<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 9, 1998
SIMON DEBARTOLO GROUP, INC.
(Exact name of registrant as specified in charter)
MARYLAND 1-12618 35-1901999
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
115 WEST WASHINGTON STREET 46204
INDIANAPOLIS, INDIANA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 685-1600
<PAGE> 2
ITEM 5. OTHER EVENTS
RECENT DEVELOPMENTS
On January 26, 1998, Simon Debartolo Group, L.P. (the "Operating
Partnership"), a majority owned subsidiary partnership of Simon DeBartolo
Group, Inc. ("SDG"), acquired Cordova Mall in Pensacola, Florida for
approximately $87.3 million, which included the assumption of a $28.9 million
mortgage and the issuance of 1,713,016 units of ownership interest in the
Operating Partnership ("Units"), valued at approximately $55.5 million. This
874,000 square-foot regional mall is wholly owned by the Operating Partnership.
Subsequently, on May 15, 1998, the Operating Partnership retired the $28.9
million mortgage using proceeds from its $1.25 billion unsecured revolving
credit facility.
On January 30, 1998, the Operating Partnership acquired additional 15%
ownership interests in Lakeline Mall and Lakeline Plaza for 191,634 Units valued
at approximately $6.3 million. These acquisitions increased the Operating
Partnership's ownership interest in each of these properties to a
noncontrolling 75%.
On February 27, 1998, the Operating Partnership, in a joint venture
partnership with The Macerich Company ("Macerich"), acquired a portfolio of
twelve regional malls and two community centers (the "IBM Properties")
comprising approximately 10.7 million square feet of gross leasable area
("GLA") at a purchase price of $974.5 million, including the assumption of
$485.0 million of indebtedness. The Operating Partnership and Macerich, as
noncontrolling 50/50 partners in the joint venture, were each responsible for
one half of the purchase price, including indebtedness assumed and each assumed
leasing and management responsibilities for six of the regional malls. The
Operating Partnership funded its share of the cash portion of the purchase
price using borrowings from a new $300 million unsecured revolving credit
facility (together with the $1.25 billion unsecured revolving credit facility,
the "Credit Facilities"), which bears interest at LIBOR plus 0.65% and matures
on August 27, 1998.
In March 1998, the Operating Partnership transferred its 50% ownership
interest in The Source, an approximately 730,000 square-foot regional mall, to a
newly formed limited partnership in which it has a 50% ownership interest; as a
result the Operating Partnership now owns an indirect noncontrolling 25%
ownership interest in The Source. The Operating Partnership's partner in the
newly formed limited partnership is entitled to a preferred return of 8% on its
initial capital contribution, a portion of which was distributed to the
Operating Partnership. The Operating Partnership applied the distribution
against its investment in The Source.
On April 29, 1998, SDG completed the sale of 1,433,526 shares of its common
stock, par value $.0001 per share ("SDG Common Stock"), in a private offering.
The net proceeds of approximately $44.1 million were contributed to the
Operating Partnership in exchange for a like number of Units. The Operating
Partnership used the net proceeds primarily to retire mortgage indebtedness.
In a series of transactions consummated May 5, 1998, the Operating
Partnership acquired the remaining 50.1% interest in Rolling Oaks Mall for
519,889 shares of SDG Common Stock, valued at approximately $17.2 million. The
Operating Partnership issued 519,889 Units to SDG as consideration for the
shares of SDG Common Stock.
On May 29, 1998, SDG completed the sale of 1,523,809 shares of SDG Common
Stock in a private offering. The net proceeds of $47.5 million were contributed
to the Operating Partnership in exchange for a like number of Units. The
Operating Partnership used the net proceeds to pay down the Credit Facilities.
On June 1, 1998, the Operating Partnership sold The Promenade for $33.5
million. The Operating Partnership used the net sale proceeds to pay down the
Credit Facilities.
The Operating Partnership has obtained a commitment for a new mortgage on
The Florida Mall for $90.0 million at an interest rate of 6.65% with a maturity
date of February 28, 2000. The net proceeds will be used first to retire the
Operating Partnership's share of the existing $75.0 million mortgage on this
property, with the remaining $52.5 million being used to pay down the Credit
Facilities. The Operating Partnership's joint venture partner will also be
retiring their share of the existing mortgage. This transaction is expected to
close on June 9, 1998.
