2001 Annual Report SIMON PROPERTY GROUP, INC
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Simon Property Group, Inc. 2001 Annual Report SIMON PROPERTY GROUP, INC. Corporate Profile Simon Property Group, Inc. (NYSE: SPG), headquartered in Indianapolis, Indiana, is a self-administered and self- managed real estate investment trust (REIT). Through subsidiary partnerships, it is engaged in the ownership, development, management, leasing, acquisition and expansion of income- producing retail properties. At December 31, 2001, the Company owned or had an interest in 252 properties comprising regional malls, community shopping centers and specialty and mixed-use properties containing 187 million square feet of gross leasable area (GLA) in 36 states and seven assets in Europe and Table of Contents Financial Highlights 1 Canada. Simon Property Report to Shareholders 2 Group attracts over two Overview – 2001 5 billion shopping visits Simon Portfolio 18 annually to its properties Selected Financial Data 20 and is the largest publicly Management’s Discussion and Analysis 22 traded retail real estate com- Financial Statements 37 pany in North America with Notes to Financial Statements 51 a total market capitalization Board of Directors 77 at December 31, 2001, of Investor Information 78 $19 billion. Financial Highlights Percent Change 2001 vs. in millions, except per share amounts and statistical data 2001 2000 1999 1998 1997 1996 2000 Total Revenue $2,049 $2,021 $ 1,893 $ 1,406 $ 1,054 $ 748 1.4% Simon’s Share of EBITDA 1,658 1,628 1,455 1,068 747 497 1.8% Funds from Operations (FFO) 850 793 715 544 415 274 7.2% FFO Per Share (Diluted) 3.51 3.28 2.98 2.83 2.58 2.28 7.0% Diluted Net Income per Share 0.85 1.08 0.97 1.06 1.08 0.98 (21.3)% Dividends per Share 2.08 2.02 2.02 2.02 2.01 1.63 3.0% Common Stock Price at December 31 29.33 24.00 22.94 28.50 32.69 31.00 22.2% Total Market Capitalization 19,202 17,511 16,976 16,809 11,815 9,324 9.7% Financial Position Total Assets $13,811 $13,938 $14,223 $13,277 $ 7,663 $ 5,896 Total Liabilities 9,625 9,470 9,496 8,513 5,411 3,951 Total Shareholders’ Equity 3,215 3,064 3,254 3,409 1,557 1,305 Stock and Partnership Units Outstanding at Year End Shares of Common Stock 173,806 171,946 173,165 166,775 109,643 96,880 Operating Partnership Units 63,930 64,966 65,445 64,182 61,851 60,974 Statistical Data, Regional Malls Comparable Sales per Square Foot $ 383 $ 384 $ 377 $ 346 $ 318 $ 298 Total Sales per Square Foot 378 377 367 343 315 290 Average Base Rent per Square Foot 29.28 28.31 27.33 25.70 23.65 20.68 Occupancy at December 31 91.9% 91.8% 90.6% 90.0% 87.3% 84.7% Number of Regional Malls 178 177 178 161 128 119 Other Portfolio Data Total Number of Properties 252 252 259 242 202 186 Total U.S. Gross Leasable Area 187,379 185,614 184,608 165,881 128,773 113,280 2001 ANNUAL REPORT 1 “The core of the Simon strategy is to own the best malls in the best markets.” RECORD-SETTING PERFORMANCE Report to Shareholders n 1995 we embarked on decade, 2001 gave us a $0.505 per share. Ian ambitious strategy to chance to prove the ● Finally, as a result of upgrade the overall quality recession-resistant nature of our strong operating of our regional mall our portfolio. I am proud to performance, our stock portfolio. Over the last 7 say that we performed well price increased — ending years we have spent $12 in 2001, despite the the year at $29.33 per share billion acquiring high challenges presented by the and delivering a 31% total quality assets and $2 billion economy and the tragic return to our shareholders. building new malls and events of September 11. Simon Property Group redeveloping existing ● Our diluted funds from owns almost 30% of the franchise locations. The operations increased 7% to “best” malls in the United strategic rationale was two- a record $3.51 per share. States – defined as those fold: market dominant ● Our occupancy rate for malls generating over $250 assets would grow faster mall and freestanding stores million in annual sales. The than lower-quality assets rose 10 basis points to a Simon portfolio includes and would be more record 91.9%. assets of national and recession-resistant in an ● Average base rents for international renown such as: economic downturn. mall and freestanding stores ᮣ Aventura Mall–Miami As the country entered its in our regional mall ᮣ Dadeland Mall–Miami David Simon, Chief Executive Officer first recession in almost a portfolio increased 3.4% to ᮣ The Fashion Centre at $29.28 per square foot. Pentagon City– ● The average initial base Washington, D.C. rent for new mall