATING INCOME 214,782 147,537 618,323 426,430
INTEREST EXPENSE 144,015 97,331 427,871 281,751
-------- -------- ---------- --------
INCOME BEFORE MINORITY INTEREST 70,767 50,206 190,452 144,679
MINORITY INTEREST (2,236) (1,108) (7,739) (4,704)
LOSSES ON SALES OF ASSETS, NET - (64) (9,308) (7,283)
INCOME TAX BENEFIT OF SRC - - 3,374 -
-------- -------- ---------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES 68,531 49,034 176,779 132,692
INCOME FROM UNCONSOLIDATED ENTITIES 18,594 3,817 45,072 8,797
-------- -------- ---------- --------
INCOME BEFORE UNUSUAL AND EXTRAORDINARY ITEMS 87,125 52,851 221,851 141,489
UNUSUAL ITEM (Note 11) (12,000) - (12,000) -
EXTRAORDINARY ITEMS (410) (22) (2,227) 7,002
-------- -------- ---------- --------
INCOME BEFORE ALLOCATION TO LIMITED PARTNERS 74,715 52,829 207,624 148,491
LESS:
LIMITED PARTNERS' INTEREST IN THE
OPERATING PARTNERSHIPS 15,590 15,789 41,255 45,368
PREFERRED DISTRIBUTIONS OF THE SPG
OPERATING PARTNERSHIP 612 - 612 -
PREFERRED DIVIDENDS OF SUBSIDIARY 7,333 482 22,001 482
-------- -------- ---------- --------
NET INCOME 51,580 36,558 143,756 102,641
PREFERRED DIVIDENDS (8,745) (7,592) (27,905) (22,260)
-------- -------- ---------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 42,435 $ 28,966 $ 115,851 $ 80,381
======== ======== ========== ========
BASIC EARNINGS PER COMMON PAIRED SHARE:
Income before extraordinary items $ 0.25 $ 0.25 $ 0.68 $ 0.67
Extraordinary items (0.01) - (0.01) 0.04
-------- -------- ---------- --------
Net income $ 0.24 $ 0.25 $ 0.67 $ 0.71
======== ======== ========== ========
DILUTED EARNINGS PER COMMON PAIRED SHARE:
Income before extraordinary items $ 0.25 $ 0.25 $ 0.68 $ 0.67
Extraordinary items (0.01) - (0.01) 0.04
-------- -------- ---------- --------
Net income $ 0.24 $ 0.25 $ 0.67 $ 0.71
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 143,756 $ 102,641
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization 281,361 185,798
Extraordinary items 2,227 (7,002)
Unusual item 12,000 --
Losses on sales of assets, net 9,308 7,283
Limited partners' interest in the Operating Partnerships 41,255 45,368
Preferred dividends of Subsidiary 22,001 482
Preferred distributions of the SPG Operating Partnership 612 --
Straight-line rent (13,390) (5,892)
Minority interest 7,739 4,704
Equity in income of unconsolidated entities (45,072) (8,797)
Income tax benefit of SRC (3,374) --
Changes in assets and liabilities--
Tenant receivables and accrued revenue (25,118) (3,942)
Deferred costs and other assets (25,802) (10,516)
Accounts payable, accrued expenses and other liabilities 36,039 41,648
------------ ------------
Net cash provided by operating activities 443,542 351,775
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (265,715) (1,881,183)
Capital expenditures (349,644) (233,200)
Cash from acquisitions and consolidation of joint ventures, net 10,812 17,213
Change in restricted cash - 6,868
Net proceeds from sales of assets 53,953 46,087
Investments in unconsolidated entities (55,991) (28,726)
Distributions from unconsolidated entities 191,561 164,914
Investments in and advances to Management Company and affiliate (24,360) (19,915)
------------ ------------
Net cash used in investing activities (439,384) (1,927,942)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 2,012 114,629
Minority interest distributions, net (11,617) (10,991)
Preferred dividends of Subsidiary (22,001) (482)
Preferred distributions of the SPG Operating Partnership (612) --
Preferred dividends and distributions to shareholders (289,972) (205,697)
Distributions to limited partners (97,230) (104,139)
Mortgage and other note proceeds, net of transaction costs 1,658,633 3,305,199
Mortgage and other note principal payments (1,273,650) (1,529,534)
------------ ------------
Net cash provided by (used in) financing activities (34,437) 1,568,985
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (30,279) (7,182)
CASH AND CASH EQUIVALENTS, beginning of period 129,195 109,699
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 98,916 $ 102,517
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SIMON PROPERTY GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost $12,606,369 $11,816,325
Less -- accumulated depreciation 996,550 710,012
----------- -----------
11,609,819 11,106,313
Goodwill, net 40,787 58,134
Cash and cash equivalents 96,057 127,626
Tenant receivables and accrued revenue, net 262,842 217,798
Notes and advances receivable from Management Company and affiliate 139,738 115,378
Note receivable from the SRC Operating Partnership -- 20,565
Investment in partnerships and joint ventures, at equity 1,353,871 1,303,251
Investment in Management Company and affiliates 21,092 10,037
Other investment 44,542 50,176
Deferred costs and other assets 256,718 227,713
Minority interests, net 36,176 32,138
----------- -----------
$13,861,642 $13,269,129
=========== ===========
LIABILITIES:
Mortgages and other indebtedness $8,541,538 $ 7,972,381
Notes payable to the SRC Operating Partnership (Interest at 8%, due 2008) 17,907
Accounts payable and accrued expenses 470,606 411,259
Cash distributions and losses in partnerships and joint ventures, at equity 31,494 29,139
Other liabilities 153,320 95,326
----------- -----------
Total liabilities 9,199,701 8,526,012
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
LIMITED PARTNERS' INTEREST IN THE SPG OPERATING PARTNERSHIP 999,550 1,009,646
LIMITED PARTNERS' PREFERRED INTERESTS IN THE SPG OPERATING PARTNERSHIP (Note 10) 86,154 --
PREFERRED STOCK OF SUBSIDIARY 339,530 339,329
SHAREHOLDERS' EQUITY:
Series A convertible preferred stock, 209,249 shares authorized,
53,271 and 209,249 issued and outstanding, respectively 68,073 267,393
Series B convertible preferred stock, 5,000,000 shares authorized,
4,844,331 issued and outstanding 450,523 450,523
Series C & D preferred stock (Note 10) -- --
Common stock, $.0001 par value, 400,000,000 shares authorized,
and 170,275,710 and 163,571,031 issued and outstanding, respectively 17 16
Class B common stock, $.0001 par value, 12,000,000 shares authorized, 3,200,000
issued and outstanding 1 1
Class C common stock, $.0001 par value, 4,000 shares authorized, issued and
outstanding -- --
Capital in excess of par value 3,261,669 3,068,458
Accumulated deficit (514,777) (372,625)
Unrealized gain (loss) on long-term investment (3,938) 126
Unamortized restricted stock award (24,861) (19,750)
----------- -----------
Total shareholders' equity 3,236,707 3,394,142
----------- -----------
$13,861,642 $13,269,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
SIMON PROPERTY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $280,931 $194,597 $ 830,590 $565,531
Overage rent 12,307 2,290 40,333 22,773
Tenant reimbursements 156,514 101,935 433,354 283,906
Other income 21,243 23,515 69,537 60,759
-------- -------- ---------- --------
Total revenue 470,995 322,337 1,373,814 932,969
-------- -------- ---------- --------
EXPENSES:
Property operating 76,171 55,592 216,351 155,850
Depreciation and amortization 93,379 61,092 272,596 177,710
Real estate taxes 48,189 31,428 139,076 90,387
Repairs and maintenance 15,365 12,424 52,244 35,974
Advertising and promotion 15,883 11,283 45,435 28,005
Provision for (recovery of) credit losses 2,043 (1,857) 6,822 1,598
Other 5,290 4,812 19,719 16,989
-------- -------- ---------- --------
Total operating expenses 256,320 174,774 752,243 506,513
-------- -------- ---------- --------
OPERATING INCOME 214,675 147,563 621,571 426,456
INTEREST EXPENSE 144,090 97,329 428,148 281,749
-------- -------- ---------- --------
INCOME BEFORE MINORITY INTEREST 70,585 50,234 193,423 144,707
MINORITY INTEREST (2,236) (1,108) (7,739) (4,704)
LOSSES ON SALES OF ASSETS -- (64) (4,188) (7,283)
-------- -------- ---------- --------
INCOME BEFORE UNCONSOLIDATED ENTITIES 68,349 49,062 181,496 132,720
INCOME FROM UNCONSOLIDATED ENTITIES 17,613 3,809 42,538 8,789
-------- -------- ---------- --------
INCOME BEFORE UNUSUAL AND EXTRAORDINARY ITEMS 85,962 52,871 224,034 141,509
UNUSUAL ITEM (Note 11) (12,000) -- (12,000) --
EXTRAORDINARY ITEMS (410) (22) (2,227) 7,002
-------- -------- ---------- --------
INCOME BEFORE ALLOCATION TO LIMITED PARTNERS 73,552 52,849 209,807 148,511
LESS:
LIMITED PARTNERS' INTEREST IN THE SPG OPERATING PARTNERSHIP 15,262 15,795 42,802 45,374
PREFERRED DISTRIBUTIONS OF THE SPG OPERATING PARTNERSHIP 612 -- 612 --
PREFERRED DIVIDENDS OF SUBSIDIARY 7,333 482 22,001 482
-------- -------- ---------- --------
NET INCOME 50,345 36,572 144,392 102,655
PREFERRED DIVIDENDS (8,745) (7,592) (27,905) (22,260)
-------- -------- ---------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 41,600 $ 28,900 $ 116,487 $ 80,395
======== ======== ========== ========
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary items $ 0.24 $ 0.25 $ 0.69 $ 0.67
Extraordinary items -- -- (0.01) 0.04
-------- -------- ---------- --------
Net income $ 0.24 $ 0.25 $ 0.68 $ 0.71
======== ======== ========== ========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary items $ 0.24 $ 0.25 $ 0.69 $ 0.67
Extraordinary items -- -- (0.01) 0.04
-------- -------- ---------- --------
Net income $ 0.24 $ 0.25 $ 0.68 $ 0.71
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
SIMON PROPERTY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1999 1998
--------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 144,392 $ 102,655
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 281,030 185,798
Extraordinary item 2,227 (7,002)
Unusual item 12,000 --
Losses on sales of assets 4,188 7,283
Limited partners' interest in the SPG Operating Partnership 42,802 45,374
Preferred dividends of Subsidiary 22,001 482
Preferred distributions of the SPG Operating Partnership 612 --
Straight-line rent (13,392) (5,892)
Minority interest 7,739 4,704
Equity in income of unconsolidated entities (42,538) (8,789)
Changes in assets and liabilities-
Tenant receivables and accrued revenue (25,239) (5,516)
Deferred costs and other assets (22,670) (10,516)
Accounts payable, accrued expenses and other liabilities 33,853 41,648
----------- -----------
Net cash provided by operating activities 447,005 350,229
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (265,715) (1,881,183)
Capital expenditures (347,358) (233,200)
Cash from acquisitions and consolidation of joint ventures,
net 10,812 17,213
Change in restricted cash -- 6,868
Net proceeds from sales of assets 42,000 46,087
Investments in unconsolidated entities (55,991) (28,726)
Note payment from the SRC Operating Partnership 20,565 --
Distributions from unconsolidated entities 191,442 164,914
Investments in and advances to Management Company and affiliate (24,360) (19,915)
----------- -----------
Net cash used in investing activities (428,605) (1,927,942)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common, net 1,407 92,629
Minority interest distributions, net (12,188) (10,991)
Preferred dividends of Subsidiary (22,001) (482)
Preferred distributions of the SPG Operating Partnership (612) --
Preferred dividends and distributions to shareholders (289,972) (205,697)
Distributions to limited partners (97,230) (104,139)
Note payable to the SRC Operating Partnership (15,164) --
Mortgage and other note proceeds, net of transaction costs 1,658,633 3,305,199
Mortgage and other note principal payments (1,272,842) (1,529,534)
----------- -----------
Net cash provided by (used in) financing activities (49,969) 1,546,985
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (31,569) (30,728)
CASH AND CASH EQUIVALENTS, beginning of period 127,626 109,699
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 96,057 $ 78,971
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
SPG REALTY CONSULTANTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:
Investment properties, at cost $ 7,568 $ 33,689
Less -- accumulated depreciation 1,231 12,359
------------- ------------
6,337 21,330
Cash and cash equivalents 2,859 1,569
Note receivable from the SPG Operating Partnership (Interest at 8%, due 2008) 2,743 17,907
Tenant receivables 560 783
Investments in joint ventures, at equity 5,752 3,502
Other 4,359 1,510
------------- ------------
$ 22,610 $ 46,601
============= ============
LIABILITIES:
Mortgages and other indebtedness $ 183 $ 991
Mortgage payable to the SPG Operating Partnership -- 20,565
Other liabilities 2,380 3,990
Minority interest 571 --
------------- ------------
Total liabilities 3,134 25,546
------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
LIMITED PARTNERS' INTEREST IN THE SRC OPERATING PARTNERSHIP 5,423 5,988
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value, 7,500,000 shares authorized, 1,734,797
and 1,667,750 issued and outstanding, respectively -- --
Capital in excess of par value 29,483 29,861
Accumulated deficit (15,430) (14,794)
------------- ------------
Total shareholders' equity 14,053 15,067
------------- ------------
$ 22,610 $ 46,601
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
SPG REALTY CONSULTANTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
1999 1998 1999 1998
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $ 152 $ 678 $ 1,596 $ 2,625
Tenant reimbursements -- 165 210 635
Other income 289 469 1,155 791
---------- -------- ---------- --------
Total revenue 441 1,312 2,961 4,051
---------- -------- ---------- --------
EXPENSES:
Property operating 1 624 707 1,718
Depreciation and amortization 23 237 331 701
Merger-related costs -- 4,093 -- 4,093
Administrative and other 217 549 1,053 1,765
---------- -------- ---------- --------
Total operating expenses 241 5,503 2,091 8,277
---------- -------- ---------- --------
OPERATING INCOME (LOSS) 200 (4,191) 870 (4,226)
INTEREST EXPENSE (18) (337) (3,841) (1,013)
LOSS ON SALES OF ASSETS, NET -- -- (5,120) --
INCOME TAX BENEFIT -- 3 3,374 193
---------- -------- ---------- --------
INCOME (LOSS) BEFORE UNCONSOLIDATED ENTITIES 182 (4,525) (4,717) (5,046)
INCOME FROM UNCONSOLIDATED ENTITIES 981 124 2,534 398
---------- -------- ---------- --------
INCOME (LOSS) BEFORE ALLOCATION TO LIMITED
PARTNERS 1,163 (4,401) (2,183) (4,648)
LESS -- LIMITED PARTNERS' INTEREST IN
THE SRC OPERATING PARTNERSHIP (328) 6 1,547 6
---------- -------- ---------- --------
NET INCOME (LOSS) $ 835 $ (4,395) $ (636) $ (4,642)
========== ======== ========== ========
EARNINGS PER COMMON SHARE:
BASIC $ 0.48 $ (6.56) $ (0.37) $ (7.79)
========== ======== ========== ========
DILUTED $ 0.48 $ (6.56) $ (0.37) $ (7.79)
========== ======== ========== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 1,734,714 669,614 1,719,499 596,072
========== ======== ========== ========
DILUTED 1,735,422 669,614 1,719,499 596,072
========== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
SPG REALTY CONSULTANTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (636) $ (4,642)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Depreciation and amortization 331 701
Loss on sales of assets, net 5,120 --
Limited partners' interest in SRC Operating Partnership (1,547) 6
Straight-line rent 2 --
Equity in income of unconsolidated entities (2,534) (398)
Income tax benefit (3,374) --
Changes in assets and liabilities--
Tenant receivables and other assets (3,487) 719
Deferred taxes -- (190)
Other liabilities 891 3,762
------------------ ------------------
Net cash used in operating activities (5,234) (42)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (515) (1,565)
Investments in unconsolidated entities -- (3,921)
Net proceeds from sales of assets 11,953 --
Note payment from the SPG Operating Partnership 15,164 --
Distributions from unconsolidated entities 119 19,151
------------------ ------------------
Net cash provided by investing activities 26,721 13,665
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 605 14,097
Minority interest contributions 571 --
Contributions from limited partners -- 8,000
Distributions to shareholders -- (1,059)
Mortgage and other note proceeds, net of transaction costs -- 2,408
Mortgage and other note principal payments (21,373) (17,670)
------------------ ------------------
Net cash provided by (used in) financing activities (20,197) 5,776
------------------ ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,290 19,399
CASH AND CASH EQUIVALENTS, beginning of period 1,569 4,147
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,859 $ 23,546
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
SIMON PROPERTY GROUP, INC. AND
SPG REALTY CONSULTANTS, INC.
Notes to Unaudited Condensed Financial Statements
(Dollars in thousands, except per share amounts and where indicated as in
billions)
Note 1 - Basis of Presentation
The accompanying combined financial statements include Simon Property
Group, Inc. ("SPG") and subsidiaries and its paired-share affiliate SPG Realty
Consultants, Inc. ("SRC" and together with SPG, the "Companies") and its
subsidiary. All significant intercompany amounts have been eliminated. The
combined balance sheets and statements of operations and cash flows reflect the
purchase of Corporate Property Investors, Inc. ("CPI") and related transactions
(the "CPI Merger") as of the close of business on September 24, 1998. Operating
results prior to the completion of the CPI Merger represent the operating
results of Simon DeBartolo Group, Inc. and subsidiaries ("SDG"), the predecessor
to SPG for financial reporting purposes.
The accompanying consolidated financial statements for SPG include the
accounts of SPG and its subsidiaries. All significant intercompany amounts have
been eliminated. SPG's primary subsidiary is Simon Property Group, L.P. (the
"SPG Operating Partnership"), formerly known as Simon DeBartolo Group, L.P.
("SDG, LP"). The balance sheets and statements of operations and cash flows
reflect the purchase of CPI as of the close of business on September 24, 1998.
Operating results prior to the CPI Merger represent the operating results of
SDG.
The accompanying consolidated financial statements of the paired share
affiliate, SRC, include the accounts of SPG Realty Consultants, L.P. (the "SRC
Operating Partnership"). Because the cash contributed to SRC and the SRC
Operating Partnership in exchange for shares of common stock and units of
partnership interests ("Units") in connection with the CPI Merger represented
equity transactions, SRC, unlike CPI, is not subject to purchase accounting
treatment. The separate statements of SRC represent the historical results of
Corporate Realty Consultants, Inc. ("CRC"), the predecessor to SRC, for all
periods prior to the CPI Merger. Minority interest on the SRC balance sheet as
of September 30, 1999 represents an 8.5% outside interest in clixnmortar.com.