<PAGE> 3
PENDING CPI MERGER
SDG has entered into a definitive merger agreement dated as of February 18,
1998 (the "CPI Merger Agreement") with Corporate Property Investors, Inc.
("CPI") and its "paired share" affiliate, Corporate Realty Consultants, Inc.
("CRC"). The CPI Merger Agreement provides that the Operating Partnership will
directly or indirectly acquire all of the assets and liabilities of CPI and the
current stockholders of SDG and CPI will become stockholders of a new entity,
referred to herein as "Simon," and will receive or retain beneficial interests
in all of the outstanding common stock of CRC (such transactions, the "CPI
Merger"). The CPI Merger will result in the combination of the existing
businesses and properties of SDG and CPI. The businesses will be conducted and
such properties will be held through the Operating Partnership and/or its
subsidiaries. See "-- Structure of Simon After the CPI Merger." SDG's
obligation to complete the CPI Merger is not conditioned upon obtaining
financing.
The CPI Merger Agreement provides for (i) (X) the merger of a substantially
wholly owned subsidiary of CPI with and into SDG, and (Y) the conversion of each
outstanding share of SDG Common Stock into the right to receive one share of
common stock, par value $0.0001 per share, of CPI ("CPI Common Stock" and, after
consummation of the CPI Merger, "Simon Common Stock," as the case may be) and
(ii) immediately prior to the consummation of the CPI Merger, the declaration of
a dividend for each outstanding share of CPI Common Stock consisting of: (a)
$90.00 cash (subject to adjustment, as described below) (the "CPI Cash
Dividend"); (b) 1.0818 shares of CPI Common Stock; and (c) 0.19 shares of CPI's
Series B Convertible Preferred Stock, par value $.01 per share, having a
liquidation value of $100 per share ("CPI Series B Preferred Stock," which from
and after the effective time of the CPI Merger shall be referred to as "Simon
Series B Preferred Stock") ((a), (b) and (c), collectively, the "CPI Merger
Dividend"). Each share of Simon Common Stock outstanding or issued in connection
with the CPI Merger will be paired with a beneficial interest in shares of
common stock of CRC ("CRC Common Stock") held by certain trusts.
The CPI Cash Dividend is subject to adjustment as follows: (i) if the
Market Price (as defined below) for the SDG Common Stock at the effective time
of the CPI Merger exceeds $38.67, then the CPI Cash Dividend shall be reduced by
an amount equal to such excess multiplied by 2.0818 and (ii) if the Market Price
for SDG Common Stock at the effective time of the CPI Merger is less than
$28.58, then the CPI Cash Dividend shall be increased by an amount equal to such
deficiency multiplied by 2.0818. The "Market Price" shall be the average of the
closing prices per share for the SDG Common Stock on the New York Stock Exchange
("NYSE") for the 20 consecutive trading days ending on the fifth trading day
prior to the effective time of the CPI Merger.
See SDG's Current Report on Form 8-K, dated February 19, 1998, for a
more complete description of the CPI Merger and the CPI Merger Agreement
(attached thereto as Exhibit 10.1).
STRUCTURE OF SIMON AFTER THE CPI MERGER
The CPI Merger will result in the combination of the existing businesses
and properties of SDG and CPI. The businesses will be conducted and such
properties will be held through the Operating Partnership and one or more
subsidiaries of the Operating Partnership. In the CPI Merger, a substantially
wholly owned subsidiary of CPI will merge with and into SDG, with SDG being the
surviving company and becoming a subsidiary of Simon (with Simon owning in
excess of 99.9% of its outstanding common stock). In exchange for each of their
shares of SDG Common Stock, the stockholders of SDG will receive one share of
Simon Common Stock. Based upon the capitalization of SDG and CPI on December 31,
1997, the stockholders of SDG would own in the aggregate approximately 67% of
the outstanding shares of Simon Common Stock following the CPI Merger.
