FORM 10-Q/A
(AMENDMENT NO.1)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12618
SIMON PROPERTY GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 35-1901999
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
No.)
115 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-1600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of May 13, 1996, 55,360,225 shares of common stock, par value $0.0001 per
share, and 3,200,000 shares of Class B common stock, par value $0.0001 per
share, were outstanding.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the Three Months Ended March 31, 1996 vs. the Three Months Ended March 31,
1995
Four property ownership changes (the "Property Transactions") affect the
comparison of the three-month periods. Effective February 23, 1995, SPG
Operating Partnership acquired an additional 50% interest in White Oaks Mall
("White Oaks") and subsequently began including White Oaks in the financial
statements using the consolidated method of accounting. Effective July 31,
1995, SPG Operating Partnership acquired the remaining 50% interest in
Crossroads Mall ("Crossroads") and subsequently began including Crossroads in
the financial statements using the consolidated method of accounting.
Effective September 25, 1995, SPG Operating Partnership acquired the remaining
55% interest in East Towne Mall ("East Towne") and subsequently began including
East Towne in the financial statements using the consolidated method of
accounting. Effective July 1, 1995, SPG Operating Partnership relinquished its
ability to solely direct certain activities related to the control of North
East Mall, and as a result began accounting for the property using the equity
method of accounting.
Total revenue increased $10.0 million or 7.7% for the three months ended
March 31, 1996, as compared to the same period in 1995. Of this increase, $5.1
million is a result of the Property Transactions. The remaining increase is
the result of increases in every component of revenue, primarily minimum rent
($2.5 million) and other income ($1.8 million).
Total operating expenses increased $7.7 million, or 11.0%, for the three
months ended March 31, 1996, as compared to the same period in 1995. Of this
increase, $2.7 million is a result of the Property Transactions. The remaining
$5.0 million increase is primarily due to increases in repairs and maintenance
($1.2 million) and depreciation and amortization ($2.7 million).
The gain on sale of an asset in the three months ended March 31, 1995
($2.4 million) relates to the sale of a minority partnership interest in land
previously held for development in Denver, Colorado.
Income from unconsolidated entities increased $1.5 million for the three
months ended March 31, 1996 as compared to the same period in 1995. This is
primarily due to SPG Operating Partnership's acquisition, in December of 1995,
of a 25% share of Smith Haven Mall, resulting in additional income of $0.7
million, and SPG Operating Partnership's share of a gain on the sale of a
peripheral property ($0.8 million).
The extraordinary loss of $0.3 million in the three months ended March 31,
1996 resulted from the early extinguishment of debt.
Income of SPG Operating Partnership was $23.6 million for the three months
ended March 31, 1996 as compared to $22.2 million for the same period in 1995,
reflecting an increase of $1.4 million, for the reasons discussed above, and
was allocated to the Company based on the Company's preferred unit preference
and ownership interest in SPG Operating Partnership during the period.
Liquidity and Capital Resources
At March 31, 1996, SPG Operating Partnership's balance of cash and cash
equivalents was $45.1 million, not including its proportionate share of cash
held by the joint venture properties and the Management Company. In addition
to its cash reserves, SPG Operating Partnership had unused capacity under its
unsecured revolving credit facility totaling $204.0 million.
Financing and Refinancing. On February 23, 1996, SPG Operating
Partnership borrowed the initial $100.0 million tranche of a $184.0 million two
tranche loan facility for Forum and retired the existing $89.7 mortgage debt
for Forum. The initial funding bears interest at LIBOR plus 100 basis points
and matures in February 2000. The remaining proceeds will be used to provide
funds for the approximately 250,000-square-foot phase II expansion of this
property.
On March 8, 1996, the joint venture which owns Smith Haven Mall entered
into an agreement to refinance $115.0 million of the purchase price of Smith
Haven Mall with a 10-year interest-only mortgage which carries interest at 113
basis points over 10-year treasury bills. Proceeds from the loan, which is
expected to close early in the summer of 1996, will be used to repay a portion
of the partners' equity contributions made at the time of the property
acquisition of approximately $221 million.
During the first quarter of 1996, SPG Operating Partnership drew an
additional $6.4 million on its construction loan for Cottonwood Mall in
Albuquerque, New Mexico. As of March 31, 1996, a total of $28.8 million was
outstanding on this construction loan.