The SRC Operating Partnership and the SPG Operating Partnership are
hereafter referred to as the "Operating Partnerships" and, together with the
Companies, as "Simon Group".
The accompanying 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. The results for the interim period ended
September 30, 1999 are not necessarily indicative of the results to be obtained
for the full fiscal year. The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the reported
amounts of 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.
Outstanding common shares of SPG are paired with 1/100th of a common share
of SRC (together "Paired Shares"). Likewise Units in the SPG Operating
Partnership are paired with Units in the SRC Operating Partnership ("Paired
Units"). SPG is a self-administered and self-managed, paired-share real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), and 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 September 30,
1999, Simon Group owned or held an interest in 253 income-producing properties
in the United States, which consisted of 163 regional malls, 77 community
shopping centers, four specialty retail centers, five office and mixed-use
properties and four value-oriented super-regional malls in 36 states (the
"Properties"), and four assets in Europe. Simon Group also owned interests in
one value-oriented super-regional mall, two community shopping centers, one
outlet center and one asset in Europe under construction and thirteen parcels of
land held for future development. In addition, Simon Group holds substantially
all of the economic interest in M.S. Management Associates, Inc. (the
"Management Company" -See Note 8). Simon Group 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 Properties, as well as certain other regional malls and community shopping
centers owned by third parties. The Companies owned 72.2% and 71.6% of the
Operating Partnerships at September 30, 1999 and December 31, 1998,
respectively.
13
<PAGE>
Properties which are wholly-owned or owned less than 100% and are
controlled by the Operating Partnerships 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 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 Partnerships are allocated to the
Companies based first on the Companies' preferred unit preference, if
applicable, and then on their remaining ownership interests in the Operating
Partnerships during the period. The Companies' remaining weighted average
ownership interests in the Operating Partnerships for the three-month and nine-
month periods ended September 30, 1999 were 72.3% and 72.2%, respectively. SPG's
remaining weighted average ownership interest in the SPG Operating Partnership
for the three-month and nine-month periods ended September 30, 1998 were 64.5%
and 63.8%, respectively. Prior to the CPI Merger, SRC owned its assets directly.
SRC is taxed as a C Corporation, and thus is subject to income taxes on its
earnings. SRC follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". The valuation allowance related to SRC's tax accounts is
adjusted as necessary based on management's expectations of SRC's ability to
utilize its tax benefit carryforwards.
Note 2 - NED Acquisition
Effective August 27, 1999, a limited liability company ("Mayflower") formed
by Simon Group and three other investors acquired a portfolio of ten regional
malls from New England Development Company ("NED") for approximately $1.3
billion (the "NED Acquisition"). Simon Group assumed management responsibilities
for the portfolio, which includes approximately 7.3 million square feet of gross
leasable area "(GLA"). Simon Group's 49.1% ownership interest in Mayflower is
accounted for using the equity method of accounting. All ten of the regional
malls are owned 100% by Mayflower, with the exception of Crystal Mall, in which
Mayflower owns a noncontrolling 50% interest and Simon Group holds a direct
noncontrolling 50% ownership interest. Mayflower's purchase price includes the
assumption of approximately $738,622 of mortgage indebtedness; $441,815 in cash;
and the issuance of 729,675 Paired Units valued at approximately $20,795;
1,485,410 7% Convertible Preferred Units in the SPG Operating Partnership valued
at approximately $41,591; and 1,485,410 8% Redeemable Preferred Units in the SPG
Operating Partnership valued at approximately $44,562. Simon Group's $162,700
share of the cash portion of the purchase price was financed using the Credit
Facility (See Note 9). Please refer to Note 10 for additional information
regarding the preferred Units issued and refer to Note 14 for additional
transactions involving NED which occurred, and are anticipated to occur, after
September 30, 1999.
Note 3 - CPI Merger
For financial reporting purposes, as of the close of business on September
24, 1998, the CPI Merger was consummated pursuant to the Agreement and Plan of
Merger dated February 18, 1998, among SDG, CPI and CRC.
Pursuant to the terms of the CPI Merger, a subsidiary of CPI merged with
and into SDG with SDG continuing as the surviving company. 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. Beneficial interests in CRC
were acquired for $14,000 in order to pair the common stock of CPI with 1/100th
of a share of common stock of CRC, the paired share affiliate.
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 per share of CPI common stock.
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 was 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 senior unsecured medium term bridge loan (the "Merger
Facility"), which bears interest at a base rate of LIBOR plus 65 basis points
and matured in three mandatory amortization payments (on June 22, 1999, March
24, 2000 and September 24, 2000) (See Note 9). An additional $237,000 was also
borrowed under the SPG Operating Partnership's existing Credit Facility. In
connection with the CPI Merger, CPI was renamed "Simon Property Group, Inc." and
CPI's paired share affiliate, CRC was renamed "SPG Realty Consultants, Inc." In
addition, SDG and SDG, LP were renamed "SPG Properties, Inc.", and "Simon
Property Group, L.P.", respectively.
Upon completion of the CPI Merger, SPG 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
14
<PAGE>
mall, Ocean County Mall, and certain net leased properties valued at
approximately $153,100) and liabilities assumed (except that SPG remains a co-
obligor with respect to the Merger Facility) of approximately $2.3 billion to
the SPG Operating Partnership or one or more subsidiaries of the SPG Operating
Partnership in exchange for 47,790,550 limited partnership interests and
5,053,580 preferred partnership interests in the SPG 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 net assets of SRC, with a carrying value of approximately $14,755,
were transferred to the SRC Operating Partnership in exchange for partnership
interests.
The Companies 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 considered the acquiring company because the SDG
common stockholders became majority holders of the common stock of SPG. The
value of the consideration paid by SDG has been allocated to the estimated fair
value of the CPI assets acquired and liabilities assumed which resulted in
goodwill of $41,987, as adjusted. Goodwill is being amortized over the estimated
life of the Properties acquired, which is 35 years. Accumulated amortization of
goodwill as of September 30, 1999 and December 31, 1998 was $1,200 and $414,
respectively.
SDG, LP contributed $14,000 cash to CRC and $8,000 cash to the SRC
Operating Partnership on behalf of the SDG common stockholders and the limited
partners of SDG, LP to obtain the beneficial interests in common stock of CRC,
which were paired with the shares of common stock issued by SPG, and to obtain
Units in the SRC Operating Partnership so that the limited partners of SDG, LP
would hold the same proportionate interest in the SRC Operating Partnership that
they hold in SDG, LP. 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%.
Pro Forma
The following unaudited pro forma summary financial information excludes
any extraordinary items and combines the consolidated results of operations of
SPG and SRC as if the CPI Merger had occurred as of January 1, 1998, and was
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 had been consummated at January
1, 1998, nor does it purport to represent the results of operations for future
periods.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998
-----------------------
<S> <C>
Revenue $ 1,243,104
=======================
Net income before allocation to limited partners (1) $ 173,389
=======================
Net income available to common shareholders $ 85,542
=======================
Net income per Paired Share (1) $ 0.52
=======================
Net income per Paired Share - assuming dilution $ 0.52
=======================
Weighted average number of Paired Shares of common stock outstanding 164,868,865
=======================
Weighted average number of Paired Shares of common stock outstanding -
assuming dilution 165,237,311
=======================
</TABLE>
(1) Includes a net gain on the sales of assets of $37,973, or $0.16 on a basic
earnings per Paired Share basis.
Note 4 - Reclassifications
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 1999 presentation. These
reclassifications have no impact on the net operating results previously
reported.
Note 5 - Per Share Data
Basic earnings per share is based on the weighted average number of shares
of common stock outstanding during the period and diluted earnings per share is
based on the weighted average number of shares of common stock outstanding
combined with the incremental weighted average shares that would have been
outstanding if all dilutive potential common shares would have been converted
into shares at the earliest date possible. The weighted average number of shares
used in the computation for the three-month periods ended September 30, 1999 and
1998 was 173,471,352 and 117,149,600, respectively. The weighted average number
15
<PAGE>
of shares used in the computation for the nine-month periods ended September 30,
1999 and 1998 was 171,949,877 and 112,956,863, respectively. The diluted
weighted average number of shares used in the computation for the three-month
periods ended September 30, 1999 and 1998 was 173,542,183 and 117,474,932,
respectively. The diluted weighted average number of shares used in the
computation for the nine-month periods ended September 30, 1999 and 1998 was
172,088,607 and 113,325,309, respectively.
Combined basic and diluted earnings per share is presented in the financial
statements based upon the weighted average number of Paired Shares outstanding,
giving effect to the CPI Merger as of the close of business on September 24,
1998. Management believes this presentation provides the shareholders with the
most meaningful presentation of earnings for a single interest in the combined
entities.
Neither series of convertible preferred stock issued and outstanding during
the comparative periods had a dilutive effect on earnings per share. Paired
Units held by limited partners in the Operating Partnerships may be exchanged
for Paired Shares, on a one-for-one basis in certain circumstances. If
exchanged, the Paired Units would not have a dilutive effect. The increase in
weighted average shares outstanding under the diluted method over the basic
method in every period presented for the Companies is due entirely to the effect
of outstanding stock options. Basic earnings 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, 1999 was $411,510 as compared to $256,611 for the same
period in 1998. Accrued and unpaid distributions were $3,428 at December 31,
1998, and represented distributions payable on SPG's 6.5% Series A Convertible
Preferred Stock. There were no accrued and unpaid distributions outstanding at
September 30, 1999. See Notes 2, 3, 7 and 10 for information about non-cash
transactions during the nine months ended September 30, 1999.
Note 7 - Other Acquisitions, Disposals and Development
In addition to the NED Acquisition, during the first nine months of 1999
Simon Group acquired the remaining ownership interests in four Properties for a
total of approximately $147,500, including the assumption of approximately
$48,500 of mortgage indebtedness. These purchases were funded primarily with
borrowings from the Credit Facility. Each of the Properties purchased were
previously accounted for using the equity method of accounting and are now
accounted for using the consolidated method of accounting.
On April 15, 1999, Simon Group sold the Three Dag Hammarskjold office
building and land (the former headquarters of CPI) in New York, New York for
$21,253, resulting in a loss of $5,155. The SRC Operating Partnership, which
owned the building, used its $11,753 portion of the net proceeds primarily to
repay the remaining $10,565 mortgage payable to the SPG Operating Partnership.
The SPG Operating Partnership used its portion of the net proceeds along with
the note repayment from the SRC Operating Partnership to pay down the
outstanding balance on the Credit Facility. Also in the second quarter of 1999,
one community shopping center was sold for $4,200, resulting in a loss of
$4,188. In addition, on June 18, 1999, Simon Group sold its partnership
interests in the management company of the Charles Hotel in Cambridge,
Massachusetts and related land, resulting in a gain of $35. The net proceeds of
approximately $28,500 were used to reduce the outstanding borrowings on the
Credit Facility.
In January of 1999, the approximately $150,000 Shops at Sunset Place opened
in South Miami, Florida. Simon Group owns a noncontrolling 37.5% interest in
this 510,000 square-foot destination-oriented retail and entertainment project.
In August of 1999, Simon Group opened the approximately $246,000 Mall of
Georgia, an approximately 1.6 million square-foot regional mall, and the
adjacent 441,000 square-foot $38,000 community shopping center, Mall of Georgia
Crossing in Buford (Atlanta), Georgia. Simon Group funded 85% of the capital
requirements of these projects and has a noncontrolling 50% ownership interest
in each of these Properties after the return of its equity and a 9% preferred
return thereon. In September of 1999, the approximately $216,000 Concord Mills
opened in Concord (Charlotte), North Carolina. Simon Group owns a noncontrolling
37.5% interest in this 1.4 million square-foot value-oriented super regional
mall.
Also during the third quarter of 1999, Simon Group launched a new program
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,
creating products that leverage the digitalization of consumers and Simon
merchants through an enhanced broadband network called TenantConnect.net and
incubating concepts that leverage the physical and virtual worlds through a
venture creation firm called clixnmortar.com, a subsidiary of the SRC Operating
Partnership. Simon Group's investment in the program during the first nine
months of 1999 is approximately $4,000.
16
<PAGE>
Note 8 - Investment in Unconsolidated Entities
Partnerships and Joint Ventures
Summary financial information of Simon Group's investment in partnerships
and joint ventures accounted for using the equity method of accounting and a
summary of Simon Group's investment in and share of income from such
partnerships and joint ventures follow:
<TABLE>
<CAPTION>
September 30, December 31,
BALANCE SHEETS 1999 1998
------------------- -------------------
<S> <C> <C>
Assets:
Investment properties at cost, net $5,542,915 $4,290,795
Cash and cash equivalents 156,851 173,778
Tenant receivables 128,539 140,579
Other assets 126,185 103,481
------------------- -------------------
Total assets $5,954,490 $4,708,633
=================== ===================
Liabilities and Partners' Equity:
Mortgages and other indebtedness $3,841,200 $2,861,589
Accounts payable, accrued expenses and other liabilities 241,704 227,677
------------------- -------------------
Total liabilities 4,082,904 3,089,266
Partners' equity 1,871,586 1,619,367
------------------- -------------------
Total liabilities and partners' equity $5,954,490 $4,708,633
=================== ===================
Simon Group's Share of:
Total assets $2,418,794 $1,910,021
=================== ===================
Partners' equity $ 667,151 $ 568,998
Add: Excess Investment (See below) 660,978 708,616
------------------- -------------------
Simon Group's Net Investment in Joint Ventures $1,328,129 $1,277,614
=================== ===================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------------- -----------------------------
September 30, September 30,
---------------------------------- -----------------------------
STATEMENTS OF OPERATIONS 1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Minimum rent $133,510 $108,924 $386,002 $306,486
Overage rent 5,715 426 14,236 8,236
Tenant reimbursements 64,196 51,775 183,882 138,433
Other income 12,476 5,985 30,233 17,205
------------ ------------ ------------ ------------
Total revenue 215,897 167,110 614,353 470,360
Operating Expenses:
Operating expenses and other 75,330 59,044 217,943 166,547
Depreciation and amortization 38,076 33,324 109,141 94,949
------------ ------------ ------------ ------------
Total operating expenses 113,406 92,368 327,084 261,496
------------ ------------ ------------ ------------
Operating Income 102,491 74,742 287,269 208,864
Interest Expense 58,646 45,569 155,862 130,747
Extraordinary Losses-Debt Extinguishment -- 2,060 -- 2,102
------------ ------------ ------------ ------------
Net Income 43,845 27,113 131,407 76,015
Third Party Investors' Share of Net Income 26,225 21,811 79,740 55,841
------------ ------------ ------------ ------------
Simon Group's Share of Net Income 17,620 5,302 51,667 20,174
Amortization of Excess Investment (See below) (5,347) (3,636) (17,010) (9,038)
------------ ------------ ------------ ------------
Income from Unconsolidated Entities $ 12,273 $ 1,666 $ 34,657 $ 11,136
============ ============ ============ ============
</TABLE>
As of September 30, 1999 and December 31, 1998, the unamortized excess of
Simon Group's investment over its share of the equity in the underlying net
assets of the partnerships and joint ventures ("Excess Investment") was $660,978
and $708,616, respectively. This Excess Investment is being amortized generally
over the life of the related Properties. Amortization included in
17
<PAGE>
income from unconsolidated entities for the three-month periods ended September
30, 1999 and 1998 was $5,347 and $3,636, respectively. Amortization included in
income from unconsolidated entities for the nine-month periods ended September
30, 1999 and 1998 was $17,010 and $9,038, 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 five wholly-owned Properties, 25 Properties held
as joint venture interests, 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. Simon
Group's share of consolidated net income (loss) of the Management Company, after
intercompany profit eliminations, was $6,321 and $2,151 for the three-month
periods ended September 30, 1999 and 1998, and was $10,415 and ($2,339) for the
nine-month periods ended September 30, 1999 and 1998, respectively.
European Investment
The SPG Operating Partnership and the Management Company have a 25%
ownership interest in European Retail Enterprises, B.V. ("ERE") and Groupe BEG,
S.A. ("BEG"), respectively, which are being accounted for using the equity
method of accounting. BEG and ERE are fully integrated European retail real
estate developers, lessors and managers. Simon Group's total investment in ERE
and BEG at September 30, 1999 was approximately $37,500, with commitments for an
additional $25,000, subject to certain performance and other criteria, including
Simon Group's approval of development projects. The agreements with BEG and ERE
are structured to allow Simon Group to acquire an additional 25% ownership
interest over time. As of September 30, 1999, BEG and ERE had two Properties
open in Poland and two in France, and one additional Property opened in Poland
in October of 1999.
Note 9 - Debt
At September 30, 1999, Simon Group had combined consolidated debt of
$8,541,721, of which $6,199,768 was fixed-rate debt and $2,341,953 was variable-
rate debt. Simon Group's pro rata share of indebtedness of the unconsolidated
joint venture Properties as of September 30, 1999 was $1,647,025. As of
September 30, 1999, Simon Group had interest-rate protection agreements related
to $437,999 of its combined consolidated indebtedness. The agreements are
generally in effect until the related variable-rate debt matures. Simon Group's
hedging activity did not materially impact interest expense in the comparative
periods.
In January of 1999, Simon Group retired the $21,910 mortgage on North East
Mall, which bore interest at 10% and had a stated maturity of September 2000,
using cash from working capital. The paydown included a $1,774 prepayment
charge, which was recorded as an extraordinary loss. In June of 1999, a new
$17,709 mortgage was placed on North East Mall bearing interest at 6.74%, with a
stated maturity of May 2002. The net proceeds were added to working capital.
On February 4, 1999, the SPG Operating Partnership completed the sale of
$600,000 of senior unsecured notes. These notes included two $300,000 tranches.
The first tranche bears interest at 6.75% and matures on February 4, 2004 and
the second tranche bears interest at 7.125% and matures on February 4, 2009. The
SPG Operating Partnership used the net proceeds of approximately $594,000
primarily to retire the $450,000 initial tranche of the Merger Facility and to
pay $142,000 on the outstanding balance of the Credit Facility.
On July 1, 1999, the SPG Operating Partnership retired mortgage
indebtedness of approximately $165,000 on three Properties generating an
extraordinary loss of $304. This payoff was financed primarily with the Credit
Facility.