The Operating Partnership will continue in existence after the CPI Merger
under an amended and restated limited partnership agreement (the "Amended
Operating Partnership Agreement"). At the effective time of the CPI Merger,
Simon will transfer, or direct the transfer of, substantially all of the assets
and liabilities that, prior to the CPI Merger, were CPI's assets and liabilities
to the Operating Partnership and one or more subsidiaries of the Operating
Partnership, in consideration for 54,412,100 Units and 5,175,287 preferred
partnership interests in the Operating Partnership, which transfer will result
in a reduction of the aggregate percentage interests in the Operating
Partnership held by the Simons (which term means Melvin Simon, Herbert
Simon, David Simon, certain of their affiliates and includes certain other Simon
family members and estates, trusts and other entities established for their
benefit) and certain third parties (the "Limited Partners") from 36.9% to 28.8%
assuming the CPI Merger had occurred on December 31, 1997. The assets and
liabilities to be transferred by Simon are valued at $2.486 billion, based on
the consideration to be received or retained by the stockholders of CPI in
connection with the CPI Merger, which amount equals the value of the limited
partnership interests in the Operating Partnership to be transferred to Simon
and based on the trading price per share of SDG Common Stock of $33 5/8. As of
December 31, 1997, Melvin and Herbert Simon, Simon's Co-Chairmen, and David
Simon, Simon's Chief Executive Officer, held 4.1%, 3.2% and 1.2%, respectively,
of the Operating Partnership, and after such transfer will hold 3.2%, 2.5% and
0.9%, respectively, assuming such transfer had taken place on December 31,
1997. The Limited Partners will own beneficially, in the aggregate,
approximately a 28.8% limited partnership interest in the Operating Partnership
following the transfer assuming the CPI Merger had occurred on December 31,
1997. Each of SDG and SD Property Group, Inc. (of which SDG owns in excess of
99.9% of the outstanding common stock) will continue as general partners of the
Operating Partnership. Simon, both directly and indirectly through its
ownership of SDG, will own approximately a 71.2% interest in the Operating
Partnership and will be a general partner of the Operating Partnership assuming
the CPI Merger had occurred on December 31, 1997.
<PAGE> 4
DESCRIPTION OF CPI AND CRC
General
CPI
CPI is a self-administered and self-managed, privately-held REIT that
primarily owns interests in regional malls and also holds a portfolio of other
commercial income-producing properties through investment in real estate and
investments in joint ventures and partnerships that own or lease real estate.
The 23 regional malls in which CPI owns interests contain an aggregate GLA of
approximately 27 million square feet. The largest of such malls is Roosevelt
Field in Hempstead, New York, which contains approximately 2.36 million square
feet of GLA. As used in this Form 8-K and unless the context requires
otherwise, "GLA" for a property includes area owned by third parties other than
CPI or SDG at that property. "Owned GLA" refers only to GLA owned by CPI or
SDG, as the case may be.
CPI was organized as a Massachusetts business trust in 1971 and was
incorporated in Delaware on March 13, 1998. Since its organization, CPI has
operated in a manner intended to qualify as a REIT under the Code and
predecessor statutory provisions. As a result of its REIT status, CPI has never
paid or been assessed for any federal income taxes and has paid an immaterial
amount of state income and franchise taxes in those few states in which a REIT
is subject to taxation on a basis that is different than the U.S. federal income
tax treatment of a REIT.
CPI has investments in properties other than malls, including the General
Motors Building in New York City. At the direction of SDG and in accordance with
the CPI Merger Agreement, CPI intends to sell the General Motors Building in a
transaction to be consummated prior to the effective time of the CPI Merger. On
May 29, 1998, CPI entered into a definitive agreement (the "GM Building Sale
Agreement") with Trump 767 Fifth Avenue LLC, an affiliate of Donald J. Trump and
of Conseco, Inc., pursuant to which CPI expects to sell the General Motors
Building for a cash purchase price of $800 million, subject to apportionments
and payments at the closing of the sale, prior to the consummation of the CPI
Merger. Although the Operating Partnership has received a $40 million deposit,
there is no assurance that the sale will be consummated either prior to the
consummation of the CPI Merger or otherwise.