On April 11, 1996, SPG Operating Partnership drew an additional $115.0
million on its revolving credit facility primarily to finance the acquisition
of the remaining interest in Ross Park Mall ($44 million) and to refinance a
portion of the property's debt ($54 million).
Development, Expansions and Renovations. The Company is involved in
several development, expansion and renovation efforts.
Groundbreaking on The Source, a 730,000-square-foot retail development
project in Westbury (Long Island), New York, took place on February 2, 1996.
This new $145 million development will adjoin an existing Fortunoff store and
is expected to open in 1997. SPG Operating Partnership owns 50% of this joint
venture development.
SPG Operating Partnership has also begun demolition of the existing Bakery
Centre in South Miami, Florida in preparation for the development of The Shops
at Sunset Place. Pre-development efforts continue for this 75%-owned 550,000-
square-foot retail and entertainment center.
Construction also continues on the following projects:
* Cottonwood Mall, a 1.0 million-square-foot project is scheduled to open
during the summer of 1996, in Albuquerque, New Mexico. This project is
wholly-owned by SPG Operating Partnership.
* A 250,000-square-foot phase II expansion of Forum, in which SPG Operating
Partnership has a 55% ownership interest, is scheduled to open in the Fall of
1997. The approximately $90 million costs of the Forum project will be
funded with a portion of a $184 million financing facility which closed
February 23, 1996.
* Ontario Mills, a 1.4 million-square-foot value-oriented regional mall in
Ontario, California, in which SPG Operating Partnership has a 25% ownership
interest, is scheduled to open in November 1996. This approximately $165
million project, a partnership venture with The Mills Corporation, is
anticipated to be funded with third-party financing which is not yet
finalized. SPG Operating Partnership has agreed to funding commitments of up
to $15.0 million relating to the construction of this project.
* The Tower Shops at Stratosphere, in Las Vegas, Nevada, is an approximately
$42 million, 122,000-square-foot retail development project in which SPG
Operating Partnership owns a 50% interest. This two-phase retail development
is currently under construction and phase I is scheduled to open in the
summer of 1996, with phase II scheduled to open in the fall of 1996. The
project has a 15% equity commitment to fund the initial $6.4 million of
construction costs before the remaining construction funding of approximately
$36 million will be advanced by the lender.
Management is also considering renovation and expansion projects at
various other properties. It is anticipated that these projects will be
financed principally with external borrowings, existing corporate credit
facilities and cash flows from operations.
Debt. At March 31, 1996, SPG Operating Partnership had consolidated debt
of $1,995.6 million, of which $1,230.6 million is fixed-rate debt and $765.0
million is variable-rate debt. As of March 31, 1996 and 1995, SPG Operating
Partnership had interest-rate protection agreements relating to $551.2 million
and $553.0 million of the variable-rate debt, respectively. The agreements are
generally in effect until the related variable-rate debt matures.
The Company's ratio of consolidated debt-to-market capitalization was
approximately 46.3% at March 31, 1996.
Dividends. The Company declared a dividend of $0.4925 per share of common
stock for the first quarter of 1996. Future common stock dividends will be
determined based on actual results of operations and cash available for
dividend. Preferred dividends of $0.5078 per preferred share were also
incurred during this period.
Capital Resources. Management anticipates that cash generated from
operating performance will provide the necessary funds on a short- and long-
term basis for its operating expenses, interest expense on outstanding
indebtedness, recurring capital expenditures and distributions to shareholders
in accordance with REIT requirements.
Management continues to actively review and evaluate a number of property
acquisition opportunities. Management believes that funds on hand and amounts
available under SPG Operating Partnership's unsecured revolving credit
facility, together with the ability to issue shares of common stock of the
Company and/or Units, provide the means to finance certain acquisitions. No
assurance can be given that the Company will not be required to, or will not
elect to, even if not required to, obtain funds from outside sources, including
through the sale of debt or equity securities, to finance significant
acquisitions, if any.