Effective August 25, 1999, the SPG Operating Partnership completed the
refinancing of its $1.25 billion unsecured revolving credit facility (the
"Credit Facility"). The terms of the Credit Facility are essentially unchanged,
with the exception that the maturity date was extended from September 27, 1999
to August 25, 2002, with an additional one-year extension available at the
option of the SPG Operating Partnership.
18
<PAGE>
Note 10 - Shareholders' Equity
The following table summarizes the changes in the Companies' shareholders'
equity since December 31, 1998.
<TABLE>
<CAPTION>
SPG SPG SRC Unrealized
Preferred Common Common Gain (Loss) on
Stock Stock Stock Investment (1)
--------- ------ ------ --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 717,916 $ 17 $ 0 $ 126
Conversion of 155,978 shares of
Series A Preferred Stock into
5,926,440 Paired Shares (2) (199,320) 1
Common stock issued as dividend
(153,890 Paired Shares) (2)
Stock incentive program (541,361
Paired Shares, net of forfeitures)
Amortization of stock incentive
Stock options exercised (82,988
Paired Shares)
Adjustment to the limited
partners' interests in the
Operating Partnerships
Distributions
--------- ------- ------- --------------
Subtotal 518,596 18 -- 126
Comprehensive Income:
- --------------------
Unrealized loss on investment (1) (4,064)
Net income
--------- ------- ------- --------------
Total Comprehensive Income -- -- -- (4,064)
--------- ------- ------- --------------
Balance at September 30, 1999 $ 518,596 $ 18 $ 0 $ (3,938)
========== ====== ====== ==============
</TABLE>
<TABLE>
<CAPTION>
Capital in Unamortized Total
Excess of Par Accumulated Restricted Shareholders'
Value Deficit Stock Award Equity
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $3,083,213 $ (372,313) $ (19,750) $ 3,409,209
Conversion of 155,978 shares of
Series A Preferred Stock into
5,926,440 Paired Shares (2) 199,319 --
Common stock issued as dividend
(153,890 Paired Shares) (2) 4,030 4,030
Stock incentive program (541,361
Paired Shares, net of forfeitures) 13,727 (13,082) 645
Amortization of stock incentive 7,971 7,971
Stock options exercised (82,988
Paired Shares) 2,013 2,013
Adjustment to the limited
partners' interests in the
Operating Partnerships (26,256) (26,256)
Distributions (286,544) (286,544)
---------- ----------- ----------- ------------
Subtotal 3,276,046 (658,857) (24,861) 3,111,068
Comprehensive Income:
- --------------------
Unrealized loss on investment (1) (4,064)
Net income 143,756 143,756
---------- ----------- ----------- ------------
Total Comprehensive Income -- 143,756 -- 139,692
---------- ----------- ----------- ------------
Balance at September 30, 1999 $3,276,046 $ (515,101) $ (24,861) $ 3,250,760
========== =========== =========== ============
</TABLE>
(1) Amounts consist of the Companies' pro rata share of the unrealized gain
(loss) 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
combined balance sheets as other investment.
(2) On February 26, 1999, 150,000 shares of SPG's Series A Convertible
Preferred Stock were converted into 5,699,304 Paired Shares. On March 1,
1999 another 152,346 Paired Shares were issued to the holders of the
converted shares in lieu of the cash dividends allocable to these preferred
shares. Additionally, on May 10, 1999 another 5,978 shares of SPG's Series
A Convertible Preferred Stock were converted into 227,136 Paired Shares,
with another 1,544 Paired Shares issued in lieu of the cash dividends
allocable to those preferred shares. At September 30, 1999, 53,271 shares
of Series A Convertible Preferred Stock remained outstanding.
19
<PAGE>
Limited Partners' Preferred Interests in the SPG Operating Partnership
As described in Note 2, in connection with the NED Acquisition, on August
27, 1999, the SPG Operating Partnership issued two new series of preferred Units
as a portion of the consideration for the Properties acquired. The SPG Operating
Partnership authorized 2,700,000, and issued 1,485,410, 7.00% Cumulative
Convertible Preferred Units (the "7.00% Preferred Units") having a liquidation
value of $28.00 per Unit. The 7.00% Preferred Units accrue cumulative dividends
at a rate of $1.96 annually, which is payable quarterly in arrears. The 7.00%
Preferred Units are convertible at the holders' option on or after August 27,
2004, into either a like number of shares of 7.00% Cumulative Convertible
Preferred Stock of SPG with terms substantially identical to the 7.00% Preferred
Units or Paired Units at a ratio of 0.75676 to one provided that the closing
stock price of SPG's Paired Shares exceeds $37.00 for any three consecutive
trading days prior to the conversion date. The SPG Operating Partnership may
redeem the 7.00% Preferred Units at their liquidation value plus accrued and
unpaid distributions on or after August 27, 2009, payable in Paired Units. In
the event of the death of a holder of the 7.00% Preferred Units, or the
occurrence of certain tax triggering events applicable to a holder, the SPG
Operating Partnership may be required to redeem the 7.00% Preferred Units at
liquidation value payable at the option of the SPG Operating Partnership in
either cash (the payment of which may be made in four equal annual installments)
or Paired Shares.
The SPG Operating Partnership also authorized 2,700,000, and issued
1,485,410, 8.00% Cumulative Redeemable Preferred Units (the "8.00% Preferred
Units") having a liquidation value of $30.00. The 8.00% Preferred Units accrue
cumulative dividends at a rate of $2.40 annually, which is payable quarterly in
arrears. The 8.00% Preferred Units are each paired with one 7.00% Preferred Unit
or with the Units into which the 7.00% Preferred Units may be converted. The SPG
Operating Partnership may redeem the 8.00% Preferred Units at their liquidation
value plus accrued and unpaid distributions on or after August 27, 2009, payable
in either new preferred units of the SPG Operating Partnership having the same
terms as the 8.00% Preferred Units, except that the distribution coupon rate
would be reset to a then determined market rate, or in Paired Units. The 8.00%
Preferred Units are convertible at the holders' option on or after August 27,
2004, into 8.00% Cumulative Redeemable Preferred Stock of SPG with terms
substantially identical to the 8.00% Preferred Units. In the event of the death
of a holder of the 8.00% Preferred Units, or the occurrence of certain tax
triggering events applicable to a holder, the SPG Operating Partnership may be
required to redeem the 8.00% Preferred Units owned by such holder at their
liquidation value payable at the option of the SPG Operating Partnership in
either cash (the payment of which may be made in four equal annual installments)
or Paired Shares.
Preferred Stock
Also in connection with the NED Acquisition, on August 27, 1999, SPG
authorized two new series of preferred stock to be available for issuance upon
conversion by the holders or redemption by the SPG Operating Partnership of the
7.00% Preferred Units or the 8.00% Preferred Units, as described above. SPG
authorized 2,700,000 shares of Series C 7.00% Cumulative Convertible Preferred
Stock and 2,700,000 shares of Series D 8.00% cumulative redeemable Preferred
Stock. Each of these new series of preferred stock have terms which are
substantially identical to the respective series of Preferred Units. None of
such shares were issued or outstanding through September 30, 1999.
The Simon Property Group 1998 Stock Incentive Plan
At the time of the CPI Merger, Simon Group 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 1999, 560,358 Paired Shares of
restricted stock were awarded to executives related to 1998 performance. As of
September 30, 1999, 1,828,586 Paired Shares of restricted stock, net of
forfeitures, were deemed earned and awarded under the 1998 Plan. Approximately
$2,604 and $2,852 relating to these programs were amortized in the three-month
periods ended September 30, 1999 and 1998, respectively and approximately $7,971
and $7,299 relating to these programs were amortized in the nine-month periods
ended September 30, 1999 and 1998, 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 shareholders' equity and
subsequently amortized against earnings of Simon Group over the vesting period.
20
<PAGE>
Note 11 - 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 were all principals or affiliates of The Richard E. Jacobs Group,
Inc. ("Jacobs"). The plaintiffs alleged in their complaint that the SPG
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 SPG Operating Partnership's acquisition by tender offer of
shares in the Retail Property Trust ("RPT"), a Massachusetts business trust, and
certain litigation instituted in September, 1997, by the SPG Operating
Partnership against Jacobs in federal district court in New York. On September
17, 1999, the parties mutually agreed to dismiss, with prejudice, the lawsuit
brought by Jacobs. No consideration was paid to Jacobs by the SPG Operating
Partnership in connection with this dismissal.
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 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. Briefs have been filed by both parties. The Ohio
Supreme Court has not yet determined whether it will take the matter up on
appeal. As a result of the Appellate Court's decision, Simon Group recorded a
$12.0 million loss related to this litigation in the accompanying combined
statements of operations as an unusual item.
Roel Vento et al v. Tom Taylor et al. An affiliate of Simon Group 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. Simon Group 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 $3,384 plus
interest. Simon Group 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 Simon Group.
Simon Group 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 Simon Group's financial position or its
results of operations.
Long-term Contract
On September 30, 1999, Simon Group entered into a 10-year contract with
Enron Energy Services, a subsidiary of Enron and a leading provider of energy
outsourcing services, for Enron to supply or manage all of the energy commodity
requirements throughout Simon Group's portfolio. The contract includes
electricity, natural gas and maintenance of energy
21
<PAGE>
conversion assets and electrical systems including lighting. Simon Group
currently expends approximately $150 million annually in overall energy
consumption and related services.
Note 12 - Related Party Transactions
Until April 15, 1999, when the Three Dag Hammarskjold building was sold,
the SRC Operating Partnership received a substantial amount of its rental income
from the SPG Operating Partnership for office space under lease. During the
period prior to the CPI Merger, such rent was received from CPI.
Note 13 - New Accounting Pronouncements
On June 15, 1998, the 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 Simon Group beginning with the 2001 fiscal
year and may not be applied retroactively. Management does not expect the impact
of SFAS 133 to be material to the financial statements. However, SFAS 133 could
increase volatility in earnings and other comprehensive income.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), which is effective for fiscal years beginning after December 15, 1998.
The Companies have assessed the impact of this pronouncement and determined the
impact to be immaterial to the financial statements.
Note 14 - Subsequent Events
Mall of America
Effective October 15, 1999, the SPG Operating Partnership and its
affiliated Management Company acquired a noncontrolling 27.5% ownership interest
in Mall of America in Minneapolis, Minnesota, and adjacent land, for
approximately $170,000, including the assumption of its $85,800 pro rata share
of a $312,000 mortgage; the issuance of 1,000,000 shares of 8% Redeemable
Preferred Stock in SPG with a face value of $25,000 and $60,258 in cash. Simon
Group is entitled to 50% of the economic benefits of Mall of America. Simon
Group funded the majority of the cash portion of the purchase price with the
Credit Facility.
Additional NED Transactions
On October 26, 1999, Mayflower acquired an additional regional mall from
NED for approximately $222,850, which included the assumption of approximately
$158,508 of mortgage indebtedness; $34,996 in cash; and the issuance of 200,212
Paired Units valued at approximately $5,706; 407,574 7% Convertible Preferred
Units in the SPG Operating Partnership valued at approximately $11,412; and
407,574 8% Redeemable Preferred Units in the SPG Operating Partnership valued at
approximately $12,228. In conjunction with this transaction, Simon Group
acquired a regional mall from NED for approximately $66,312, including the
assumption of approximately $37,068 of mortgage indebtedness; $1,214 in cash;
and the issuance of 191,240 Paired Units valued at approximately $5,450; 389,310
7% Convertible Preferred Units in the SPG Operating Partnership valued at
approximately $10,900; and 389,310 8% Redeemable Preferred Units in the SPG
Operating Partnership valued at approximately $11,680. It is anticipated that
Mayflower will acquire ownership interests in two additional regional malls from
NED by the end of 1999 for approximately $175,000.
22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC. COMBINED
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 Simon Group 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; risks related
to the "year 2000 issue"; and environmental/safety requirements.
Overview
As described in Note 2 to the financial statements, effective August 27,
1999, Mayflower, a limited liability company in which Simon Group has a
noncontrolling 49.1% interest, acquired a portfolio of ten regional malls from
NED for approximately $1.3 billion. Simon Group assumed management
responsibilities for the portfolio, which includes approximately 7.3 million
square feet of GLA. The purchase price includes the assumption of approximately
$738.6 million of mortgage indebtedness; $441.8 million in cash; and the
issuance of 729,675 Paired Units valued at approximately $20.8 million and
2,970,820 preferred Units in the SPG Operating Partnership valued at
approximately $86.2 million. Simon Group's $162.7 million share of the cash
portion of the purchase price was financed using the Credit Facility.
In addition, on October 26, 1999, Mayflower acquired an additional regional
mall from NED for approximately $222.8 million, which included the assumption of
approximately $158.5 million of mortgage indebtedness; $35.0 million in cash;
and the issuance of 200,212 Paired Units valued at approximately $5.7 million
and 815,148 preferred Units in the SPG Operating Partnership valued at
approximately $23.6 million. Concurrent with this transaction, Simon Group
acquired a regional mall from NED for approximately $66.3 million, including the
assumption of approximately $37.1 million of mortgage indebtedness; $1.2 million
in cash and the issuance of 191,240 Paired Units valued at approximately $5.4
million and 778,620 preferred Units in the SPG Operating Partnership valued at
approximately $22.6 million. It is anticipated that Mayflower will acquire two
additional regional malls from NED by the end of 1999 for approximately $175
million.
On September 30, 1999, Simon Group entered into a 10-year contract with
Enron Energy Services, a subsidiary of Enron and a leading provider of energy
outsourcing services, for Enron to supply or manage all of the energy commodity
requirements throughout Simon Group's portfolio. The contract includes
electricity, natural gas and maintenance of energy conversion assets and
electrical systems including lighting. This alliance is designed to reduce
operating costs for Simon Group's tenants, as well as deliver incremental profit
to Simon Group. Simon Group currently expends approximately $150 million
annually in overall energy consumption and related services.
Also during the third quarter of 1999, Simon Group launched a new program
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,
creating products that leverage the digitalization of consumers and Simon
merchants through an enhanced broadband network called TenantConnect.net and
incubating concepts that leverage the physical and virtual worlds through a
venture creation firm called clixnmortar.com, a subsidiary of the SRC Operating
Partnership. Among the programs being tested for implementation are
FastFrog.com, which allows consumers to create an electronic wishlist on their
own personalized internet web site for any gift-giving occasion, which can then
be emailed to potential gift buyers, and YourSherpa.com, which allows shoppers
to scan items from any retailer in a given regional mall and then pay through a
single channel, instead of at each individual retailer, and have their
selections gift-wrapped and delivered and TenantConnect.net which implements a
high speed broadband network in the Properties. Simon Group's investment in the
program during the first nine months of 1999 is approximately $4 million.
For financial reporting purposes, as of the close of business on September
24, 1998, the operating results include the CPI Merger described in Note 3 to
the financial statements. As a result, the 1999 consolidated results of
operations include an additional 17 regional malls, two office buildings (one of
which was sold on April 15, 1999) and one community center, with an additional
six regional malls being accounted for using the equity method of accounting.
23
<PAGE>
The following Property acquisitions, sales and opening (the "Property
Transactions"), also impacted Simon Group's consolidated results of operations
in the comparative periods. On January 26, 1998, Simon Group acquired 100% of
Cordova Mall for approximately $87.3 million. In March of 1998, Simon Group
opened the approximately $13.3 million Muncie Plaza. On May 5, 1998, Simon Group
acquired the remaining 50.1% interest in Rolling Oaks Mall for 519,889 shares of
SPG's common stock, valued at approximately $17.2 million. Effective June 1,
1998, Simon Group sold The Promenade for $33.5 million. Effective June 30, 1998,
Simon Group sold Southtown Mall for $3.3 million. On December 7, 1998, Simon
Group obtained a controlling 90% interest in The Arboretum community center for
approximately $40.5 million. On January 29, 1999, Simon Group acquired the
remaining 15% ownership interests in Lakeline Mall and Lakeline Plaza for
approximately $21.8 million. On March 1, 1999 Simon Group acquired the remaining
50% ownership interests in Century III Mall for approximately $57.0 million. On
May 20, 1999, Simon Group sold Cohoes Commons for $4.2 million. On June 28, 1999
Simon Group purchased the remaining 50% interest in Haywood Mall for
approximately $68.8 million. (See Liquidity and Capital Resources for additional
information on 1999 acquisitions and dispositions.)
Results of Operations
For the Three Months ended September 30, 1999 vs. the Three Months Ended
September 30, 1998
Total revenue increased $148.8 million or 46.2% for the three months ended
September 30, 1999, as compared to the same period in 1998. This increase is
primarily the result of the CPI Merger ($113.1 million) and the Property
Transactions ($16.1 million). Excluding these items, total revenues increased
$19.7 million or 6.1%, primarily due to a $7.0 million increase in minimum
rents, a $7.9 million increase in overage rent and a $9.2 million increase in
tenant reimbursements, partially offset by a $4.4 million decrease in
miscellaneous income, which includes a $2.5 million brokerage fee received in
1998 in connection with the sale of the General Motors Building. The 3.6%
comparable increase in minimum rent results from increased occupancy levels, the
replacement of expiring tenant leases with renewal leases at higher minimum base
rents, and increased rents from Simon Group's marketing initiative, Simon Brand
Ventures ("SBV"). The increase in overage rent is primarily the result of the
negative impact in 1998 ($4.2 million) of a temporary change in the timing in
which overage rents were recognized promulgated by EITF 98-9, which was later
rescinded, and an overall increase in tenant sales.
Total operating expenses increased $81.6 million or 46.7% for the three
months ended September 30, 1999, as compared to the same period in 1998. This
increase is primarily the result of the CPI Merger ($69.0 million) and the
Property Transactions ($8.8 million). Excluding these transactions, total
operating expenses increased $3.8 million or 2.2%.
Interest expense increased $46.7 million, or 48.0% for the three months
ended September 30, 1999, as compared to the same period in 1998. This increase
is primarily a result of the CPI Merger ($39.0 million), the Property
Transactions ($5.8 million), and the NED Acquisition ($0.9 million). Excluding
these transactions, interest expense increased $1.0 million.
Please see Note 11 to the financial statements for a description of the
$12.0 million loss from litigation recorded as an unusual item during the
period.
Income from unconsolidated entities increased from $3.8 million in 1998 to
$18.6 million in 1999, resulting from a $10.6 million increase in income from
unconsolidated partnerships and joint ventures and a $4.2 million increase in
income from the Management Company.