CRC
CRC was formed in October 1975 for the purpose of engaging in real estate
activities that would be problematic for CPI because of CPI's qualification for
federal income tax purposes as a REIT. CPI and CRC are parties to an agreement
pursuant to which CRC may not engage in any activity that could be engaged in by
CPI without jeopardizing its status as a REIT unless CPI shall have been given a
right of first refusal to engage in such activity, and CPI may not refer to any
person other than CRC any business opportunity that could not be engaged in by
CPI without jeopardizing its status as a REIT unless CRC shall have been given
the right of first refusal to take advantage of such opportunity. Since the
holders of CPI Common Stock own a proportionate beneficial interest in one or
more trusts that own all the outstanding shares of CRC Common Stock, CPI and CRC
are treated as a "paired share REIT" for federal income tax purposes. Since the
shares were paired prior to the effective date of the relevant Internal Revenue
Code of 1986, as amended (the "Code") provision that generally precludes such
pairing, CPI and CRC are currently grandfathered from such provision. However,
currently pending legislation may limit Simon's ability to acquire new property
in CRC. See "Risks Associated with the CPI Merger -- Certain Tax Risks Related
to CPI and CRC."
At the present time, CRC's principal business is the ownership of an office
building located at 305 East 47th Street in New York, New York, and the
development and sale of approximately 144 acres of land through its 85%
ownership interest in Mill Creek Land, LLC ("Mill Creek"), a joint venture
between CRC and Buford Acquisition Company, L.L.C., an unaffiliated entity. The
land owned by Mill Creek surrounds CPI's Mall of Georgia project in Buford,
Georgia.
As of January 1, 1998, CRC had 22 officers, all of whom are also officers
of CPI, and no employees. All directors of CRC must be directors of CPI.
CPI Portfolio Properties
CPI owns direct or indirect interests in 23 regional malls, three office
buildings, land intended to be developed as the Mall of Georgia and the land
underlying (i) an additional office building, (ii) a hotel and (iii) a hotel,
retail and office complex. All references to properties owned by CPI means
properties owned by CPI or entities in which the beneficial ownership interests
are owned, directly or indirectly, by CPI (the "CPI Portfolio Properties").
<PAGE> 5
The following table summarizes on a combined basis, as of December 31,
1997, certain information with respect to the CPI Portfolio Properties, in total
and by type of property:
<TABLE>
<CAPTION>
TOTAL % OF AVG. ANNUALIZED
OWNED % OF OWNED BASE RENT PER
GLA GLA OWNED GLA THAT IS LEASED SQ. FT. OF
TYPE OF PROPERTY (SQ. FT.) (SQ. FT.) GLA LEASED OWNED GLA
- ---------------- ---------- ---------- ------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Regional Malls
Mall Store.............. 9,435,821 9,397,391 56.27 94.3% $31.30
Freestanding............ 326,110 195,315 1.17 85.4 $ 7.10
---------- ---------- ------
Subtotal............. 9,761,931 9,592,706 57.44 94.0 $30.90
Anchor.................. 16,987,975 3,132,535 18.76 100.0 $ 4.15
---------- ---------- ------
Regional Mall
Total......... 26,749,906 12,725,241 76.20 95.5 $24.30
Office Buildings and
Office Portion of
Mixed-Use
Properties(1)........... 3,975,257 3,975,257 23.80 88.7 $43.35
---------- ---------- ------
GRAND TOTAL..... 30,725,163 16,700,498 100.00 93.9% $28.80
========== ========== ======
</TABLE>
- ---------------
(1) Includes the General Motors Building, which, at the direction of SDG and in
accordance with the CPI Merger Agreement, CPI intends to sell pursuant to
the GM Building Sale Agreement.
Regional Malls
CPI's regional malls contain two or more anchors, other than the Walt
Whitman Mall which currently has one operating anchor and three anchors under
construction, and a wide variety of smaller stores. CPI's regional malls range
in size from approximately 695,000 to 2.36 million square feet of GLA, and
include over 95 anchors, most of which are national retailers. Rent received
from The Limited, Inc., a national retail clothing chain, accounted for
approximately 8% of CPI's revenue during fiscal 1997. Roosevelt Field accounted
for approximately 12.8% of CPI's total revenue (excluding equity in earnings of
joint ventures and gain on sale of properties) during fiscal 1997. Of the 23
malls, 16 are owned 100% by CPI and CPI owns a 50% interest in the other seven.
Regional malls represented 75% of CPI's total annualized base rent during fiscal
1997.