Investing and Financing Activities. Cash used in investing activities for
the three months ended March 31, 1996 was $18.6 million, including capital
expenditures and development related costs of $9.2 million, $4.0 million and
$12.0 at Cottonwood Mall, Forum, and various other properties, respectively;
and advances to unconsolidated joint ventures totaling $5.1 million, partially
offset by a note repayment received from M.S. Management Associates of $11.8
million. Cash used in investing activities for the three months ended March 31,
1995 included $15.1 million for tenant allowances, capital expenditures and
development related costs and $3.1 million for the acquisition of a joint
venture interest in a parcel of land to be held for development in Little Rock,
Arkansas, partially offset by $2.6 of net proceeds from the sale of a joint
venture interest in land held for development and cash of $3.4 million related
to the acquisition of interest in White Oaks Mall.
Cash used in financing activities for the three months ended March 31,
1996 was $1.3 less than the three months ended March 31, 1995. Cash used in
1996 included an increase of $9.3 million in distributions to shareholders
(including $3.5 million paid to the preferred shareholder representing
dividends from October 27, 1995 to March 31, 1996) offset by an increase in net
mortgage borrowings of $12.3 million. These borrowings included $9.7 million
from the refinancing at Forum and a $6.4 million increase on the Cottonwood
Mall construction loan.
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 SPG Operating Partnership to increase rent and
improve profitability of its shopping centers, including aggregate tenant sales
volume, sales per square foot, occupancy levels and tenant costs. Each of
these factors has a significant effect on EBITDA. Management believes that
EBITDA is an effective measure of shopping center operating performance
because: (i) it is industry practice to evaluate real estate properties based
on operating income before interest, taxes, depreciation and amortization,
which is generally equivalent to EBITDA; and (ii) EBITDA is unaffected by the
debt and equity structure of the property owner. EBITDA: (i) does not
represent cash flow from operations as defined by generally accepted accounting
principles; (ii) should not be considered as an alternative to net income as a
measure of the Company's operating performance; (iii) is not indicative of cash
flows from operating, investing and financing activities; and (iv) is not an
alternative to cash flows as a measure of the Company's liquidity.
Total EBITDA for the portfolio properties increased from $101.8 million
for the three months ended March 31, 1995 to $115.7 million for the same period
in 1996, representing a growth rate of 13.7%. This increase is primarily
attributable to the three malls opened during 1995 and 1995 acquisitions.
During this period, operating profit margin decreased slightly from 62.2% to
61.9%.
FFO-Funds from Operations
FFO, as defined by NAREIT, means the consolidated net income of the
Operating Partnership and its subsidiaries without giving effect to
depreciation and amortization, gains or losses from extraordinary items, gains
or losses on sales of real estate, gains or losses on investments in marketable
securities and any provision/benefit for income taxes for such period, plus the
allocable portion, based on the Operating Partnership's ownership interest, of
funds from operations of unconsolidated joint ventures, all determined on a
consistent basis in accordance with generally accepted accounting principles.
Management believes that FFO is an important and widely used measure of the
operating performance of REITs which provides a relevant basis for comparison
among REITs. The Operating Partnership's method of calculating FFO may be
different from the method used by other REIT's. FFO is presented to assist
investors in analyzing the performance of the Company. FFO: (i) does not
represent cash flow from operations as defined by generally accepted accounting
principles; (ii) should not be considered as an alternative to net income as a
measure of the Company's operating performance or to cash flows from operating,
investing and financing activities; and (iii) is not an alternative to cash
flows as a measure of the Company's liquidity. In March, 1995, NAREIT modified
its definition of FFO. The modified definition provides that amortization of
deferred financing costs and depreciation of non-rental real estate assets are
no longer to be added back to net income in arriving at FFO. The modified
definition was adopted for the period ended March 31, 1996. If the modified
definition had been adopted for the period ended March 31, 1995, FFO of the
Operating Partnership and FFO allocable to the Company would have been $41,936
and $23,882, respectively.