Income before allocation to limited partners was $74.7 million for the
three months ended September 30, 1999, which reflects an increase of $21.9
million over the same period in 1998, primarily for the reasons discussed above.
Income before allocation to limited partners was allocated to the Companies
based on SPG's direct ownership of Ocean County Mall and certain net lease
assets, and the Companies' preferred Unit preferences and weighted average
ownership interests in the Operating Partnerships during the period. In
addition, SRC recognizes an income tax provision (benefit) on its pro rata share
of the earnings (losses) of the SRC Operating Partnership.
Preferred distributions of the SPG Operating Partnership represent
distributions of preferred Units issued in connection with the NED Acquisition
(See Note 2 to the financial statements). Preferred distributions of subsidiary
represent distributions on preferred stock of SPG Properties, Inc. (formerly
"Simon DeBartolo Group, Inc." prior to the CPI Merger), a 99.999% owned
subsidiary of SPG.
For the Nine Months ended September 30, 1999 vs. the Nine Months Ended September
30, 1998
Total revenue increased $438.3 million or 47.0% for the nine months ended
September 30, 1999, as compared to the same period in 1998. This increase is
primarily the result of the CPI Merger ($350.2 million) and the Property
Transactions
24
<PAGE>
($33.4 million). Excluding these items, total revenues increased $54.7 million
or 5.9%, primarily due to a $28.6 million increase in minimum rent, a $7.3
million increase in overage rents and a $22.2 million increase in tenant
reimbursements, partially offset by a $3.4 million decrease in miscellaneous
income, which includes a $2.5 million brokerage fee received in 1998 in
connection with the sale of the General Motors Building. The 5.1% comparable
increase in minimum rent results from increased occupancy levels, the
replacement of expiring tenant leases with renewal leases at higher minimum base
rents and increased rents from SBV. The $7.3 million increase in overage rents
is primarily the result of the $5.6 million negative impact in 1998 from EITF
98-9 discussed above. The $22.0 million increase in tenant reimbursements is
partially offset by a $16.6 million increase in recoverable expenses.
Total operating expenses increased $246.4 million or 48.6% for the nine
months ended September 30, 1999, as compared to the same period in 1998. This
increase is primarily the result of the CPI Merger ($207.1 million) and the
Property Transactions ($20.1 million). Excluding these transactions, total
operating expenses increased $19.2 million or 3.8%, primarily due to a $16.6
million increase in recoverable expenses, which was offset by an increase in
tenant reimbursements, as described above.
Interest expense increased $146.1 million, or 51.9% for the nine months
ended September 30, 1999, as compared to the same period in 1998. This increase
is primarily a result of the CPI Merger ($123.4 million), the Property
Transactions ($12.5 million), the NED Acquisition ($0.9 million) and incremental
interest on borrowings under the Credit Facility to acquire a noncontrolling
joint venture interest in twelve regional malls and two community centers (the
"IBM Properties") in February 1998 ($2.2 million). Excluding these transactions,
interest expense increased $7.1 million.
The $3.4 million income tax benefit in 1999 represents SRC's pro rata share
of the SRC Operating Partnership's current year losses and the realization of
tax carryforward benefits for which a valuation allowance was previously
provided.
Income from unconsolidated entities increased $36.3 million for the nine
months ended September 30, 1999, as compared to the same period in 1998,
resulting from a $23.5 million increase in income from unconsolidated
partnerships and joint ventures and a $12.8 million increase in income from the
Management Company. The increase in income from unconsolidated partnerships and
joint ventures is primarily due to the CPI Merger ($10.0 million) and the IBM
Properties ($4.9 million).
Please see Note 11 to the financial statements for a description of the
$12.0 million loss from litigation recorded as an unusual item during the
period.
The $2.2 million extraordinary loss in 1999 is the result of refinancing
indebtedness. The $7.0 million extraordinary gain in 1998 is the result of a
gain on forgiveness of debt ($5.2 million) and the write-off of the premium on
such indebtedness ($1.8 million).
Income before allocation to limited partners was $207.6 million for the
nine months ended September 30, 1999, which reflects an increase of $59.1
million over the same period in 1998, primarily for the reasons discussed above.
Income before allocation to limited partners was allocated to the Companies
based on SPG's direct ownership of Ocean County Mall and certain net lease
assets, and the Companies' preferred Unit preferences and weighted average
ownership interests in the Operating Partnerships during the period. In
addition, SRC recognizes an income tax provision (benefit) on its pro rata share
of the earnings (losses) of the SRC Operating Partnership.
Preferred distributions of the SPG Operating Partnership represent
distributions of preferred Units issued in connection with the NED Acquisition
(See Note 2 to the financial statements). Preferred distributions of subsidiary
represent distributions on preferred stock of SPG Properties, Inc. (formerly
"Simon DeBartolo Group, Inc." prior to the CPI Merger), a 99.999% owned
subsidiary of SPG.
Liquidity and Capital Resources
As of September 30, 1999, Simon Group's balance of cash and cash
equivalents was approximately $98.9 million. In addition to its cash balance,
Simon Group had a borrowing capacity on the Credit Facility of $570.5 million
available after outstanding borrowings and letters of credit at September 30,
1999. Simon Group also has access to public equity and debt markets. The SPG
Operating Partnership has a shelf registration statement currently effective,
under which $250 million in debt securities may be issued.
Management anticipates that cash generated from operations 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
25
<PAGE>
distributions to shareholders in accordance with REIT requirements. 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.
On February 26, 1999, 150,000 shares of SPG's Series A Convertible
Preferred stock were converted into 5,699,304 Paired Shares. On March 1, 1999,
another 152,346 Paired Shares were issued to the holders of the converted shares
in lieu of the cash dividends allocable to these preferred shares. Additionally,
on May 10, 1999 another 5,978 shares of SPG's Series A Convertible Preferred
stock were converted into 227,136 Paired Shares, with another 1,544 Paired
Shares issued in lieu of the cash dividends allocable to those preferred shares.
At September 30, 1999, 53,271 shares of Series A Convertible Preferred stock
remained outstanding.
Sensitivity Analysis
Simon Group's future earnings, cash flows and fair values relating to
financial instruments are dependent upon prevalent market rates of interest,
such as LIBOR. Based upon consolidated indebtedness and interest rates at
September 30, 1999, a 0.25% increase in the market rates of interest would
decrease earnings and cash flows over the next twelve months by approximately
$4.5 million and $5.2 million, respectively, and would decrease the fair value
of debt by approximately $160 million. A 0.25% decrease in the market rates of
interest would increase earnings and cash flows over the next twelve months by
approximately $4.5 million and $5.2 million, respectively, and would increase
the fair value of debt by approximately $175 million.
Financing and Debt
At September 30, 1999, Simon Group had consolidated debt of $8,542 million,
of which $6,200 million is fixed-rate debt bearing interest at a weighted
average rate of 7.3% and $2,342 million is variable-rate debt bearing interest
at a weighted average rate of 6.2%. As of September 30, 1999, Simon Group had
interest rate protection agreements related to $438 million of consolidated
variable-rate debt. Simon Group's interest rate protection agreements did not
materially impact interest expense or weighted average borrowing rates for the
nine months ended September 30, 1999 or 1998.
Scheduled principal payments of the Companies' share of consolidated
indebtedness over the next five years is $5,058 million, with $3,313 million
thereafter. Simon Group's combined ratio of consolidated debt-to-market
capitalization was 57.9% and 51.2% at September 30, 1999 and December 31, 1998,
respectively. Approximately 6.1% of this 6.7% increase is a result of the
decrease in the market price of the Companies' Paired Shares.
In January of 1999 Simon Group retired the $22 million mortgage on North
East Mall, which bore interest at 10% and had a stated maturity of September
2000, using cash from working capital. The paydown included a $1.8 million
prepayment charge, which was recorded as an extraordinary loss. In June of 1999,
a new $17.7 million mortgage was placed on North East Mall bearing interest at
6.74%, with a stated maturity of May 2002. The net proceeds were added to
working capital.
On February 4, 1999, the SPG Operating Partnership completed the sale of
$600 million of senior unsecured notes. These notes included two $300 million
tranches. The first tranche bears interest at 6.75% and matures on February 4,
2004 and the second tranche bears interest at 7.125% and matures on February 4,
2009. The SPG Operating Partnership used the net proceeds of approximately $594
million primarily to retire the $450 million initial tranche of the Merger
Facility and to pay $142 million on the outstanding balance of the Credit
Facility.
Effective August 25, 1999, the SPG Operating Partnership completed the
refinancing of its $1.25 billion unsecured revolving credit facility (the
"Credit Facility"). The terms of the Credit Facility are essentially unchanged,
with the exception that the maturity date was extended from September 27, 1999
to August 25, 2002, with an additional one-year extension available at the
option of the SPG Operating Partnership.
Acquisitions
In addition to the NED Acquisition described previously, during the first
nine months of 1999 Simon Group acquired the remaining ownership interests in
four Properties for a total of approximately $147.5 million, including the
assumption of approximately $48.5 million of mortgage indebtedness. These
purchases were funded primarily with borrowings from the Credit Facility. Each
of the Properties purchased were previously accounted for using the equity
method of accounting and are now accounted for using the consolidated method of
accounting.
26
<PAGE>
Additionally, on October 15, 1999, Simon Group and its affiliated
Management Company acquired a noncontrolling 27.5% ownership interest in Mall of
America in Minneapolis, Minnesota, and adjacent land, for approximately $170
million. The purchase price includes the assumption of $85.8 million pro rata
share of a $312.0 million mortgage; the issuance of 1,000,000 shares of 8%
Redeemable Preferred Stock in SPG with a face value of $25 million and $60.3
million in cash. Simon Group is entitled to 50% of the economic benefits of Mall
of America. Simon Group funded the majority of the cash portion of the purchase
price with the Credit Facility.
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 over the past
three years, coupled with the current status of the capital markets, that
acquisition activity in the near term will be a less significant component of
the Company's growth strategy. Management believes that funds on hand, and
amounts available under the Credit Facility, together with the net proceeds of
public and private offerings of debt and equity securities are sufficient to
finance likely acquisitions. No assurance can be given that Simon Group 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
On April 15, 1999, Simon Group sold the Three Dag Hammarskjold office
building and land (the former headquarters of CPI) in New York, New York for
$21.3 million, resulting in a loss of $5.2 million. The SRC Operating
Partnership, which owned the building, used its $11.8 million portion of the net
proceeds primarily to repay the remaining $10.6 million mortgage payable to the
SPG Operating Partnership. The SPG Operating Partnership used its portion of the
net proceeds along with the note repayment from the SRC Operating Partnership to
pay down the outstanding balance on the Credit Facility.
Also in the second quarter of 1999, one community shopping center was sold
for $4.2 million, resulting in a loss of $4.2 million. In addition, Simon Group
sold its partnership interests in the management company of the Charles Hotel in
Cambridge, Massachusetts and related land, resulting in a minimal gain. The net
proceeds of approximately $28.5 million, were used to reduce the outstanding
borrowings on the Credit Facility.
Portfolio Restructuring. In addition to the Property sales described above,
Simon Group is continuing to evaluate the potential sale of its remaining non-
retail holdings, along with a number of retail assets that are no longer aligned
with Simon Group's strategic criteria. If these assets are sold, management
expects the sale prices will not differ materially from the carrying value of
the related assets.
Development, Expansions and Renovations. Simon Group is involved in several
development, expansion and renovation efforts.
In January of 1999, The Shops at Sunset Place, a 510,000 square-foot
destination-oriented retail and entertainment project, opened in South Miami,
Florida. Simon Group owns 37.5% of this approximately $150 million specialty
center. The approximately $246 million Mall of Georgia, an approximately 1.6
million square foot regional mall project, opened on August 13, 1999. Adjacent
to the regional mall, the approximately $38 million Mall of Georgia Crossing is
an approximately 441,000 square-foot community shopping center project, which
also opened in August of 1999. Simon Group funded 85% of the capital
requirements of these projects and has a noncontrolling 50% ownership interest
in each of them after the return of its equity and a 9% return thereon. On
September 17, 1999, the approximately $216 million Concord Mills, a 1.4 million
square foot value-oriented super regional mall, opened in Concord (Charlotte),
North Carolina. Simon Group owns 37.5% of this approximately $216 million
Property.
Construction also continues on the following projects, which have an
aggregate construction cost of approximately $466 million, of which Simon
Group's share is approximately $265 million:
. Orlando Premium Outlets marks Simon Group's first project to be
constructed in the partnership with Chelsea GCA Realty. This 433,000
square-foot upscale outlet center is scheduled for completion in the
summer of 2000 in Orlando, Florida.
. Arundel Mills is scheduled to open in the fall of 2000. Simon Group has
a 37.5% ownership interest in this approximately 1.4 million square-foot
value-oriented super-regional mall project.
. Simon Group has two community center projects under construction: The
Shops at North East Mall and Waterford Lakes Town Center at a combined
1,316,000 square feet of GLA, which are each scheduled to open in
November of 1999.
27
<PAGE>
A key objective of Simon Group is to increase the profitability and market
share of its Properties through strategic renovations and expansions. Simon
Group's share of projected costs to fund all renovation and expansion projects
in 1999 is approximately $300 million, which includes approximately $190 million
incurred in the first nine months of 1999. It is anticipated that the cost of
these projects will be financed principally with the Credit Facility, project-
specific indebtedness, access to debt and equity markets, and cash flows from
operations. Simon Group currently has four major expansion and/or redevelopment
projects under construction with targeted 1999 completion dates. Included in
combined investment properties at September 30, 1999 is approximately $396.9
million of construction in progress, with another $231.6 million in the
unconsolidated joint venture investment properties.
Distributions. The Companies declared a distribution of $0.505 per Paired
Share in each of the first three quarters of 1999. The current annual
distribution rate is $2.02 per Paired Share. Future distributions will be
determined based on actual results of operations and cash available for
distribution. In addition, preferred distributions of $65.53 per share of SPG's
Series A preferred stock and $4.875 per share of SPG's Series B preferred stock
were declared during the first nine months of 1999.
Investing and Financing Activities
Cash used in investing activities for the nine months ended September 30,
1999 of $439.4 million is the result of acquisitions of $265.7 million, capital
expenditures of $349.6 million, investments in unconsolidated joint ventures of
$56.0 million, and $24.4 million of investments in and advances to the
Management Company, partially offset by distributions from unconsolidated
entities of $191.6 million; net proceeds from the sales of assets of $54.0
million; and cash of $10.8 million from the consolidations of Haywood Mall,
Century III Mall, Lakeline Mall and Lakeline Plaza. Capital expenditures
includes development costs of $74.0 million, renovation and expansion costs of
approximately $221.2 million and tenant costs and other operational capital
expenditures of approximately $54.4 million. Acquisitions, including transaction
costs, includes $166.5 million for the NED Acquisition and $69.0 million, $24.0
million and $6.3 million for the remaining interests in Haywood Mall, Century
III Mall and Lakeline Mall and Plaza, respectively. Investments in
unconsolidated joint ventures is primarily $15.7 million in Florida Mall, $11.2
million in Orlando Premium Outlots, $11.2 million in BEG and ERE and $6.3
million in Mall of Georgia. Distributions from unconsolidated entities includes
$46.5 million, $34.7 million, $28.0 million, $14.7 million and $12.5 million
from Gwinnett Place, Town Center at Cobb, Westchester Mall, Concord Mills and
the IBM Properties, respectively. Net proceeds from the sales of assets is made
up of $28.5 million, $21.3 million and $4.2 million from the sales of the
partnership interests in the management company of the Charles Hotel and related
land, the Three Dag Hammarskjold office building and Cohoes Center,
respectively.
Cash used in financing activities for the nine months ended September 30,
1999 was $34.4 million and primarily includes net distributions of $419.4
million, partially offset by net borrowings of $385.0 million.
EBITDA--Earnings from Operating Results before Interest, Taxes,
Depreciation and Amortization
Management believes that there are several important factors that
contribute to the ability of Simon Group to increase rent and improve
profitability of its shopping centers, including aggregate tenant sales volume,
sales per square foot, occupancy levels and tenant costs. Each of these factors
has a significant effect on EBITDA. Management believes that EBITDA is an
effective measure of shopping center operating performance because: (i) it is
industry practice to evaluate real estate properties based on operating income
before interest, taxes, depreciation and amortization, which is generally
equivalent to EBITDA; and (ii) EBITDA is unaffected by the debt and equity
structure of the property owner. EBITDA: (i) does not represent cash flow from
operations as defined by generally accepted accounting principles; (ii) should
not be considered as an alternative to net income as a measure of operating
performance; (iii) is not indicative of cash flows from operating, investing and
financing activities; and (iv) is not an alternative to cash flows as a measure
of liquidity.
Total EBITDA for the Properties increased from $908.0 million for the nine
months ended September 30, 1998 to $1,287.7 million for the same period in 1999,
representing a 41.8% increase. This increase is primarily attributable to the
CPI Merger ($291.3 million), the IBM Properties ($14.4 million), the NED
Acquisition ($8.9 million) and the other Properties opened or acquired during
1998 and 1999 ($13.4 million), partially offset by a decrease from Properties
sold in the comparative periods ($2.4 million). Excluding these items, EBITDA
increased $54.0 million, or 5.9%, resulting from aggressive leasing of new and
existing space and increased operating efficiencies. During this period
operating profit margin increased from 64.7% to 64.8%.
FFO-Funds from Operations
FFO, as defined by the National Association of Real Estate Investment
Trusts, means the consolidated net income of Simon Group and its subsidiaries
without giving effect to depreciation and amortization, gains or losses from
extraordinary items, gains or losses on sales of real estate, gains or losses on
investments in marketable securities and any provision/benefit
28
<PAGE>
for income taxes for such period, plus the allocable portion, based on Simon
Group's ownership interest, of funds from operations of unconsolidated joint
ventures, all determined on a consistent basis in accordance with generally
accepted accounting principles. Management believes that FFO is an important and
widely used measure of the operating performance of REITs which provides a
relevant basis for comparison among REITs. FFO is presented to assist investors
in analyzing performance. Simon Group's method of calculating FFO may be
different from the methods used by other REITs. FFO: (i) does not represent cash
flow from operations as defined by generally accepted accounting principles;
(ii) should not be considered as an alternative to net income as a measure of
operating performance or to cash flows from operating, investing and financing
activities; and (iii) is not an alternative to cash flows as a measure of
liquidity. Beginning January 1, 2000, the revised NAREIT definition of FFO will
not permit the exclusion of unusual items.