The following table sets forth selected data for the mall and freestanding
stores at CPI's regional malls:
<TABLE>
<CAPTION>
TOTAL MALL PERCENT OF
AND OWNED AVERAGE BASE RENT
NUMBER OF FREESTANDING GLA PER LEASED
DATE PROPERTIES OWNED GLA(1) LEASED SQUARE FOOT(2)
- ---- ---------- ------------ ---------- -----------------
<S> <C> <C> <C> <C>
December 31, 1997.............. 23 9,593 94.0% $30.90
December 31, 1996.............. 24 10,088 90.4 29.00
December 31, 1995.............. 26 10,572 93.1 27.80
December 31, 1994.............. 26 10,509 92.4 26.50
December 31, 1993.............. 29 11,260 90.8 24.60
</TABLE>
- ---------------
(1) In thousands of square feet.
(2) Base rent does not include the effects of percentage rent or common area
maintenance charges reimbursed by the tenants, nor does it consider the
costs required to obtain new tenants.
<PAGE> 6
Lease Expirations
The following table sets forth scheduled expirations during the given
periods set forth below of leases for mall stores and freestanding stores at
CPI's regional malls, assuming that none of the tenants exercises available
renewal options:
<TABLE>
<CAPTION>
AVG. BASE RENT % OF TOTAL LEASED
NO. OF LEASES APPROX. LEASED PER SQ. FT. UNDER GLA REPRESENTED BY
YEAR ENDING DECEMBER 31, EXPIRING AREA IN SQ. FT. EXPIRING LEASES(1) EXPIRING LEASES(2)
- ------------------------ ------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1998................... 424 843,923 $30.37 10.0%
1999................... 317 632,659 32.50 7.5
2000................... 291 524,355 39.80 6.2
2001................... 242 524,966 31.85 6.2
2002................... 264 625,731 32.05 7.4
2003................... 343 1,082,587 31.94 12.8
Thereafter............. 1,336 4,232,945 36.09 49.9
----- --------- ------
Total........ 3,217 8,467,166 $34.10 100.0%
</TABLE>
- ---------------
(1) Represents the average base rent in effect on December 31, 1997 for those
leases expiring for tenants paying base rent.
(2) Percentage of total leased Owned GLA of mall and freestanding stores in
CPI's regional malls as of December 31, 1997.
Anchors
As of December 31, 1997, anchor space represented 63.5% of the GLA in CPI's
regional malls, of which 100.0% was occupied. The following table sets forth, as
of December 31, 1997, certain information with respect to the five largest
anchors (by occupied GLA) in CPI's regional malls:
<TABLE>
<CAPTION>
TOTAL
ANCHOR-OWNED OWNED GLA
NUMBER OF ANCHOR-LEASED OR LAND- OCCUPIED BY
ANCHOR STORES GLA LEASED GLA ANCHOR
- ------ --------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Federated Department Stores,
Inc. .......................... 29 1,545,969 4,889,676 6,435,645
The May Department Stores Co. ... 19 169,772 2,086,172 2,255,944
Sears, Roebuck and Co. .......... 19 163,476 3,255,480 3,418,956
J.C. Penney Company, Inc. ....... 15 643,517 1,752,784 2,396,301
Dillards Department Stores,
Inc. .......................... 4 80,000 592,000 672,000
</TABLE>
Mall Stores and Freestanding Stores
There are nearly 2,900 mall and freestanding stores in CPI's regional
malls. Substantially all of these stores lease space from CPI. Mall and
freestanding stores represent approximately 9.6 million of the 12.7 million
square feet of total Owned GLA of these properties, with no single mall or
freestanding store or chain occupying more than 6.7% of the total Owned GLA in
all CPI Portfolio Properties or accounting for more than 7.8% of the total
annualized base rent from the CPI Portfolio Properties.
The following table sets forth, as of December 31, 1997, certain
information with respect to the five largest mall and freestanding store tenants
by Owned GLA occupied in CPI's regional malls:
<TABLE>
<CAPTION>
% OF TOTAL
OWNED GLA
NUMBER OF TOTAL GLA LEASED BY
TENANT STORES LEASED (SQUARE FEET) TENANT
- ------ ------------- ------------- ----------
<S> <C> <C> <C>
The Limited, Inc. ........................... 152 1,122,143 11.7%
Woolworth Corporation........................ 143 528,238 5.5
The Gap, Inc. ............................... 51 306,507 3.2
Luxottica Group.............................. 46 188,847 2.0
The Wet Seal, Inc............................ 28 123,178 1.3
--- --------- ----
Total.............................. 420 2,268,913 23.7%
--- --------- ----
</TABLE>
<PAGE> 7
The following table sets forth certain additional information regarding the
CPI Portfolio Properties as of March 31, 1998.
