SIMON PROPERTY GROUP, INC. GROUP, PROPERTY SIMON CELEBRATING 25 YEARS 2018 ANNUAL REPORT ANNUAL 2018 2018 ANNUAL REPORT LIVE WORK PLAY STAY SHOP CONTENTS II FROM THE CHAIRMAN, CEO & PRESIDENT IV FINANCIAL HIGHLIGHTS VIII INVESTMENT HIGHLIGHTS XI SUSTAINABILITY HIGHLIGHTS XII BOARD OF DIRECTORS & MANAGEMENT 1 10-K 54 MANAGEMENT’S DISCUSSION & ANALYSIS 74 FINANCIAL STATEMENTS Simon Property Group, Inc. (NYSE: SPG) is an S&P 100 company and a leader in the global retail real estate industry. THE SHOPS AT CRYSTALS Las Vegas, NV 2018 ANNUAL REPORT I FROM THE CHAIRMAN, CEO & PRESIDENT DEAR FELLOW SHAREHOLDERS, On December 14, 2018, we celebrated with great pride (but little fanfare) our 25th anniversary as a public company. Over the last 25 years, like many companies and industries, we have dealt with seismic shifts within our industry. In our case, these changes have forced us to be better operators, more thoughtful and astute capital allocators and willing to invest in our business with conviction, despite the ever-changing environment. David Simon Chairman, CEO & Some of the more meaningful many pundits have tried to kill • Lead the industry in successful President shifts of the last 25 years in our off physical retail real estate and and profitable acquisitions, industry include (but, of course, yet, even with these constant where we can add value. are not limited to): challenges, this has only made us • Export our “know-how” stronger and more profitable. • The dramatic increase in the internationally. adoption of mobile, digital and Certainly our priorities and Our overriding strategy has e-commerce. approach change, but the provided us with the foundation • The changing demographics strategy we laid out several years to adapt quickly to both and psychographics of our ago has enabled us to prosper in economic cycles and the consumer, i.e., aging Baby today’s volatile business climate. changing role that our shopping Boomer versus the ever- As a reminder, our strategy destinations have for our changing Millennial. includes some of the following consumers. elements: • The barbell effect on consumer My job (not solely) as I have said spending, i.e., the need and • Focus on the ownership of high- before is to balance the two “P’s” desire for value on one hand quality retail real estate. (Product and Profitability). How versus the higher-end consumer • Increase our presence in major we make our product better and seeking unique luxury products metropolitan markets. at the same time continue to and services on the other. grow our profitability. It is with • Own assets along the price this focus that I am pleased to • The Great Recession and all spectrum of retail real estate, billion report another year of record $ 5.7 the psychological changes that dealing with the barbell Consolidated results for 2018, and I also take Revenue occurred with it. effect (from value to luxury great pride as we look over our • consumers). The transient role of brands now complete 25-year history as today versus 25 years ago. • Lead the industry in promoting a public company. $2.4 billion • The evolutionary role of our shopping destinations as Net Income department stores. a “Marketing Medium” and Consistent outperformance, connecting with our community whether it’s measured through • Over-leveraged retailers cash flow growth, value creation primarily as a result of leveraged and consumer directly and being less reliant on the retailers or returns to shareholders, $4.3 billion buyouts and significant stock has been a hallmark of Simon FFO to do that. buybacks resulting in lack of Property Group (“SPG”, “Simon” • investments in their business Densify our well-located real or the “Company”). Over the and many failures. estate with elements that decades, we have carefully grown foster a live, work, play and $5.7 billion • The rise of social media and the our Company to be the global Our Share impact on the consumer. stay environment including leader it is today. We are laser- of Total NOI apartments, office, hotels, These are just examples of some focused on our leasing activities, entertainment, restaurants, property management operations of the major disruptions we have and health and wellness. adjusted to over the last 25 years. and capital structure, so that we $7.9 0 Dividends can be as creative, efficient and Per Share During the last quarter-century, II SIMON PROPERTY GROUP, INC. nimble as possible. We continue to differentiate ourselves by seeking to grow our business while striving to do what is best for our stakeholders and the communities in which we operate. It is with great appreciation and admiration for the entire organization that I would like to highlight some of our achievements over the last quarter-century. At the time of our December, 1993 IPO, our portfolio was THE SHOPS AT CLEARFORK