The following summarizes FFO of Simon Group and reconciles combined income
before unusual and extraordinary items to FFO for the periods presented:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands)
FFO of Simon Group $ 180,001 $ 123,584 $ 508,529 $ 348,448
=========== =========== =========== ===========
Reconciliation:
Income Before Unusual and Extraordinary Items $ 87,125 $ 52,851 $ 221,851 $ 141,489
Plus:
Depreciation and amortization from combined
consolidated Properties 93,182 60,877 272,263 177,038
Simon Group's share of depreciation and
amortization and extraordinary items from
unconsolidated affiliates 17,900 19,646 59,191 50,754
Loss on the sale of real estate -- 64 9,308 7,283
Less:
Minority interest portion of depreciation,
amortization and extraordinary items (1,516) (1,780) (3,566) (5,374)
Preferred distributions (including preferred
distributions of a subsidiary and to preferred
unitholders) (16,690) (8,074) (50,518) (22,742)
----------- ----------- ----------- -----------
FFO of Simon Group $ 180,001 $ 123,584 $ 508,529 $ 348,448
=========== =========== =========== ===========
FFO Allocable to the Companies $ 130,865 $ 79,841 $ 370,224 $ 222,575
=========== =========== =========== ===========
</TABLE>
Portfolio Data
The following operating statistics give effect to the CPI Merger and the
NED Acquisition for 1999 only. Statistics include all other Properties except
Richmond Town Square, which is in the final stages of an extensive
redevelopment.
Aggregate Tenant Sales Volume. For the nine months ended September 30, 1999
compared to the same period in 1998, total reported retail sales at mall and
freestanding GLA owned by Simon Group ("Owned GLA") in the regional malls
increased $3,167 million or 49.0% from $6,457 million to $9,624 million,
primarily as a result of the CPI Merger ($2,183 million), the NED Acquisition
($473 million), increased productivity of our existing tenant base and an
overall increase in occupancy. Retail sales at Owned GLA affect revenue and
profitability levels because they determine the amount of minimum rent that can
be charged, the percentage rent realized, and the recoverable expenses (common
area maintenance, real estate taxes, etc.) the tenants can afford to pay.
Occupancy Levels. Occupancy levels for Owned GLA at mall and freestanding
stores in the regional malls increased from 87.7% at September 30, 1998, to
88.5% at September 30, 1999. Owned GLA has increased 7.9 million square feet
from September 30, 1998, including the CPI Merger, to September 30, 1999,
primarily as a result of the NED Acquisition (4.2 million) and Property openings
(3.0 million).
Average Base Rents. Average base rents per square foot of mall and
freestanding Owned GLA at regional malls increased 15.3%, from $23.20 at
September 30, 1998 to $26.75 at September 30, 1999. Of this increase, $2.63 is a
result of the CPI Merger and NED Acquisition.
29
<PAGE>
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 Simon Group 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 Simon Group 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 Simon Group's exposure to increases in costs and
operating expenses resulting from inflation.
However, inflation may have a negative impact on some of Simon Group'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.
Year 2000 Costs
Simon Group has undertaken a project to identify and correct problems
arising from the inability of information technology hardware and software
systems to process dates after December 31, 1999. This Year 2000 project
consists of two primary components. The first component focuses on Simon Group's
key information technology systems (the "IT Component") and the second component
focuses on the information systems of key tenants and key third party service
providers as well as imbedded systems within common areas of substantially all
of the Properties (the "Non-IT Component"). Key tenants include the 20 largest
base rent contributors and anchor tenants with over 25,000 square feet of GLA.
Key third party service providers are those providers whose Year 2000 problems,
if not addressed, would be likely to have a material adverse effect on Simon
Group's operations.
The IT Component of the Year 2000 project is being managed by the
information services department of Simon Group who have actively involved other
disciplines within Simon Group which are directly impacted by an IT Component of
the project. The Non-IT Component is being managed by a steering committee of 25
employees, including senior executives of a number of Simon Group's departments.
In addition, outside consultants have been engaged to assist in the Non-IT
Component.
Status of Project Through October 31, 1999
IT Component. Simon Group's primary operating, financial accounting
and billing systems and Simon Group's standard primary desktop software
have been determined to be Year 2000 ready. Simon Group's information
services department has also completed its assessment of other "mission
critical" applications within Simon Group and has implemented solutions to
those applications in order for them to be Year 2000 ready. Vendor testing
has occurred for mission critical applications, but Simon Group continues
to perform its own tests on certain applications in an effort to assure
Year 2000 readiness.
Non-IT Component. The Non-IT Component includes the following phases:
(1) an inventory of Year 2000 items which are determined to be material to
Simon Group's operations; (2) assigning priority to identified items; (3)
assessing Year 2000 compliance status as to all critical items; (4)
developing replacement or contingency plans based on the information
collected in the preceding phases; (5) implementing replacement and
contingency plans; and (6) testing and monitoring of plans, as applicable.
Excluding the Properties recently acquired from NED in each phase of
the project, Phase (1) and Phase (2) are complete and Phase (3) is in
process. The assessment of compliance status of key tenants is
approximately 91% complete, the assessment of compliance status of key
third party service providers is approximately 96% complete, the assessment
of compliance status of critical inventoried components at the Properties
is approximately 91% complete and the assessment of compliance status of
non-critical inventoried components at the Properties is approximately 90%
complete. Where Year 2000 issues have been identified with Non-IT
Components, plans have been implemented, or will be implemented before
year-end, which Simon Group expects will address those Year
30
<PAGE>
2000 issues. Implementation of contingency and replacement plans (Phase
(5)) is ongoing and will continue throughout 1999 to the extent Year 2000
issues are identified. Testing (Phase (6)) has been completed. Testing at
12 Properties recently acquired from NED is expected to be completed by
November 15, 1999. Simon Group believes that mission critical Non-IT
Components have been identified at those 12 Properties and plans have been
implemented, or will be implemented before year-end, which Simon Group
expects will address those mission critical issues.
Contingency Plans (Phase 4). The development of contingency plans (Phase
(4)) is complete. Included within Simon Group's contingency plans is a
requirement that Simon Group's home office and each Property be manned by on-
site personnel beginning December 31, 1999 and continuing through the first
business day of January 2000 to recognize and immediately address, to the extent
possible, any Year 2000 issues arising out of any IT Component at Simon Group's
home office and any Non-IT Component at the Properties.
Costs. Simon Group estimates that it will spend approximately $1.5 million
in incremental costs for its Year 2000 project. This amount includes expenses
incurred beginning January 1997 and continuing through the beginning of 2000 for
any repairs or replacements necessary to correct noncompliant systems. Costs
incurred through September 30, 1999 are estimated at approximately $600
thousand, including approximately $100 thousand in the nine-month period ended
September 30, 1999. Such amounts are expensed as incurred. These estimates do
not include the costs expended by Simon Group following the 1996 merger with
DeBartolo Realty Corporation for software, hardware and related costs necessary
to upgrade its primary operating, financial accounting and billing systems,
which allowed those systems to, among other things, become Year 2000 compliant.
Risks. The most reasonably likely worst case scenario for Simon Group with
respect to the Year 2000 problems would be disruptions in operations at the
Properties. This could lead to reduced sales at the Properties and claims by
tenants which would in turn adversely affect Simon Group's results of
operations.
Simon Group has not yet completed all phases of its Year 2000 project and
Simon Group is dependent upon key tenants and key third party suppliers to make
their information systems Year 2000 compliant. In addition, disruptions in the
economy generally resulting from Year 2000 problems could have an adverse effect
on Simon Group's operations.
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
Reference is made to Item 2 of this Form 10-Q under the caption "Liquidity
and Capital Resources".
31
<PAGE>
Part II - Other Information
Item 1: Legal Proceedings
Please refer to Note 11 of the combined financial statements for a summary
of material litigation.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Powers, Designations, Preferences and Rights of
the 7.00% Series C Cumulative Convertible Preferred Stock,
$0.0001 Par Value
3.1a Certificate of Correction Filed to Correct Certain Errors in
Certificate of Powers, Designations, Preferences and Rights of
the 7.00% Series C Cumulative Convertible Preferred Stock,
$0.0001 Par Value
3.2 Certificate of Powers, Designations, Preferences and Rights of
the 8.00% Series D Cumulative Redeemable Preferred Stock,
$0.0001 Par Value
3.2a Certificate of Correction Filed to Correct Certain Errors in
Certificate of Powers, Designations, Preferences and Rights of
the 8.00% Series D Cumulative Redeemable Preferred Stock,
$0.0001 Par Value
3.3 Certificate of Powers, Designations, Preferences and Rights of
the 8.00% Series E Cumulative Redeemable Preferred Stock,
$0.0001 Par Value
(b) Reports on Form 8-K
One report on Form 8-K was filed during the current period.
On August 17, 1999 under Item 5 - Other Events, SPG
reported that it made available additional ownership and
operational information concerning the Companies, the
Operating Partnerships, and the properties owned or managed
as of June 30, 1999, in the form of a Supplemental
Information Package. A copy of the package was included as
an exhibit to the 8-K filing.
32
<PAGE>
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, INC. AND
SPG REALTY CONSULTANTS, INC.
/s/ John Dahl
-------------
John Dahl,
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Date: November 10, 1999
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001063761
<NAME> SIMON PROPERTY GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 96,057
<SECURITIES> 0
<RECEIVABLES> 262,842<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 12,606,369
<DEPRECIATION> (996,550)
<TOTAL-ASSETS> 13,861,642
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 8,541,538
0
518,596
<COMMON> 18
<OTHER-SE> 2,718,093
<TOTAL-LIABILITY-AND-EQUITY> 13,861,642<F3>
<SALES> 0
<TOTAL-REVENUES> 1,373,814
<CGS> 0
<TOTAL-COSTS> 745,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,822
<INTEREST-EXPENSE> 428,148
<INCOME-PRETAX> 212,034
<INCOME-TAX> 212,034
<INCOME-CONTINUING> 212,034
<DISCONTINUED> 0
<EXTRAORDINARY> (2,227)
<CHANGES> 0
<NET-INCOME> 144,392
<EPS-BASIC> .68
<EPS-DILUTED> .68
<FN>
<F1> Receivables are stated net of allowances.
<F2> The Company does not report using a classified balance sheet.
<F3> Includes limited partner's interest in the SPG Operating Partnership,
limited partners' preferred interest in the SPG Operating Partnership and
preferred stock of subsidiary of $999,550; $86,154 and $339,530,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001067173
<NAME> SPG REALTY CONSULTANTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,859
<SECURITIES> 0
<RECEIVABLES> 560<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 7,568
<DEPRECIATION> (1,231)
<TOTAL-ASSETS> 22,610
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 183
0
0
<COMMON> 0
<OTHER-SE> 14,053
<TOTAL-LIABILITY-AND-EQUITY> 22,610<F3>
<SALES> 0
<TOTAL-REVENUES> 2,961
<CGS> 0
<TOTAL-COSTS> 2,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,841
<INCOME-PRETAX> (5,557)
<INCOME-TAX> (3,374)
<INCOME-CONTINUING> (2,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636)
<EPS-BASIC> (.37)
<EPS-DILUTED> (.37)
<FN>
<F1> Receivables are stated net of allowance.
<F2> The Company does not report using a classified balance sheet.
<F3> Includes limited partner's interest in the SRC Operating Partnership
of $5,423.
</FN>
</TABLE>
============================================================================
Exhibit 3.1
SIMON PROPERTY GROUP, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES C 7.00% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$.0001 PAR VALUE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of
Directors (the "Board of Directors") of SIMON PROPERTY GROUP, INC., a
Delaware corporation (the "Corporation"), pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the
Restated Certificate of Incorporation of the Corporation to provide by
resolution or resolutions for the issuance of shares of preferred stock
of the Corporation, in one or more series with such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such
resolution providing for the issue of such series of preferred stock as
may be adopted from time to time by the Board of Directors;
WHEREAS, the Board of Directors of the Corporation has
determined that it is in the best interest of the Corporation and its
stockholders to designate a new series of preferred stock of the
Corporation; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and
fix the terms of a series of preferred stock and the number of shares
constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
SECTION 1. Designation and Number. The designation of the
series of Preferred Stock of the Corporation created by this Certificate
of Designation shall be "Series C 7.00% Cumulative Convertible Preferred
Stock" (the "7.00% Cumulative Convertible Preferred Stock"). The
authorized number of shares of 7.00% Cumulative Convertible Preferred
Stock shall be 1,500,000, with par value $.0001 per share.
SECTION 2. Ranking. The 7.00% Cumulative Convertible
Preferred Stock shall, with respect to the payment of dividends or
rights upon the dissolution, liquidation or winding-up of the
Corporation, rank: (i) senior to the holders of Common Stock, par value
$.0001 per share, of the Corporation (the "Common Stock") and any other
class or series of stock of the Corporation which by its terms rank
junior to the 7.00% Cumulative Convertible Preferred Stock either as to
dividends or rights upon the dissolution, liquidation or winding-up of
the Corporation (such Common Stock and such other class or series of
stock, collectively, the "Junior Stock"), (ii) pari passu with any other
preferred stock which is not by its terms junior or senior to the 7.00%
Cumulative Convertible Preferred Stock as to dividends or rights upon
the dissolution, liquidation or winding-up of the Corporation, and in
all respects shall rank pari passu with the 6.50% Series A Convertible
Preferred Stock, 6.50% Series B Convertible Preferred Stock, 6.50%
Series A Excess Preferred Stock, 6.50% Series B Excess Preferred Stock,
and 8.75% Series B Cumulative Redeemable Preferred Stock which are the
only preferred stock of the Corporation authorized as of the date hereof
("Parity Stock") and (iii) junior to any other preferred stock which by
its terms is senior to the shares of 7.00% Cumulative Convertible
Preferred Stock as to dividends or rights upon the dissolution,
liquidation or winding-up of the Corporation ("Senior Stock").
SECTION 3. Dividends. (a) The holders of shares of
7.00% Cumulative Convertible Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, in their
sole discretion, out of assets of the Corporation legally available for
payment an annual cash dividend equal to 7.00% of the Liquidation
Preference (as defined herein), payable in equal quarterly installments
on or about the last day of March, June, September and December of each
year. Dividends shall be payable to holders of record as they appear on
the stock register of the Corporation on such record dates, not more
than 30 calendar days nor less than five calendar days preceding the
payment dates thereof, as shall be fixed by the Board of Directors.
(b) Dividends on the shares of 7.00% Cumulative Convertible
Preferred Stock, without any additional return on unpaid dividends, will
accumulate, whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends and
whether or not such dividends are declared or paid when due. All such
dividends accumulate from the first date of issuance of any such shares
of 7.00% Cumulative Convertible Preferred Stock. Dividends on the
shares of 7.00% Cumulative Convertible Preferred Stock shall cease to
accumulate on such shares on the date of their earlier conversion or
redemption.
(c) If any shares of 7.00% Cumulative Convertible Preferred
Stock are outstanding, then, except as provided in the following
sentence, no dividends shall be declared or paid or set apart for
payment on any Parity Stock or Junior Stock for any period unless full
cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart
for such payments on the shares of 7.00% Cumulative Convertible
Preferred Stock for all past dividend periods and the then current
dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not set apart) upon the shares of
7.00% Cumulative Convertible Preferred Stock and any Parity Stock, all
dividends declared upon the shares of 7.00% Cumulative Convertible
Preferred Stock and any other Parity Stock shall be declared pro rata so
that the amount of dividends declared per share of 7.00% Cumulative
Convertible Preferred Stock and such other Parity Stock shall in all
cases bear to each other the same ratio that accrued dividends per share
of 7.00% Cumulative Convertible Preferred Stock and such other series of
Parity Stock bear to each other.
(d) Except as provided in subparagraph (c) above, unless full
cumulative dividends on the 7.00% Cumulative Convertible Preferred Stock
have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period, no dividends
(other than in Junior Stock) shall be declared, set aside for payment or
paid and no other dividend shall be declared or made upon any Junior
Stock, nor shall any Junior Stock be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such Junior
Stock) by the Corporation (except by conversion into or exchange for
Junior Stock).
SECTION 4. Liquidation Preference. (a) Each share of
7.00% Cumulative Convertible Preferred Stock shall be entitled to a
liquidation preference of $28.00 per share of 7.00% Cumulative
Convertible Preferred Stock ("Liquidation Preference").
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
7.00% Cumulative Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or
earnings, after and subject to the payment in full of all amounts
required to be distributed to the holders of Senior Stock, but before
any payment shall be made to the holders of Junior Stock, an amount
equal to the aggregate Liquidation Preference of the 7.00% Cumulative
Convertible Preferred Stock held by such holder, plus an amount equal to
accrued and unpaid dividends thereon, if any. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for the distribution after payment
in full of amounts required to be paid or distributed to holders of
Senior Stock shall be insufficient to pay the holders of the 7.00%
Cumulative Convertible Preferred Stock the full amount to which they
shall be entitled, the holders of the 7.00% Cumulative Convertible
Preferred Stock and the holders of any series of Parity Stock shall
share ratably with other holders of Parity Stock in any distribution of
the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect to the
Parity Stock held by each of the said holders upon such distribution if
all amounts payable on or with respect to said Parity Stock were paid in
full. After payment in full of the Liquidation Preference and
accumulated and unpaid dividends to which they are entitled, the holders
of shares of 7.00% Cumulative Convertible Preferred Stock shall not be
entitled to any further participation in any distribution of the assets
of the Corporation.
SECTION 5. Redemption. (a) General. The shares of
7.00% Cumulative Convertible Preferred Stock are not redeemable prior to
August 27, 2009.
(b) Redemption at the Option of the Corporation. (i) On and
after August 27, 2009, the Corporation may, at its option, at any time,
redeem the shares of 7.00% Cumulative Convertible Preferred Stock, in
whole or in part, at the Liquidation Preference, plus accrued and unpaid
dividends thereon, if any, to and including the date of redemption (the
"Redemption Price"). The Redemption Price is payable in cash or (other
than the portion thereof consisting of accrued and unpaid dividends,
which shall be payable in cash) in Common Stock at the Current Per Share
Market Price, as of the Redemption Date (as defined below) of the Common
Stock to be issued.