The following summarizes FFO of the Operating Partnership and reconciles
net income to FFO for the periods presented:
<TABLE>
For the Quarter
Ended March 31,
--------------------
(In thousands) 1996 1995
<S> <C> <C>
FFO of the Operating Partnership $ 48,680 $ 44,743
Reconciliation:
Income of the Operating Partnership before
extraordinary items $ 23,832 $ 22,207
Plus:
Depreciation and amortization from
consolidated properties 24,537 21,107
The Operating Partnership's share of
depreciation and amortization from
unconsolidated affiliates 3,032 1,979
Amortization included in interest expense N/A 2,361
Less:
Gain on sale of asset -- (2,350)
Minority interest portion of depreciation and
amortization (690) (561)
Preferred dividends (2,031) --
-------- --------
FFO of the Operating Partnership $ 48,680 $ 44,743
======== ========
FFO allocable to the Company $ 29,727 $ 25,480
======== ========
</TABLE>
Portfolio Data
Aggregate Tenant Sales Volume. For the three months ended March 31, 1995
compared to the same period in 1996, total reported retail sales for mall and
freestanding stores at the regional malls and all stores at the community
shopping centers for GLA owned by SPG Operating Partnership ("Owned GLA")
increased 10.5% from $934 million to $1,032 million. Retail sales at Owned GLA
affect revenue and profitability levels because they determine the amount of
minimum rent that can be charged, the percentage rent realized, and the
recoverable expenses (common area maintenance, real estate taxes, etc.) the
tenants can afford to pay.
Occupancy Levels. Occupancy levels for regional malls decreased from 84.3%
at March 31, 1995 to 83.0% at March 31, 1995. Occupancy levels for community
shopping centers decreased from 94.0% at March 31, 1995 to 93.1% at March 31,
1996. These decreases are the result of store closings by several retailers
which filed bankruptcy in 1995 and the de-leasing efforts at two malls in
anticipation of de-malling these properties. Management expects to re-lease
substantially all of the space lost to these bankruptcies at generally higher
rents. Owned GLA has increased 2.8 million square feet from March 31, 1995 to
March 31, 1996, primarily as a result of the 1995 opening of three new regional
malls and the acquisition of Smith Haven Mall.
Average Base Rents. Average base rents per square foot of mall and
freestanding stores at regional mall Owned GLA increased 10.7%, from $17.79 to
$19.70 in the first quarter of 1996 as compared to the same period in 1995. In
community shopping centers, average base rents per square foot of Owned GLA
increased 2.1%, from $7.21 to $7.36 during this same period.
Inflation
Inflation has remained relatively low during the past three years and has
had a minimal impact on SPG 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 SPG Operating Partnership to receive percentage rentals based on
tenants' gross sales, which generally increase as prices rise, and/or
escalation clauses, which generally increase rental rates during the terms of
the leases. In addition, many of the leases are for terms of less than ten
years, which may enable SPG Operating Partnership to replace existing leases
with new leases at higher base and/or percentage rentals if rents of the
existing leases are below the then-existing market rate. Substantially all of
the leases, other than those for anchors, require the tenants to pay a
proportionate share of operating expenses, including common area maintenance,
real estate taxes and insurance, thereby reducing SPG Operating Partnership's
exposure to increases in costs and operating expenses resulting from inflation.
However, inflation may have a negative impact on some of SPG Operating
Partnership's other operating items. Interest and general and administrative
expenses may be adversely affected by inflation as these specified costs could
increase at a rate higher than rents. Also, for tenant leases with stated rent
increases, inflation may have a negative effect as the stated rent increases in
these leases could be lower than the increase in inflation at any given time.
Other
In March 1996, the Company and DeBartolo Realty Corporation ("DeBartolo")
signed a definitive agreement to merge the two companies. The merger is
expected to be completed in the third quarter of 1996 and is subject to
approval by the shareholders of both companies as well as customary regulatory
and other conditions. Under the terms of the agreement, the shareholders of
DeBartolo will receive 0.68 shares of common stock of the Company for each
share of DeBartolo common stock held. The purchase price, including
indebtedness which would be assumed is estimated at $2.97 billion.
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season, when tenant occupancy and retail
sales are typically at their highest levels. In addition, shopping malls
achieve most of their temporary tenant rents during the holiday season. As a
result of the above, earnings are generally highest in the fourth quarter of
each year.
Management recognizes the retail industry is currently experiencing some
difficulty, which is reflected in sales trends and in the bankruptcies and
continued restructuring of several prominent retail organizations.
Continuation of these trends could impact future earnings performance.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMON PROPERTY GROUP, INC.
Date: June 27, 1996 /s/ Dennis Cavanagh
-------------------
Dennis Cavanagh
Principal Financial and Accounting Officer