store ᮣ The Forum Shops at leases increased to $34.88 Caesars–Las Vegas per square foot. This was ᮣ Fashion Valley Mall– 20% higher than the rates San Diego of leases that ended last ᮣ The Florida Mall– Orlando year. ᮣ Lenox Square–Atlanta ● We took advantage of ᮣ Mall of America– last year’s attractive interest Minneapolis rates, selling $1.25 billion ᮣ Phipps Plaza–Atlanta of senior unsecured notes in ᮣ Roosevelt Field–New York two offerings. ᮣ South Shore Plaza–Boston ● We increased our ᮣ Town Center at Boca Raton quarterly dividend last May – Boca Raton to $0.525 per share from ᮣ The Westchester–New York 2 SIMON PROPERTY GROUP, INC. This is the core of the New Mall Development objectives without significant malls. Located in the Simon strategy – to own the The past year illustrated our new development activities. Mission Valley area, this 1.7 best malls in the best markets conservative focus on new million square foot open-air, . the malls that matter. developments, a strategy we Acquisitions super regional mall is began in 1999 when we During 2000 and the first anchored by Neiman Tenant Experience—2001 determined that the risk- half of 2001, we remained Marcus, Nordstrom, Saks Even though many retailers adjusted returns for new on the sidelines and did not Fifth Avenue, Macy’s, experienced overall sales development projects were acquire any retail assets. Robinsons-May and declines in 2001, retail sales not overly compelling. Returns on potential JCPenney. Both Fashion by tenants in Simon malls In the difficult retail acquisitions did not meet Centre and Fashion Valley held firm. Comparable sales environment of 2001 this our requirements due to met our asset test of being in our portfolio were strategy has proven to be pricing and the cost of high quality properties that essentially flat at $383 per the correct one. We opened financing. dominate their markets. square foot versus $384 per only one new project in With a lower interest rate Acquisition activity square foot in 2000. 2001, the 100%-leased environment and an easing continues in 2002 with the Tenant bankruptcies Bowie Town Center in of asset pricing, we January announcement of a resulted in the closing of Bowie, Maryland, an open- reentered the acquisition major portfolio acquisition over 1.2 million square feet air, regional shopping center arena in the second half of which will add nearly 10 of regional mall small shop encompassing 556,000 2001 with two transactions. million square feet to our space in the Simon square feet with an In August, we increased existing portfolio. In a joint portfolio. An additional additional 101,000 square our interest to 50% in one agreement with The Rouse 240,000 square feet was foot grocery retail of our best-performing Company and Westfield lost due to retailer restruc- component. assets, The Fashion Centre America Trust, we will turings. However, we filled at Pentagon City in the purchase the assets of these vacancies with new e will continue to be Washington, D.C. suburb of Rodamco North America and growing retailers and Wprudent in the Arlington, Virginia. This N.V. for $5.3 billion. were able to increase our selection of new develop- mixed-use property contains Our share, which is set at mall occupancy levels as ment projects and maintain 991,000 square feet of gross $1.55 billion, will increase compared to 2000 while a stringent risk-adjusted leasable area and is our market dominance in achieving higher rents. return threshold that must anchored by Macy’s and Boston and give us We believe this is a be met before we will start Nordstrom. ownership of the best assets testament to the quality of construction. We will In October, we acquired a in Charlotte, Houston, our portfolio. Simon owns continue to build new retail 50% interest in the 100%- Memphis and the state of the malls where shoppers projects, but only if they leased Fashion Valley Mall Oklahoma. want to shop and retailers make economic sense. We in San Diego, one of the With this acquisition, we want to locate. can achieve our growth country’s top producing will acquire or increase our 2001 ANNUAL REPORT 3 RECORD-SETTING PERFORMANCE “Our strategy of focusing on high quality, market-dominant properties has laid the foundation for our Company’s success.” ownership in 13 malls that downs was $0.25 cents. founder, chairman and chief such dispositions would be generate sales in excess of ● In December, we executive officer of Diamond- utilized to reduce $500 per square foot and reassumed responsibility for Cluster International, a borrowings and to invest in are 92% occupied.