(ii) Provided that no later than the Redemption Date the
Corporation shall have (A) set apart the funds necessary to pay the
accrued and unpaid dividends on all the 7.00% Cumulative Convertible
Preferred Stock then called for redemption and (B) reserved for issuance
a sufficient number of authorized Common Stock, the Corporation may give
the holders of shares of 7.00% Cumulative Convertible Preferred Stock
written notice ("Redemption Notice") of a redemption pursuant to Section
5(b) (a "Redemption") not more than 70 nor less than 40 calendar days
prior to the date fixed for redemption (the "Redemption Date") at the
address of such holders on the books of the Corporation (provided that
failure to give such notice or any defect therein shall not affect the
validity of the proceeding for a Redemption except as to the holder to
whom the Corporation has failed to give such notice or whose notice was
defective). The shares of 7.00% Cumulative Convertible Preferred Stock
for which the Redemption Price has been paid shall no longer be deemed
outstanding from and after the date of payment and all rights with
respect to such shares shall forthwith cease and terminate. In case
fewer than all of the outstanding shares of 7.00% Cumulative Convertible
Preferred Stock are called for redemption, such shares shall be redeemed
pro rata, as nearly as practicable, among all holders of shares of 7.00%
Cumulative Convertible Preferred Stock. On or before the Redemption
Date, a holder of shares of 7.00% Cumulative Convertible Preferred Stock
shall have the conversion right set forth in Section 6 hereof
notwithstanding anything in this Section 5 to the contrary.
SECTION 6. Conversion. (a) Provided that the Closing
Price of the Paired Shares on any three (3) consecutive trading days
occurring after August 27, 1999 is greater than the then Threshold Value
(as defined below), each share of 7.00% Cumulative Convertible Preferred
Stock shall be convertible at the option of the holder, at any time on
and after August 27, 2004, upon no less than 15 business days prior
written notice to the Corporation, in whole or in part, unless
previously redeemed, pursuant to Section 6(b) below.
(b) Each share of 7.00% Cumulative Convertible Preferred
Stock that the holder elects to convert will be converted into 0.75676
shares of Common Stock (as adjusted from time to time pursuant to
Section 6(c) hereof, the "Conversion Factor"). The "Threshold Value"
initially shall be $37.00 but shall be subject to adjustment pursuant to
Section 6(d) hereof. At the time of such conversion, the holder shall
be entitled to receive with respect to the shares so converted a cash
payment in an amount equal to accrued and unpaid dividends thereon.
(c) Adjustments to the Conversion Factor. (i) Adjustments
for Dividends and Distributions. In case the Corporation shall at any
time or from time to time after the original issuance of the shares of
7.00% Cumulative Convertible Preferred Stock declare a dividend, or make
a distribution, on the outstanding Paired Shares, in either case, in
additional Paired Shares, or effect a subdivision, combination,
consolidation or reclassification of the outstanding Paired Shares into
a greater or lesser number of Paired Shares, then, and in each such
case, the Conversion Factor in effect immediately prior to such event or
the record date therefor, whichever is earlier, shall be adjusted by
multiplying such Conversion Factor by a fraction, (A) the numerator of
which is the number of Paired Shares that were outstanding immediately
after such event and (B) the denominator of which is the number of
Paired Shares outstanding immediately prior to such event. An adjustment
made pursuant to this Section 6(c) shall become effective in the case of
any such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of Paired
Shares entitled to receive such dividend or distribution, or in the case
of any such subdivision, reclassification, consolidation or combination,
at the close of business on the day upon which such partnership action
becomes effective.
(ii) Adjustment for Issuances. In case the Corporation shall,
at any time after August 27, 1999, issue (other than upon the exercise
of options, rights or convertible securities) Paired Shares at a price
per share less than 95% of the Current Per Share Market Price, then, and
in each such case, the Conversion Factor in effect immediately prior to
such issuance shall be adjusted so as to be equal to an amount
determined by multiplying the Conversion Factor in effect immediately
prior to such event by a fraction of which (A) the numerator shall be
(x) the number of Paired Shares outstanding at the close of business on
the date immediately preceding such issuance plus (y) the number of
Paired Shares so issued and (B) the denominator shall be (x) the number
of Paired Shares outstanding immediately preceding such issuance plus
(y) the number of Paired Shares which the aggregate consideration
receivable by the Corporation in connection with such issuance would
purchase at such Current Per Share Market Price. For purposes of this
Section 6(c)(ii), the aggregate consideration receivable by the
Corporation in connection with the issuance for cash for Paired Shares
shall be deemed to be equal to the gross offering price (before
deduction of customary underwriting discounts or commissions and
expenses payable to third parties) of all such securities being issued.
(iii) Issuance of Options, Warrants or Other Rights. In
case the Corporation shall issue rights to subscribe for or purchase, or
options or warrants to purchase, any Paired Shares (or securities
convertible into Paired Shares) at a price per Paired Share (or having a
conversion price per Paired Share) less than 95% of the Current Per
Share Market Price, the Conversion Factor in effect immediately prior
thereto shall be adjusted so that it shall equal the price determined by
multiplying the Conversion Factor in effect immediately prior thereto by
a fraction, of which (A) the numerator shall be (x) the number of Paired
Shares outstanding on the date immediately preceding such issuance plus
(y) the total number of additional Paired Shares offered for
subscription or issuable upon exercise of such options or warrants (or
into which the convertible securities so offered are convertible) and
(B) the denominator of which shall be (x) the number of Paired Shares
outstanding at the close of business on the date immediately preceding
such issuance plus (y) the number of Paired Shares which the aggregate
offering price of the total number of Paired Shares so offered for
subscription or issuable upon exercise of such options or warrants (or
the aggregate conversion price of the convertible securities so offered)
would purchase at such the Current Per Share Market Price. Such
adjustment shall be made successively whenever any rights, options or
warrants are issued; provided, however, that in the event that all
Paired Shares offered for subscription or purchase are not delivered (or
securities convertible into Paired Shares are not delivered) upon the
exercise of such rights, options or warrants, upon the expiration of
such rights, options or warrants the Conversion Factor shall be
readjusted to the Conversion Factor which would have been in effect had
the numerator and the denominator of the foregoing fraction and the
resulting adjustments made upon the issuance of such rights, options or
warrants been made based upon the number of Paired Shares (or securities
convertible into Paired Shares) actually delivered upon the exercise of
such rights, options or warrants rather than upon the number of Paired
Shares offered for subscription or purchase. In determining whether any
rights, options or warrants entitle the holders to subscribe for or
purchase Paired Shares at less than 95% of such Current Per Share Market
Price, and in determining the aggregate offering price of such rights,
options or warrants (or the aggregate conversion price of the
convertible securities), there shall be taken into account any
consideration received by the Corporation for such rights, options or
warrants (or convertible securities) and receivable by the Corporation
upon the exercise or conversion thereof, the value of such
consideration, if other than cash, to be determined in good faith by the
Board of Directors. Notwithstanding the foregoing, this Section
6(c)(iii) shall not apply to the issuance of a right, option or warrant
to purchase Paired Shares pursuant to any employee stock option or
similar plan adopted by the Board of Directors of the Corporation.
(iv) Adjustment for Consolidation, Merger, Reorganization or
Recapitalization, etc. In case of any consolidation, merger or
reorganization of the Corporation with or into another Entity or the
sale of all or substantially all of the assets of the Corporation to
another Entity (other than a consolidation, merger or sale which is
treated as a liquidation pursuant to Section 4 hereof or any
recapitalization of the Corporation), each share of 7.00% Cumulative
Convertible Preferred Stock shall, in the case of such sale, thereafter
be convertible into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of
Common Stock deliverable upon conversion of such shares of 7.00%
Cumulative Convertible Preferred Stock would have been entitled upon
such sale and, in the case of such consolidation, merger or
reorganization or recapitalization, the holder of each share of 7.00%
Cumulative Convertible Preferred Stock will, insofar as practicable,
receive a security or securities in the surviving entity or the
recapitalized entity, as the case may be, comparable to the share of
7.00% Cumulative Convertible Preferred Stock which, among other
comparable provisions, insofar as may be practicable, shall be
convertible into securities comparable to the Common Stock but shall,
following such merger, consolidation or reorganization, be immediately
convertible following such merger, consolidation or reorganization
notwithstanding the requirements set forth in Section 6(b) hereof; and,
in such case, other appropriate adjustments (as determined in good faith
by the Board of Directors of the Corporation) shall be made in the
application of the provisions in this Section 6 set forth with respect
to the rights and interests thereafter of the holders of the shares of
7.00% Cumulative Convertible Preferred Stock, to the end that the
provisions set forth in this Section 6 (including provisions with
respect to changes in and other adjustments of the Conversion Factor)
shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable
upon the conversion of the shares of 7.00% Cumulative Convertible
Preferred Stock.
(d) Adjustments to the Threshold Value. (i) In case the
Corporation shall at any time or from time to time after August 27, 1999
declare a dividend, or make a distribution, on the outstanding Paired
Shares, in either case, in additional Paired Shares, or effect a
subdivision, combination, consolidation or reclassification of the
outstanding Paired Shares into a greater or lesser number of Paired
Shares, then, and in each such case, the Threshold Value in effect
immediately prior to such event or the record date therefor, whichever
is earlier, shall be adjusted by multiplying such Threshold Value by a
fraction, (A) the numerator of which is the number of Paired Shares that
were outstanding immediately prior such event and (B) the denominator of
which is the number of Paired Shares outstanding immediately after to
such event.
(ii) The Threshold Value shall also be equitably adjusted to
reflect the effect of an issuance which would result in an adjustment to
the Conversion Factor under Section 6(c)(iv).
(iii) An adjustment made pursuant to this Section 6(d)
shall become effective in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of Paired Shares entitled to receive such
dividend or distribution, or in the case of any such subdivision,
reclassification, recapitalization, consolidation or combination, at the
close of business on the day upon which such corporate action becomes
effective.
(e) No adjustment in the Conversion Factor or the Threshold
Value shall be required unless such adjustment would require an increase
or decrease of at least 0.25% of the Conversion Factor or the Threshold
Value, as applicable; provided, that any adjustments which by reason of
this Section 6(e) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
(f) No fractional shares of Common Stock or scrip
representing fractions of shares of Common Stock shall be issued upon
conversion of a share of 7.00% Cumulative Convertible Preferred Stock.
If a fractional share of Common Stock is otherwise deliverable to a
converting holder upon a conversion of shares of 7.00% Cumulative
Convertible Preferred Stock, the Corporation shall in lieu thereof pay
to the person entitled thereto an amount in cash equal to the current
value of such fractional interest, calculated to the nearest 1/1000th of
a share, to be computed using the Current Per Share Market Price of a
Paired Share on the date of conversion.
(g) Whenever the Conversion Factor is adjusted pursuant to
Section 6(c) or the Threshold Value is adjusted pursuant to
Section 6(d), the Corporation shall promptly mail to the holders of
shares of 7.00% Cumulative Convertible Preferred Stock at their
addresses as shown on the books of the Corporation a notice stating that
the Conversion Factor and/or the Threshold Value, as the case may be,
has been adjusted, the effective date of such adjustment and the new
Conversion Factor or Threshold Value.
SECTION 7. No Right to Certain Dividends or Distributions.
(a) Any holder of shares of 7.00% Cumulative Convertible Preferred
Stock whose shares are redeemed pursuant to Section 5 hereto or
converted pursuant to Section 6 hereto, prior to being entitled to
receive any shares of Common Stock upon the occurrence of any such
event, will be required to execute and deliver to the Corporation a
Dividend Proration Agreement substantially in the form of Annex I
hereto.
(b) Notwithstanding anything elsewhere contained herein, any
funds which at any time shall have been deposited by the Corporation or
on its behalf with the transfer agent or any other depositary for the
purpose of any payment with respect to any shares of 7.00% Cumulative
Convertible Preferred Stock which shall have been redeemed for or
converted into shares of Common Stock pursuant to the provisions of
Sections 5 or 6, as applicable, shall forthwith upon such redemption or
conversion be repaid to the Corporation by the transfer agent or such
other depositary.
SECTION 8. Restrictions on Transfer. The shares of 7.00%
Cumulative Convertible Preferred Stock shall be subject to the
restrictions on transfer set forth in Article NINTH of the Charter of
the Corporation. Any transfer or attempted transfer in violation of the
provisions of this Section 8(a) shall be null and void.
SECTION 9. Status of Converted or Redeemed Shares of 7.00%
Cumulative Convertible Preferred Stock. Upon any conversion or any
redemption, repurchase or other acquisition by the Corporation of shares
of 7.00% Cumulative Convertible Preferred Stock, the shares of 7.00%
Cumulative Convertible Preferred Stock so converted, redeemed,
repurchased or acquired shall be retired and canceled.
SECTION 10. Voting. (a) Except as otherwise provided by law
and this Certificate of Designation, the holders of 7.00% Cumulative
Convertible Preferred Stock shall not be entitled to notice of, or to
vote at, any meeting of the stockholders of the Corporation or to vote
on any matter relating to the business or affairs of the Corporation.
(b) The Corporation shall not, without the affirmative
consent or approval of the holders of at least a majority in liquidation
preference of the shares of 7.00% Cumulative Convertible Preferred Stock
and 7.00% Cumulative Convertible Preferred Units of the Operating
Partnership then outstanding, voting together as a class, (i) authorize
any Senior Stock; or (ii) amend, alter or modify any of the provisions
of the Restated Certificate of Incorporation of the Corporation so as to
adversely affect the holders of shares of 7.00% Cumulative Convertible
Preferred Stock.
(c) In any case in which the holders of 7.00% Cumulative
Convertible Preferred Stock shall be entitled to vote pursuant to
Delaware law, each holder of 7.00% Cumulative Convertible Preferred
Stock shall be entitled to one vote for each share of 7.00% Cumulative
Convertible Preferred Stock held by such holder.
SECTION 11. Registration Rights for Share of 7.00%
Cumulative Convertible Preferred Stock. The shares of 7.00% Cumulative
Convertible Preferred Stock shall be deemed "Registrable Securities" for
purposes of Section 9.6 of the Partnership Agreement, subject to the
limitations and qualifications contained in Section 9.6 of the
Partnership Agreement unless the holder of such shares of 7.00%
Cumulative Convertible Preferred Stock is party to a registration rights
agreement pursuant to Section 5.06 of the Portfolio Agreement, in which
case such holder exclusively shall have the rights set forth therein.
SECTION 12. Issuance of Trust Interest. If any shares of
Common Stock are to be issued to a holder of a 7.00% Cumulative
Convertible Preferred Stock in connection with the redemption or
conversion of such 7.00% Cumulative Convertible Preferred Stock as
provided herein, the Corporation shall distribute to the holder of such
7.00% Cumulative Convertible Preferred Stock so redeemed or converted,
for no additional consideration, a number of Trust Interests equal to
the number of shares of Common Stock so issued.
SECTION 13. Definitions. Except as otherwise herein
expressly provided, the following terms and phrases shall have the
meanings set forth below:
"Closing Price" on any date shall mean the last sale price per
share, regular way, of the Paired Shares or, in case no such sale takes
place on such day, the average of the closing bid and asked prices,
regular way, of the Paired Shares in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if the Paired Shares are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Paired Shares are
listed or admitted to trading or, if the Paired Shares are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System for
the Paired Shares or, if such system is no longer in use, the principal
other automated quotations system that may then be in use or, if the
Paired Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market
maker making a market in the Paired Shares selected from time to time by
the Board of Directors of the Managing General Partner.
"c" on any date shall mean the average of the Closing Prices
for the five consecutive Trading Days ending on such date.
"Entity" shall mean any general partnership, limited
partnership, limited liability company, limited liability partnership,
corporation, joint venture, trust, business trust, cooperative or
association.
"Operating Partnership" shall mean Simon Property Group, L.P.
"Paired Share" shall mean one share of Common Stock and one
Trust Interest.
"Partnership Agreement" shall mean the Seventh Amended and
Restated Limited Partnership Agreement of the Operating Partnership.
"Portfolio Agreement" shall mean the Management and Portfolio
Agreement, dated as of February 22, 1999, among the Corporation, the
Operating Partnership, NED Management Limited Partnership and WellsPark
Management LLC.
"Shares" shall mean the shares of Common Stock.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Paired Shares are listed or admitted to
trading is open for the transaction of business or, if the Paired Shares
are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Trust" shall mean the trust owning all of the outstanding
shares of Common Stock, par value $0.0001 per share, of SPG Realty
Consultants, Inc. subject to a trust agreement among certain
stockholders of the Corporation, a trustee and the SPG Realty
Consultants, Inc. pursuant to which all holders of Shares are
beneficiaries of such Trust.
"Trust Interest" shall mean a pro rata beneficial interest in
the Trust.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by James M. Barkley, its Secretary, this 27th
day of August, 1999.
By: /s/ James M. Barkley
Name: James M. Barkley
Title: Secretary
Annex I to
7.00% Cumulative Convertible
Preferred Stock
DIVIDEND PRORATION AGREEMENT
Date: __________________
Simon Property Group, Inc.
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
Dear Sirs:
The undersigned is a holder of shares of 7.00% Cumulative
Convertible Preferred Stock ("Preferred Stock") of Simon Property Group,
Inc., a Delaware corporation (the "Corporation"). On the date hereof,
the undersigned has presented _____________ (number) shares of Preferred
Stock for conversion or redemption (collectively, a "Conversion")
pursuant to their terms. This letter agreement is being given in
satisfaction of a condition to the Conversion.
The undersigned hereby agrees with the Corporation that
concurrently with the first payment of a regular cash dividend (i.e., a
dividend that would not give rise to an adjustment of the "Conversion
Price" pursuant to Section 6(c)(i) of the Certificate of Designation
with respect to the shares of Preferred Stock) on shares of the
Corporation's Common Stock with respect to which the record date (the
"Next Record Date") occurs after the date of the Conversion, the
undersigned shall pay to the Corporation an amount equal to the product
of (x) the number of such shares of Common Stock issued in the
Conversion (adjusted for any dividend or distribution on the shares of
Common Stock in shares of Common Stock or the subdivision, combination
or reclassification of outstanding shares of Common Stock into a greater
or smaller number of Preferred Stock occurring after the date of the
Conversion in order to give appropriate effect thereto), (y) the per
share amount of such cash dividend and (z) a fraction, the numerator of
which shall be the number of days elapsed (computed on the basis of a
360-day year of twelve 30-day months) from the record date (the "Last
Record Date") for the payment of the last regular dividend on shares of
the Corporation's Common Stock occurring on or before the date of the
Conversion and the denominator of which shall be the number of days
elapsed (computed as aforesaid) from the Last Record Date to the Next
Record Date.
The undersigned further grants to the Corporation the right to set
off against any unpaid amount due to the Corporation under this letter
agreement any debt or other obligation of the Corporation owing to the
undersigned, including, without limitation, any dividend or other
distribution payable to the undersigned by reason of its ownership of
shares of the Corporation's Common Stock.