Fort Worth, TX concentrated in suburban, middle market mall properties. Over the course of the next industry measure, has grown • Net income was $2.437 billion, reinforces the importance of decade, we completed a series from $150 million at the or $7.87 per share (record). high-quality brick-and-mortar of thoughtful, accretive, value- time of our IPO to more than • FFO increased 7.6% to locations to a retailer’s strategy. enhancing acquisitions of high- $4.3 billion in 2018. $4.325 billion, or $12.13 per • The $661 per square foot quality regional mall portfolios • We have increased the diluted share (record). retailer sales productivity is a and individual assets in major Company’s annual FFO • Achieved a compound annual long way from the $240 per metropolitan areas that served generation by more than twenty- FFO per share growth rate of square foot productivity our as a source of growth for our five times since our IPO. 8% over the last four years. portfolio generated in 1993. Company. In the process, • Total consolidated revenue has An increase of more than we created an unparalleled • Total portfolio net operating increased more than thirteen 175% over the 25 years. organization in the retail real income grew 3.7%, or more times from $424 million to estate industry. We recognized than $230 million year-over- approximately $5.7 billion. the consumer’s penchant for year, to $6.464 billion (record). RETURNING CAPITAL TO SHAREHOLDERS brands at value prices, so we • The gross market value of our • Comparable property NOI • Capital returned to shareholders added the Premium Outlets® portfolio has increased from increased 2.3% for our U.S. in 2018 totaled nearly and The Mills® platforms to $3.5 billion to more than Malls, Premium Outlets® and $3.2 billion, comprised of our portfolio. $90 billion. The Mills®. $2.8 billion in dividends and • From our IPO through year- With Simon’s global brand • Generated over $1.5 billion more than $350 million in share end 2018, ownership of Simon name recognition, it was in excess cash flow, after buybacks. natural and beneficial for us to Property Group (SPG) common dividends. stock provided a total return • Common stock dividends paid expand internationally. From our • We are pleased our stock once in 2018 were $7.90 per share, ® to shareholders of more than Premium Outlets in Asia, Mexico again outperformed our direct an increase of 10.5% from 2017, and Canada, to our Designer 2,750%, or a compound annual return of more than peers as well as the S&P 500, and we expect to distribute at Outlets in Europe and Canada in 2018. least $8.20 per share in 2019. with McArthurGlen and our 14% compared to the S&P 500 investment in Klépierre, a leading compound annual return of • We have paid more than pan-European pure play retail 9% over the same period. OPERATING METRICS $28 billion in dividends over property company, our global As our portfolio has grown, we We again delivered strong our 25-year history as a public reach provides retailers access have also improved the quality operational results: company, and at our current dividend rate, by the second to an irreplaceable portfolio of of our assets, decreased our • Occupancy for our U.S. Malls quarter of 2019, we will have high-quality retail assets in high- leverage and vastly increased and Premium Outlets® ended cumulatively paid more than barrier-to-entry markets. the diversity of our income the year at 95.9% and The $100.00 per share in dividends generation. Approximately Mills® occupancy ended the Our focus on improving our since our IPO. Especially 48% of our net operating income year at 97.6%. product, through expansions, (“NOI”) now comes from our considering that our IPO price • Our U.S. Malls and Premium densifications, greater know- malls platform, 42% comes from was $22.25 per share—WOW! how and evolving and changing Outlets® occupancy has been our value platforms (Premium • We repurchased approximately the tenant mix, has resulted in over 95% for the last seven Outlets® and The Mills®) and 8.1 million shares for increasing the cash flow of years, even with the challenges 10% from our international approximately $1.4 billion, our assets. our industry has faced from platform. in total, under our stock retailer bankruptcies and store Through disciplined execution, repurchase program that was With that backdrop, let’s turn to closures. authorized in 2015. our strategy has resulted in the 2018 highlights. • Reported retailer sales across industry-leading results, year in • Earlier this year, your Board our portfolio were $661 per and year out. Our Company has of Directors authorized a new square foot, an increase of more achieved growth and scale that FINANCIAL RESULTS $2 billion stock repurchase than 5% year-over-year. few could have imagined possible We continued our track record of program.