<TABLE>
<CAPTION>
OWNERSHIP INTEREST CPI'S YEAR BUILT TOTAL
(EXPIRATION IF PERCENTAGE OR GLA ANCHORS/SPECIALTY
NAME/LOCATION GROUND LEASE)(1) INTEREST(2) ACQUIRED (SQUARE FEET) ANCHORS
- ------------- ------------------ ----------- ---------- ------------- --------------------
<C> <S> <C> <C> <C> <C> <C>
REGIONAL MALLS
1. Aurora Mall................. Fee 100.0% 1975 950,000 JC Penney, Foley's,
Aurora, CO Sears
2. Brea Mall................... Fee 100.0 1977 1,300,000 Macy's, JC Penney,
Brea, CA Nordstrom,
Robinson-May, Sears
3. Burlington Mall............. Fee 100.0 1968 1,255,000 Filene's, Macy's,
Burlington, MA Lord & Taylor, Sears
4. Crystal Mall................ Fee 50.0 1984 790,000 Filene's, Macy's,
Waterford, CT Sears, JC Penney
5. Gwinnett Place.............. Fee 50.0 1984 1,240,000 Macy's, Parisian,
Atlanta, GA Rich's, Sears, JC
Penney
6. Haywood Mall................ Fee and Ground 50.0 1980 1,255,000 Belk-Simpson,
Greenville, SC Lease (May 2067) Dillard's, JC
Penney, Rich's, Sears
7. Highland Mall............... Fee and Ground 50.0 1971 1,100,000 Dillard's, Foley's,
Austin, TX Lease (October JC Penney
2070)
8. Lenox Square................ Fee 100.0 1959 1,530,000 Macy's, Neiman
Atlanta, GA Marcus, Rich's
9. Livingston Mall............. Fee 100.0 1972 990,000 Lord & Taylor,
Livingston, NJ Macy's, Sears
10. Metrocenter................. Fee 50.0 1973 1,350,000 Macy's, Dillard's
Phoenix, AZ East, JC Penney,
Robinson-May, Sears
11. Nanuet Mall................. Fee 100.0 1969 910,000 Macy's, Sears,
Nanuet, NY Stern's
12. Northlake Mall.............. Fee 100.0 1971 950,000 JC Penney, Macy's,
Atlanta, GA Parisian, Sears
13. Ocean County Mall........... Fee 100.0 1976 870,000 JC Penney, Macy's,
Toms River, NJ Sears, Stern's
14. Palm Beach Mall............. Fee 50.0 1967 1,200,000 Burdines, JC Penney,
West Palm Beach, FL Lord & Taylor,
Sears, Dillard's(3)
15. Phipps Plaza................ Fee 100.0 1968 820,000 Lord & Taylor,
Atlanta, GA Parisian, Saks Fifth
Avenue
16. Rockaway Townsquare......... Fee 100.0 1977 1,210,000 JC Penney, Lord &
Rockaway, NJ Taylor, Macy's,
Sears
17. Roosevelt Field............. Fee 100.0 1956 2,360,000 Bloomingdales, JC
Garden City, NY Penney, Macy's,
Nordstrom, Stern's
18. Santa Rosa Plaza............ Fee 100.0 1982 695,000 Macy's, Mervyn's,
Santa Rosa, CA Sears
19. South Shore Plaza........... Fee 100.0 1961 1,585,000 Filene's, Macy's,
Braintree, MA Lord & Taylor, Sears
20. Town Center at Boca Raton... Fee 100.0 1980 1,320,000 Bloomingdales,
Boca Raton, FL Burdines, Lord &
Taylor, Saks, Sears,
Nordstrom (signed
letter of intent to
open in 2000)
21. Town Center at Cobb......... Fee 50.0 1986 1,275,000 Macy's, Parisian,
Atlanta, GA Rich's, Sears, JC
Penney
22. Walt Whitman Mall........... Fee and Ground 98.0 1962 965,000 Macy's,
Huntington, NY Lease (December Bloomingdales, Saks,
2032)(4) Lord & Taylor(5)
23. Westminster Mall............ Fee 100.0 1974 1,095,000 JC Penney,
Westminster, CA Robinson-May,
Robinson-May Home
Store, Sears
OFFICE BUILDINGS
1. General Motors
Building(6)................. Fee 100.0 1968 1,600,000 N/A
New York, NY
2. The Lenox Building.......... Fee 100.0 1987 350,000 N/A
Atlanta, GA
3. Rockaway Office Building.... Fee 100.0 1983 90,000 N/A
Rockaway, NJ
MIXED USE/OTHER
1. Rockaway Convenience
Center...................... Fee 100.0 1980 N/A N/A
Rockaway, NJ
2. Roosevelt Field Industrial
Park........................ Fee 100.0 N/A N/A N/A
Garden City, NY
3. Charles Square(7)........... Fee 100.0 1985 N/A N/A
Cambridge, MA
4. JW Marriott Lenox(8)........ Fee 100.0 1987 N/A N/A
Atlanta, GA
</TABLE>
- ---------------
(1) The date listed is the expiration date of the last renewal option available
to CPI under the ground lease. Each ground lease listed in this column other
than that of Haywood Mall covers at least 50% of its respective property.
(2) CPI's interests in some of the properties are subject to preferences on
distributions in favor of other partners.
(3) Dillard's is scheduled to open in June of 1999.
(4) CPI owns 100% of operating leasehold and leased fee interests and 98.3% of
tenants-in-common interests in the improvements.
(5) Bloomingdales is scheduled to open in August of 1998, Lord & Taylor is
scheduled to open in late 1998 and Saks is scheduled to open in early 1999.
(6) Expected to be sold pursuant to the GM Building Sale Agreement.
(7) Land under hotel, retail and office complex.
(8) Land under 375-room hotel.
Debt of CPI
As of December 31, 1997, CPI's share of total consolidated debt and joint
venture debt was approximately $978 million. As of such date, the weighted
average interest rate for this debt was approximately 8.03%. Scheduled
maturities of this debt for periods reflected are as follows:
<TABLE>
<CAPTION>
MORTGAGE UNSECURED TOTAL
YEAR OF MATURITY DEBT(1) DEBT(1) DEBT(1)
- ---------------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1998............................................... $ 0 $ 0 $ 0
1999............................................... 0 0 0
2000............................................... 13,367 0 13,367
2001............................................... 6,059 18,415 24,474
2002............................................... 25,680 252,278 277,958
2003............................................... 25,643 100,000 125,643
2004............................................... 0 150,000 150,000
2005............................................... 0 0 0
2006............................................... 0 0 0
2007............................................... 45,773 0 45,773
Thereafter......................................... 15,779 325,000 340,779
-------- -------- --------
Total Principal Maturities............... 132,301 845,693 977,994
Net Unamortized Debt Premiums...................... 0
--------
CPI's Share of Total Debt.......................... 977,994
</TABLE>
- ---------------
(1) Represents CPI's pro rata share of total consolidated and joint venture
debt.
RISKS ASSOCIATED WITH THE CPI MERGER
CERTAIN TAX RISKS RELATED TO CPI AND CRC. In 1983, the United States
Congress passed legislation that requires that paired entities be treated as one
entity for purposes of determining whether either entity meets the requirements
in sections 856 through 860 of the Code and applicable Treasury Regulations (the
"REIT Requirements"). This legislation does not apply to a paired share REIT if
the REIT and its paired operating company were paired on June 30, 1983. CPI was
paired with CRC prior to and remained paired on June 30, 1983. Although CPI has
obtained a ruling addressing the effect of certain reorganization transactions
of CPI related to the CPI Merger on CPI's grandfathered status, such ruling does
not address the effect of the CPI Merger, and there are no judicial or
administrative authorities interpreting this "grandfathering" rule in the
context of a merger or otherwise.
On February 2, 1998, the Clinton Administration released the fiscal 1999
budget, which contains certain proposals that may adversely affect REITs (the
"Administration Proposals"). The Administration Proposals include a proposal to
eliminate the benefits of the grandfathering rule described above. On March 26,
1998, Representative William Archer, Chairman of the House Ways and Means
Committee, Senator William Roth, the Chairman of the Senate Finance Committee,
and Senator Daniel Patrick Moynihan, the Senate Finance Committee Ranking
Democrat, introduced identical bills in the House and Senate to limit the tax
benefits of paired share REITs (the "Archer Bill"). On May 7, 1998, the Senate
unanimously passed the Internal Revenue Restructuring and Reform Act of 1998,
which contains the Archer Bill as one of its provisions. The Archer Bill, if
enacted, would treat paired share entities that are otherwise grandfathered from
the legislation described in the preceding paragraph as one entity with respect
to assets acquired after or substantial improvements of existing assets
occurring after March 26, 1998. Acquisitions occurring after March 26, 1998
pursuant to a binding written contract in force on that date, such as the CPI
Merger Agreement, are treated as occurring on March 26, 1998 and are therefore
not subject to this rule. However, the Archer Bill, if enacted, would limit
CRC's ability to lease or otherwise engage in transactions with respect to real
estate acquired by Simon after March 26, 1998, for which a binding written
contract was not in force before March 26, 1998.
The foregoing discussion is based on the Archer Bill and the Administration
Proposals. The Archer Bill and the Administration Proposals will not become
effective unless legislation is duly passed by Congress and signed by the
President. During the legislative process, the Archer Bill and the
Administration Proposals will be reviewed by Congressional committees and staff
and be subject to public scrutiny by affected companies and industry groups. It
is uncertain whether the Archer Bill or the Administration Proposals will become
law or, if either does, what the details of the implementing legislation will
be. Consequently, it is impossible to determine at this time all of the
ramifications which would result from the legislation based on the Archer Bill
or the Administration Proposals. Other legislation, as well as administrative
interpretations or court decisions, also could change the tax law with respect
to Simon's qualification as a REIT and the federal income tax consequences of
such qualification. The adoption of any such legislation, regulations or
administrative interpretations could have a material adverse effect on the
results of operations, financial condition and prospects of Simon.
If any of SDG, SD Property Group, Inc., The Retail Property Trust ("RPT")
and, upon consummation of the CPI Merger, Simon (collectively, the "REIT
Members") fails to qualify as a REIT, the nonqualifying entity will be subject
to federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, as discussed above, if
any of the REIT Members fails to qualify as a REIT, all of the other REIT
Members owning an interest in such REIT Member will also be disqualified and
subject to federal income tax. Unless entitled to relief under certain
statutory provisions, the REIT Members will be disqualified from treatment as
REITs for the four taxable years following the year during which qualification
is lost. If a disqualified REIT Member is owned directly or indirectly by the
Operating Partnership, as is currently the case with RPT, the additional tax on
such REIT Member would have an adverse impact on the Funds from Operations of
the Operating Partnership. "Funds from Operations", as defined by the National
Association of Real Estate Investment Trusts, means net income 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 ownership interest, of funds from
operations of unconsolidated entities all determined on a consistent basis in
accordance with generally accepted accounting principles. In addition, the
failure of any REIT Member to qualify as a REIT could adversely impact the
ability of the Operating Partnership to obtain favorable tax treatment for
certain acquisitions and for equity financings conducted through SDG.
POTENTIAL ADVERSE EFFECTS OF COMBINING THE COMPANIES. SDG and CPI are
large enterprises with operations nationwide. There can be no assurance that
costs or other factors associated with the integration of the two companies
would not adversely affect the benefits of expected cost savings and future
combined results of operations. SDG's and the Operating Partnership's
management believes that following the CPI Merger, Funds from Operations will
not initially grow as quickly as might be expected for Funds from Operations
without the CPI Merger.
All references to the "Operating Partnership" or "SDG" in this Form 8-K
include the Operating Partnership or SDG, as the case may be, and those entities
owned or controlled by each and its or their predecessors, unless the context
indicates otherwise.
<PAGE> 8
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 hereunto duly authorized.
SIMON DeBARTOLO GROUP, INC.
/s/ James M. Barkley
---------------------------
Name: James M. Barkley
Title: Secretary
June 9, 1998