If the undersigned wishes to transfer legal, beneficial or record
ownership of any shares of the Corporation's Common Stock (or any
interest therein) issuable in the Conversion before all the
undersigned's foregoing obligations are fully performed, it shall
provide the Corporation with reasonably adequate cash or cash equivalent
security with respect to the undersigned's obligations hereunder or
shall obtain, for the Corporation's benefit, an instrument of assumption
by the transferee in which the transferee assumes all the undersigned's
obligations under this letter agreement, which instrument shall contain
a provision with respect to subsequent transfers with the same effect as
this paragraph.
This letter agreement shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to
conflicts of laws principles.
Very truly yours,
(Name of Converting Holder of Preferred
Stock)
By:
Name:
Title:
AGREED:
SIMON PROPERTY GROUP, INC.
By:
Name:
Title:
============================================================================
Exhibit 3.1a
CERTIFICATE OF CORRECTION
FILED TO CORRECT CERTAIN ERRORS IN
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES C 7.00% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$.0001 PAR VALUE
OF
SIMON PROPERTY GROUP, INC.
FILED IN THE OFFICE OF
THE SECRETARY OF STATE OF DELAWARE
ON AUGUST 27, 1999
SIMON PROPERTY GROUP, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is SIMON PROPERTY GROUP, INC. (the
"Corporation").
2. That a Certificate of Powers, Designations, Preferences and
Rights for the Series C 7.00% Cumulative Convertible Preferred Stock of
the Corporation(the "Designation Certificate") was filed by the
Secretary of State of Delaware on August 27, 1999 and that said
Designation Certificate requires correction as permitted by Section 103
of the General Corporation Law of the State of Delaware.
3. The inaccuracies or defects of the Designation Certificate to
be corrected are as follows:
a. Section 1 currently reads as follows:
"SECTION 1. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series C 7.00% Cumulative Convertible Preferred Stock"
(the "7.00% Cumulative Convertible Preferred Stock").
The authorized number of shares of 7.00% Cumulative
Convertible Preferred Stock shall be 1,500,000, with par
value $.0001 per share."
b. Section 13 currently includes a definition for "c".
4. The portion of the Designation Certificate in corrected form
is as follows:
a. Section 1 shall be deleted in its entirety and replaced
by the following:
"SECTION 1. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series C 7.00% Cumulative Convertible Preferred Stock"
(the "7.00% Cumulative Convertible Preferred Stock").
The authorized number of shares of 7.00% Cumulative
Convertible Preferred Stock shall be 2,700,000, with par
value $.0001 per share."
b. The term "c" and corresponding definition in Section 13
shall be deleted in its entirety replaced by the following:
"Current Per Share Market Price" on any date shall mean
the average of the Closing Prices for the five
consecutive Trading Days ending on such date.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by James M. Barkley its Secretary, this 20th day of October,
1999.
SIMON PROPERTY GROUP, INC.
By:
Name: James M. Barkley
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES D 8.00% CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.0001 PAR VALUE
OF
SIMON PROPERTY GROUP, INC.
FILED IN THE OFFICE OF
THE SECRETARY OF STATE OF DELAWARE
ON AUGUST 27, 1999
SIMON PROPERTY GROUP, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is SIMON PROPERTY GROUP, INC. (the
"Corporation")
2. That a Certificate of Powers, Designations, Preferences and
Rights for the Series D 8.00% Cumulative Redeemable Preferred Stock of
the Corporation (the "Designation Certificate") was filed by the
Secretary of State of Delaware on August 27, 1999 and that said
Designation Certificate requires correction as permitted by Section 103
of the General Corporation Law of the State of Delaware.
3. The inaccuracies or defects of the Designation Certificate to
be corrected are as follows:
a. Section 1 currently reads as follows:
" SECTION 1. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series D 8.00% Cumulative Redeemable Preferred Stock"
(the "8.00% Cumulative Redeemable Preferred Stock"). The
authorized number of shares of 8.00% Cumulative
Redeemable Preferred Stock shall be 1,500,000, with par
value $.0001 per share."
4. The portion of the Designation Certificate in corrected form
is as follows:
a. Section 1 shall be deleted in its entirety and replaced
by the following:
" SECTION 2. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series D 8.00% Cumulative Redeemable Preferred Stock"
(the "8.00% Cumulative Redeemable Preferred Stock"). The
authorized number of shares of 8.00% Cumulative
Redeemable Preferred Stock shall be 2,700,000, with par
value $.0001 per share."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by James M. Barkley its Secretary, this 20th day of October,
1999.
SIMON PROPERTY GROUP, INC.
By:
Name: James M. Barkley
============================================================================
Exhibit 3.2
SIMON PROPERTY GROUP, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES D 8.00% CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.0001 PAR VALUE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of
Directors (the "Board of Directors") of SIMON PROPERTY GROUP, INC., a
Delaware corporation (the "Corporation"), pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the
Restated Certificate of Incorporation of the Corporation to provide by
resolution or resolutions for the issuance of shares of preferred stock
of the Corporation, in one or more series with such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such
resolution providing for the issue of such series of preferred stock as
may be adopted from time to time by the Board of Directors;
WHEREAS, the Board of Directors of the Corporation has
determined that it is in the best interest of the Corporation and its
stockholders to designate a new series of preferred stock of the
Corporation; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and
fix the terms of a series of preferred stock and the number of shares
constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
SECTION 1. Designation and Number. The designation of the
series of Preferred Stock of the Corporation created by this Certificate
of Designation shall be "Series D 8.00% Cumulative Redeemable Preferred
Stock" (the "8.00% Cumulative Redeemable Preferred Stock"). The
authorized number of shares of 8.00% Cumulative Redeemable Preferred
Stock shall be 1,500,000, with par value $.0001 per share.
SECTION 2. Ranking. The 8.00% Cumulative Redeemable
Preferred Stock shall, with respect to the payment of dividends or
rights upon the dissolution, liquidation or winding-up of the
Corporation, rank: (i) senior to the holders of Common Stock, par value
$.0001 per share, of the Corporation (the "Common Stock") and any other
class or series of stock of the Corporation which by its terms rank
junior to the 8.00% Cumulative Redeemable Preferred Stock either as to
dividends or rights upon the dissolution, liquidation or winding-up of
the Corporation (such Common Stock and such other class or series of
stock, collectively, the "Junior Stock"), (ii) pari passu with any other
preferred stock which is not by its terms junior or senior to the 8.00%
Cumulative Redeemable Preferred Stock as to dividends or rights upon the
dissolution, liquidation or winding-up of the Corporation, and in all
respects shall rank pari passu with the 6.50% Series A Convertible
Preferred Stock, 6.50% Series B Convertible Preferred Stock, 6.50%
Series A Excess Preferred Stock, 6.50% Series B Excess Preferred Stock
and 8.75% Series B Cumulative Redeemable Preferred Stock, which are the
only preferred stock of the Corporation authorized as of the date hereof
("Parity Stock") and (iii) junior to any other preferred stock which by
its terms is senior to the shares of 8.00% Cumulative Redeemable
Preferred Stock as to dividends or rights upon the dissolution,
liquidation or winding-up of the Corporation ("Senior Stock").
SECTION 3. Dividends. (a) The holders of shares of
8.00% Cumulative Redeemable Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, in their
sole discretion, out of assets of the Corporation legally available for
payment an annual cash dividend equal to 8.00% of the Liquidation
Preference (as defined herein), payable in equal quarterly installments
on or about the last day of March, June, September and December of each
year. Dividends shall be payable to holders of record as they appear on
the stock register of the Corporation on such record dates, not more
than 30 calendar days nor less than five calendar days preceding the
payment dates thereof, as shall be fixed by the Board of Directors.
(b) Dividends on the shares of 8.00% Cumulative Redeemable
Preferred Stock, without any additional return on unpaid dividends, will
accumulate, whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends and
whether or not such dividends are declared or paid when due. All such
dividends accumulate from the first date of issuance of any such shares
of 8.00% Cumulative Redeemable Preferred Stock. Dividends on the shares
of 8.00% Cumulative Redeemable Preferred Stock shall cease to accumulate
on such shares on the date of their earlier conversion or redemption.
(c) If any shares of 8.00% Cumulative Redeemable Preferred
Stock are outstanding, then, except as provided in the following
sentence, no dividends shall be declared or paid or set apart for
payment on any Parity Stock or Junior Stock for any period unless full
cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart
for such payments on the shares of 8.00% Cumulative Redeemable Preferred
Stock for all past dividend periods and the then current dividend
period. When dividends are not paid in full (or a sum sufficient for
such full payment is not set apart) upon the shares of 8.00% Cumulative
Redeemable Preferred Stock and any Parity Stock, all dividends declared
upon the shares of 8.00% Cumulative Redeemable Preferred Stock and any
other Parity Stock shall be declared pro rata so that the amount of
dividends declared per share of 8.00% Cumulative Redeemable Preferred
Stock and such other Parity Stock shall in all cases bear to each other
the same ratio that accrued dividends per share of 8.00% Cumulative
Redeemable Preferred Stock and such other series of Parity Stock bear to
each other.
(d) Except as provided in subparagraph (c) above, unless full
cumulative dividends on the 8.00% Cumulative Redeemable Preferred Stock
have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period, no dividends
(other than in Junior Stock) shall be declared, set aside for payment or
paid and no other dividend shall be declared or made upon any Junior
Stock, nor shall any Junior Stock be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such Junior
Stock) by the Corporation (except by conversion into or exchange for
Junior Stock).
SECTION 4. Liquidation Preference. (a) Each share of
8.00% Cumulative Redeemable Preferred Stock shall be entitled to a
liquidation preference of $30.00 per share of 8.00% Cumulative
Redeemable Preferred Stock ("Liquidation Preference").
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
8.00% Cumulative Redeemable Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or
earnings, after and subject to the payment in full of all amounts
required to be distributed to the holders of Senior Stock, but before
any payment shall be made to the holders of Junior Stock, an amount
equal to the aggregate Liquidation Preference of the 8.00% Cumulative
Redeemable Preferred Stock held by such holder, plus an amount equal to
accrued and unpaid dividends thereon, if any. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for the distribution after payment
in full of amounts required to be paid or distributed to holders of
Senior Stock shall be insufficient to pay the holders of the 8.00%
Cumulative Redeemable Preferred Stock the full amount to which they
shall be entitled, the holders of the 8.00% Cumulative Redeemable
Preferred Stock and the holders of any series of Parity Stock shall
share ratably with other holders of Parity Stock in any distribution of
the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect to the
Parity Stock held by each of the said holders upon such distribution if
all amounts payable on or with respect to said Parity Stock were paid in
full. After payment in full of the Liquidation Preference and
accumulated and unpaid dividends to which they are entitled, the holders
of shares of 8.00% Cumulative Redeemable Preferred Stock shall not be
entitled to any further participation in any distribution of the assets
of the Corporation.
SECTION 5. Redemption. (a) General. The shares of
8.00% Cumulative Redeemable Preferred Stock are not redeemable prior to
August 27, 2009.
(b) Redemption at the Option of the Corporation. (i) On and
after August 27, 2009, the Corporation may, at its option, at any time,
redeem the shares of 8.00% Cumulative Redeemable Preferred Stock, in
whole or in part, at the Liquidation Preference, plus accrued and unpaid
dividends thereon, if any, to and including the date of redemption (the
"Redemption Price"). The Redemption Price is payable in cash or (other
than the portion thereof consisting of accrued and unpaid dividends,
which shall be payable in cash) in Common Stock at the Current Per Share
Market Price, as of the Redemption Date (as defined below) of the Common
Stock to be issued.
(ii) Provided that no later than the Redemption Date the
Corporation shall have (A) set apart the funds necessary to pay the
accrued and unpaid dividends on all the 8.00% Cumulative Redeemable
Preferred Stock then called for redemption and (B) reserved for issuance
a sufficient number of authorized Common Stock, the Corporation may give
the holders of shares of 8.00% Cumulative Redeemable Preferred Stock
written notice ("Redemption Notice") of a redemption pursuant to Section
5(b) (a "Redemption") not more than 70 nor less than 40 calendar days
prior to the date fixed for redemption (the "Redemption Date") at the
address of such holders on the books of the Corporation (provided that
failure to give such notice or any defect therein shall not affect the
validity of the proceeding for a Redemption except as to the holder to
whom the Corporation has failed to give such notice or whose notice was
defective). The shares of 8.00% Cumulative Redeemable Preferred Stock
for which the Redemption Price has been paid shall no longer be deemed
outstanding from and after the date of payment and all rights with
respect to such shares shall forthwith cease and terminate. In case
fewer than all of the outstanding shares of 8.00% Cumulative Redeemable
Preferred Stock are called for redemption, such shares shall be redeemed
pro rata, as nearly as practicable, among all holders of shares of 8.00%
Cumulative Redeemable Preferred Stock.
SECTION 6. No Right to Certain Dividends or Distributions.
(a) Any holder of shares of 8.00% Cumulative Redeemable Preferred Stock
whose shares are redeemed pursuant to Section 5 hereto prior to being
entitled to receive any cash or other securities upon the occurrence of
any such redemption, will be required to execute and deliver to the
Corporation a Dividend Proration Agreement substantially in the form of
Annex I hereto.
(b) Notwithstanding anything elsewhere contained herein, any
funds which at any time shall have been deposited by the Corporation or
on its behalf with the transfer agent or any other depositary for the
purpose of any payment with respect to any shares of 8.00% Cumulative
Redeemable Preferred Stock which shall have been redeemed into shares of
Common Stock pursuant to the provisions of Section 6 shall forthwith
upon such redemption be repaid to the Corporation by the transfer agent
or such other depositary.
SECTION 7. Restrictions on Transfer; Stapled Security.
The shares of 8.00% Cumulative Redeemable Preferred Stock shall be
subject to the restrictions on transfer set forth in Article NINTH of
the Charter of the Corporation. Any transfer or attempted transfer in
violation of the provisions of this Section 7 shall be null and void.
SECTION 8. Status of Redeemed Shares of 8.00% Cumulative
Redeemable Preferred Stock. Upon any redemption, repurchase or other
acquisition by the Corporation of shares of 8.00% Cumulative Redeemable
Preferred Stock, the shares of 8.00% Cumulative Redeemable Preferred
Stock so redeemed, repurchased or acquired shall be retired and
canceled.
SECTION 9. Voting. (a) Except as otherwise provided by law and
this Certificate of Designation, the holders of 8.00% Cumulative
Redeemable Preferred Stock shall not be entitled to notice of, or to
vote at, any meeting of the stockholders of the Corporation or to vote
on any matter relating to the business or affairs of the Corporation.
(b) The Corporation shall not, without the affirmative
consent or approval of the holders of at least a majority in liquidation
preference of the shares of 8.00% Cumulative Redeemable Preferred Stock
and 8.00% Cumulative Convertible Preferred Units of the Operating
Partnership then outstanding, voting together as a class, (i) authorize
any Senior Stock; or (ii) amend, alter or modify any of the provisions
of the Restated Certificate of Incorporation of the Corporation so as to
adversely affect the holders of shares of 8.00% Cumulative Redeemable
Preferred Stock.
(c) In any case in which the holders of 8.00% Cumulative
Redeemable Preferred Stock shall be entitled to vote pursuant to
Delaware law, each holder of 8.00% Cumulative Redeemable Preferred Stock
shall be entitled to one vote for each share of 8.00% Cumulative
Redeemable Preferred Stock held by such holder.
SECTION 10. Registration Rights for Share of 8.00%
Cumulative Redeemable Preferred Stock. The shares of 8.00% Cumulative
Redeemable Preferred Stock shall be deemed "Registrable Securities" for
purposes of Section 9.6 of the Partnership Agreement, subject to the
limitations and qualifications contained in Section 9.6 of the
Partnership Agreement unless the holder of such shares of 8.00%
Cumulative Redeemable Preferred Stock is party to a registration rights
agreement pursuant to Section 5.06 of the Portfolio Agreement, in which
case such holder exclusively shall have the rights set forth therein.
SECTION 11. Issuance of Trust Interest. If any shares of
Common Stock are to be issued to a holder of a 8.00% Cumulative
Redeemable Preferred Stock in connection with the redemption of such
8.00% Cumulative Redeemable Preferred Stock as provided herein, the
Corporation shall distribute to the holder of such 8.00% Cumulative
Redeemable Preferred Stock so redeemed, for no additional consideration,
a number of Trust Interests equal to the number of shares of Common
Stock so issued.
SECTION 12. Definitions. Except as otherwise herein
expressly provided, the following terms and phrases shall have the
meanings set forth below:
"Closing Price" on any date shall mean the last sale price per
share, regular way, of the Paired Shares or, in case no such sale takes
place on such day, the average of the closing bid and asked prices,
regular way, of the Paired Shares in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if the Paired Shares are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Paired Shares are
listed or admitted to trading or, if the Paired Shares are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System for
the Paired Shares or, if such system is no longer in use, the principal
other automated quotations system that may then be in use or, if the
Paired Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market
maker making a market in the Paired Shares selected from time to time by
the Board of Directors of the Managing General Partner.
"Current Per Share Market Price" on any date shall mean the
average of the Closing Prices for the five consecutive Trading Days
ending on such date.
"Operating Partnership" shall mean Simon Property Group, L.P.
"Paired Share" shall mean one share of Common Stock and one
Trust Interest.
"Partnership Agreement" shall mean the Seventh Amended and
Restated Limited Partnership Agreement of the Operating Partnership.
"Portfolio Agreement" shall mean the Management and Portfolio
Agreement, dated as of February 22, 1999, among the Corporation, the
Operating Partnership, NED Management Limited Partnership and WellsPark
Management LLC.
"Shares" shall mean the shares of Common Stock.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Paired Shares are listed or admitted to
trading is open for the transaction of business or, if the Paired Shares
are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Trust" shall mean the trust owning all of the outstanding
shares of Common Stock, par value $0.0001 per share, of SPG Realty
Consultants, Inc. subject to a trust agreement among certain
stockholders of the Corporation, a trustee and the SPG Realty
Consultants, Inc. pursuant to which all holders of Shares are
beneficiaries of such trust.
"Trust Interest" shall mean a pro rata beneficial interest in
the Trust.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by James M. Barkley, its Secretary, this 27th
day of August, 1999.
By: /s/ James M. Barkley
Name: James M. Barkley
Title: Secretary
Annex I to
8.00% Cumulative Redeemable
Preferred Stock
DIVIDEND PRORATION AGREEMENT
Date: __________________
Simon Property Group, Inc.
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
Dear Sirs:
The undersigned is a holder of shares of 8.00% Cumulative
Redeemable Preferred Stock ("Preferred Stock") of Simon Property Group,
Inc., a Delaware corporation (the "Corporation"). On the date hereof,
the undersigned has presented _____________ (number) shares of Preferred
Stock for redemption pursuant to their terms (the "Redemption"). This
letter agreement is being given in satisfaction of a condition to the
Redemption.
The undersigned hereby agrees with the Corporation that
concurrently with the first payment of a regular cash dividend on shares
of the Corporation's Common Stock with respect to which the record date
(the "Next Record Date") occurs after the date of the Redemption, the
undersigned shall pay to the Corporation an amount equal to the product
of (x) the number of such shares of Common Stock issued in the
Redemption (adjusted for any dividend or distribution on the shares of
Common Stock in shares of Common Stock or the subdivision, combination
or reclassification of outstanding shares of Common Stock into a greater
or smaller number of Preferred Stock occurring after the date of the
Redemption in order to give appropriate effect thereto), (y) the per
share amount of such cash dividend and (z) a fraction, the numerator of
which shall be the number of days elapsed (computed on the basis of a
360-day year of twelve 30-day months) from the record date (the "Last
Record Date") for the payment of the last regular dividend on shares of
the Corporation's Common Stock occurring on or before the date of the
Redemption and the denominator of which shall be the number of days
elapsed (computed as aforesaid) from the Last Record Date to the Next
Record Date.
The undersigned further grants to the Corporation the right to set
off against any unpaid amount due to the Corporation under this letter
agreement any debt or other obligation of the Corporation owing to the
undersigned, including, without limitation, any dividend or other
distribution payable to the undersigned by reason of its ownership of
shares of the Corporation's Common Stock.
If the undersigned wishes to transfer legal, beneficial or record
ownership of any shares of the Corporation's Common Stock (or any
interest therein) issuable in the Redemption before all the
undersigned's foregoing obligations are fully performed, it shall
provide the Corporation with reasonably adequate cash or cash equivalent
security with respect to the undersigned's obligations hereunder or
shall obtain, for the Corporation's benefit, an instrument of assumption
by the transferee in which the transferee assumes all the undersigned's
obligations under this letter agreement, which instrument shall contain
a provision with respect to subsequent transfers with the same effect as
this paragraph.
This letter agreement shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to
conflicts of laws principles.
Very truly yours,
(Name of Converting Holder of Preferred
Stock)
By:
Name:
Title:
AGREED:
SIMON PROPERTY GROUP, INC.
By:
Name:
Title:
============================================================================
Exhibit 3.2a
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES D 8.00% CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.0001 PAR VALUE
OF
SIMON PROPERTY GROUP, INC.
FILED IN THE OFFICE OF
THE SECRETARY OF STATE OF DELAWARE
ON AUGUST 27, 1999
SIMON PROPERTY GROUP, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is SIMON PROPERTY GROUP, INC. (the
"Corporation")
2. That a Certificate of Powers, Designations, Preferences and
Rights for the Series D 8.00% Cumulative Redeemable Preferred Stock of
the Corporation (the "Designation Certificate") was filed by the
Secretary of State of Delaware on August 27, 1999 and that said
Designation Certificate requires correction as permitted by Section 103
of the General Corporation Law of the State of Delaware.
3. The inaccuracies or defects of the Designation Certificate to
be corrected are as follows:
a. Section 1 currently reads as follows:
" SECTION 1. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series D 8.00% Cumulative Redeemable Preferred Stock"
(the "8.00% Cumulative Redeemable Preferred Stock"). The
authorized number of shares of 8.00% Cumulative
Redeemable Preferred Stock shall be 1,500,000, with par
value $.0001 per share."
4. The portion of the Designation Certificate in corrected form
is as follows:
a. Section 1 shall be deleted in its entirety and replaced
by the following:
" SECTION 2. Designation and Number. The designation
of the series of Preferred Stock of the Corporation
created by this Certificate of Designation shall be
"Series D 8.00% Cumulative Redeemable Preferred Stock"
(the "8.00% Cumulative Redeemable Preferred Stock"). The
authorized number of shares of 8.00% Cumulative
Redeemable Preferred Stock shall be 2,700,000, with par
value $.0001 per share."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by James M. Barkley its Secretary, this 20th day of October,
1999.
SIMON PROPERTY GROUP, INC.
By:
Name: James M. Barkley
============================================================================
Exhibit 3.3
SIMON PROPERTY GROUP, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
8.00% SERIES E CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.0001 PAR VALUE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of
Directors (the "Board of Directors") of SIMON PROPERTY GROUP, INC., a
Delaware corporation (the "Corporation"), pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the
Restated Certificate of Incorporation of the Corporation to provide by
resolution or resolutions for the issuance of shares of preferred stock
of the Corporation, in one or more series with such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such
resolution providing for the issue of such series of preferred stock as
may be adopted from time to time by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and
fix the terms of a series of preferred stock and the number of shares
constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
SECTION 1. Designation and Number. The designation of the
series of Preferred Stock of the Corporation created by this Certificate
of Designation shall be "8.00% Series E Cumulative Redeemable Preferred
Stock" (the "8.00% Series E Preferred Stock"). The authorized number of
shares of 8.00% Series E Preferred Stock shall be 1,000,000, with par
value $.0001 per share.
SECTION 2. Ranking. The 8.00% Series E Preferred Stock
shall, with respect to the payment of dividends or rights upon the
dissolution, liquidation or winding-up of the Corporation, rank: (i)
senior to the holders of Common Stock, par value $.0001 per share, of
the Corporation (the "Common Stock") and any other class or series of
stock of the Corporation which by their terms rank junior to the 8.00%
Series E Preferred Stock either as to dividends or rights upon the
dissolution, liquidation or winding-up of the Corporation (such Common
Stock and such other class or series of stock, collectively, the "Junior
Stock"), (ii) pari passu with any other preferred stock which are not by
their terms junior or senior to the 8.00% Series E Preferred Stock as to
dividends or rights upon the dissolution, liquidation or winding-up of
the Corporation, and in all respects shall rank pari passu with the
6.50% Series A Convertible Preferred Stock, 6.50% Series B Convertible
Preferred Stock, the 6.50% Series A Excess Preferred Stock, 6.50% Series
B Excess Preferred Stock, which are the only preferred stock of the
Corporation authorized as of the date hereof ("Parity Stock") and (iii)
junior to any other preferred stock which by their terms are senior to
the shares of 8.00% Series E Preferred Stock as to dividends or rights
upon the dissolution, liquidation or winding-up of the Corporation
("Senior Stock").
SECTION 3. Dividends. (a) Subject to the rights of
series of Senior Stock which may from time to time come into existence,
holders of the then outstanding 8.00% Series E Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out
of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of $2.00 per annum per share.
Such dividends shall accrue and be cumulative from the date of original
issue and shall be payable in equal amounts quarterly in arrears on the
last day of March, June, September and December or, if not a business
day, the next succeeding business day (each, a "Dividend Payment Date").
Such and any dividend payable on the shares of 8.00% Series E Preferred
Stock for any partial dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends will be
payable to holders of record as they appear in the share records of the
Corporation at the close of business on the applicable record date,
which shall be on the first day of the calendar month in which the
applicable Dividend Payment Date falls on or on such other date
designated by the Board of Directors of the Corporation for the payment
of dividends that is not more than 30 nor less than 10 days prior to
such Dividend Payment Date (each, a "Dividend Record Date").
(b) Dividends on 8.00% Series E Preferred Stock will accrue and be
cumulative whether or not the Corporation has earnings, whether or not
there are funds legally available for the payment of such dividends and
whether or not such dividends are earned, declared or authorized. No
interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the shares of 8.00%
Series E Preferred Stock which may be in arrears. Dividends paid on the
shares of 8.00% Series E Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a per share basis among all such
shares at the time outstanding.
(c) If, for any taxable year, the Corporation elects to designate
as "capital gain distributions" (as defined in Section 857 of the
Internal Revenue Code of 1986, as amended, or any successor revenue code
or section (the "Code")) any portion (the "Capital Gains Amount") of the
total dividends (as determined for federal income tax purposes) paid or
made available for the year to holders of all classes of capital stock
(the "Total Dividends"), then, to the extent that a portion is otherwise
allocable by law, the portion of the Capital Gains Amount that shall be
allocable to holders of shares of 8.00% Series E Preferred Stock shall
be in the same percentage that the total dividends paid or made
available to the holders of shares of 8.00% Series E Preferred Stock for
the year bears to the Total Dividends.
(d) If any shares of 8.00% Series E Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for
payment on any shares of any other series of Parity Stock or Junior
Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payments on shares of 8.00%
Series E Preferred Stock for all past dividend periods and the then
current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not set apart) upon the shares of
8.00% Series E Preferred Stock and the shares of Parity Stock, all
dividends declared upon shares of 8.00% Series E Preferred Stock and any
Parity Stock shall be declared pro rata so that the amount of dividends
declared per share on 8.00% Series E Preferred Stock and such other
Parity Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on 8.00% Series E Preferred Stock and such
other Parity Stock bear to each other.
(e) Unless full cumulative dividends on shares of 8.00% Series E
Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend
period, no dividends (other than in shares of Junior Stock) shall be
declared or paid or set aside for payment or other dividend shall be
declared or made upon the shares of Junior Stock, nor shall any shares
of Junior Stock be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such capital stock) by the Corporation
(except by conversion into or exchange for other Junior Stock).
(f) Any dividend payment made on shares of 8.00% Series E
Preferred Stock shall first be credited against the earliest accrued but
unpaid dividends due with respect to shares of 8.00% Series E Preferred
Stock which remain payable.
(g) No dividends on the 8.00% Series E Preferred Stock shall be
authorized by the Board of Directors of the Corporation or be paid or
set apart for payment by the Corporation at such time as the terms and
provisions of any agreement of the Corporation, including any agreement
relating to its indebtedness, prohibits such authorization, payment or
setting apart for payment or provides that such authorization, payment
or setting apart for payment would constitute a breach thereof or a
default thereunder if such authorization or payment shall be restricted
or prohibited by law.
(h) Except as otherwise provided herein, the 8.00% Series E
Preferred Stock shall not be entitled to participate in the earnings or
assets of the Corporation.
SECTION 4. Liquidation Preference. (a) Each share of
8.00% Series E Preferred Stock shall be entitled to a liquidation
preference of $25.00 per share of 8.00% Series E Preferred Stock
("Liquidation Preference").
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
8.00% Series E Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, after and
subject to the payment in full of all amounts required to be distributed
to the holders of Senior Stock, but before any payment shall be made to
the holders of Junior Stock, an amount equal to the aggregate
Liquidation Preference of the 8.00% Series E Preferred Stock held by
such holder, plus an amount equal to accrued and unpaid dividends
thereon, if any. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available
for the distribution after payment in full of amounts required to be
paid or distributed to holders of Senior Stock shall be insufficient to
pay the holders of the 8.00% Series E Preferred Stock the full amount to
which they shall be entitled, the holders of the 8.00% Series E
Preferred Stock and the holders of any series of Parity Stock shall
share ratably in any distribution of the remaining assets and funds of
the Corporation in proportion to the respective amounts which would
otherwise be payable in respect to the Parity Stock held by each of the
said holders upon such distribution if all amounts payable on, or with
respect to, said Parity Stock were paid in full. After payment in full
of the Liquidation Preference and accumulated and unpaid dividends to
which they are entitled, the holders of shares of 8.00% Series E
Preferred Stock shall not be entitled to any further participation in
any distribution of the assets of the Corporation.
(c) A consolidation or merger of the Corporation with or into any
other entity or entities, or a sale, lease, transfer, conveyance or
disposition of all or substantially all of the assets of the
Corporation or a statutory share exchange in which stockholders of the
Corporation may participate, shall not be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this Section 4.
SECTION 5. Redemption. (a) General. The 8.00% Series
E Preferred Stock are not redeemable prior to August 27, 2004.
(b) Redemption at the Option of the Corporation. (i) On and after
August 27, 2004, the Corporation may, at its option, at any time, redeem
the shares of 8.00% Series E Preferred Stock, in whole or in part, for
cash at the Liquidation Preference, plus accrued and unpaid dividends
thereon, if any, to and including the date of redemption without
interest (the "Redemption Price").
(ii) Unless full cumulative dividends on all shares of 8.00%
Series E Preferred Stock and Parity Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no shares of 8.00% Series
E Preferred Stock or Parity Stock shall be redeemed unless all
outstanding shares of 8.00% Series E Preferred Stock and Parity Stock
are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of shares of 8.00% Series E
Preferred Stock or Parity Stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of 8.00%
Series E Preferred Stock or Parity Stock, as the case may be.
Furthermore, unless full cumulative dividends on all outstanding shares
of 8.00% Series E Preferred Stock and Parity Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, the Corporation shall not
purchase or otherwise acquire directly or indirectly any shares of 8.00%
Series E Preferred Stock or Parity Stock (except by conversion into or
exchange for shares of Junior Stock).
(iii) The Corporation may give the holders of shares of
8.00% Series E Preferred Stock written notice ("Redemption Notice") of a
redemption pursuant to Section 5(b) (a "Redemption") not more than 60
nor less than 30 calendar days prior to the date fixed for Redemption
(the "Redemption Date") at the address of such holders on the books of
the Corporation (provided that failure to give such notice or any defect
therein shall not affect the validity of the proceeding for a Redemption
except as to the holder to whom the Corporation has failed to give such
notice or whose notice was defective). Each Redemption Notice shall
state: (i) the redemption date; (ii) the number of shares of 8.00%
Series E Preferred Stock to be redeemed from each such holder; (iii) the
redemption price per share; (iv) the place or places where certificates
for shares of 8.00% Series E Preferred Stock are to be surrendered for
payment of the redemption price; and (v) that dividends on shares of
8.00% Series E Preferred Stock will cease to accrue on such redemption
date. No failure to give such notice or any defect thereto or in the
mailing thereof shall affect the validity of the proceeding for the
Redemption of any 8.00% Series E Preferred Stock except as to the holder
to whom notice was defective or not given. In case fewer than all of
the outstanding shares of 8.00% Series E Preferred Stock are called for
redemption, such shares shall be redeemed pro rata, as nearly as
practicable, among all holders of shares of 8.00% Series E Preferred
Stock. If the Redemption Notice for any shares of 8.00% Series E
Preferred Stock has been given and if the funds necessary for such
Redemption have been set aside by the Corporation in trust for the
benefit of the holders of shares of 8.00% Series E Preferred Stock so
called for redemption, then from and after the Redemption Date,
dividends will cease to accrue on such shares of 8.00% Series E
Preferred Stock, such shares of 8.00% Series E Preferred Stock shall no
longer be deemed outstanding and all rights of the holders of such
shares will terminate, except the right to receive the Redemption Price.
(v) The holders of shares of 8.00% Series E Preferred Stock
at the close of business on a Dividend Record Date will be entitled to
receive the dividend payable with respect to such shares of 8.00% Series
E Preferred Stock on the corresponding Distribution Payment Date
notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Corporation's default
in the payment of the dividend due. Except as provided above, the
Corporation will make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of 8.00% Series E Preferred Stock
which have been called for redemption.
(vi) 8.00% Series E Preferred Stock have no stated maturity
and will not be subject to any sinking fund or mandatory redemption,
except as provided in Article NINTH of the Charter.
SECTION 6. Restrictions on Transfer or Redemption. The
shares of 8.00% Series E Preferred Stock shall be subject to the
restrictions on transfer set forth in Article NINTH of the Charter. Any
transfer or attempted transfer in violation of the provisions of this
Section 6 shall be null and void.
SECTION 7. Status of Redeemed Shares of 8.00% Series E
Preferred Stock. Upon any redemption, repurchase or other acquisition
by the Corporation of shares of 8.00% Series E Preferred Stock, the
shares of 8.00% Series E Preferred Stock so redeemed, repurchased or
acquired shall be retired and canceled.
SECTION 8. Voting. (a) Except as indicated in this Section
8, except as may be required by applicable law, or, at any time 8.00%
Series E Preferred Stock are listed on a securities exchange, as may be
required by the rules of such exchange, the holders of shares of 8.00%
Series E Preferred Stock will have no voting rights.
(b) The approval of two-thirds of the outstanding 8.00% Series E
Preferred Stock voting as a single class is required in order to (i)
amend, alter or repeal any provision of this Certificate or the Charter,
whether by merger, consolidation or otherwise (an "Event") so as to
materially and adversely affect the rights, preferences, privileges or
voting power of the holders of shares of 8.00% Series E Preferred Stock;
provided, however, an Event will not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers
of the 8.00% Series E Preferred Stock, in each such case, where each
share of 8.00% Series E Preferred Stock remains outstanding without a
material change to its terms and rights or is converted into or
exchanged for preferred stock of the surviving entity having
preferences, rights, privileges, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption thereof identical to that of a share of 8.00% Series E
Preferred Stock, or (ii) authorize, reclassify, create, or increase the
authorized or issued amount of any class or series of stock having
rights senior to 8.00% Series E Preferred Stock with respect to the
payment of dividends or amounts upon liquidation, dissolution or winding
up of the affairs of the Corporation or to create, authorize or issue
any obligation or security convertible into or evidencing the right to
purchase such shares. However, the Corporation may create additional
classes of Parity Stock and Junior Stock, increase the authorized number
of shares of Parity Stock and Junior Stock and issue additional series
of Parity Stock and Junior Stock without the consent of any holder of
8.00% Series E Preferred Stock or Voting Preferred Stock.
(c) Except as provided above and as required by law, or, at any
time 8.00% Series E Preferred Stock are listed on a securities exchange,
as may be required by the rules of such exchange, the holders of 8.00%
Series E Preferred Stock are not entitled to vote on any merger or
consolidation involving the Corporation, on any share exchange or on a
sale of all or substantially all of the assets of the Corporation.
(d) In any matter in which the 8.00% Series E Preferred Stock are
entitled to vote pursuant to this Section 8, each share of 8.00% Series
E Preferred Stock shall be entitled to one vote.
SECTION 9. The shares of 8.00% Series E Preferred Stock are
not convertible into or exchangeable for any other property or
securities of the Corporation, except that each share of 8.00% Series E
Preferred Stock is convertible into Excess Stock as provided in Article
NINTH of the Charter.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be executed by the undersigned this ____ day of October,
1999.
By: ______________________
Name:
Title:
