1998 Annual Report

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1998 Annual Report 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 partner- ships, it is engaged primarily in the ownership, development, manage- ment, leasing, acquisition and expan- sion of income-producing, market- dominant retail properties, primarily regional malls, community shopping centers and specialty retail centers. At December 31, 1998, the Company owned or had an interest in 242 prop- erties comprising regional malls, com- munity shopping centers and specialty and mixed-use properties containing 166 million square feet of gross leasable area (GLA) in 35 states. Simon Prop- erty Group (Simon), together with its affiliated management company, man- ages approximately 180 million square feet of GLA in retail and mixed-use projects and attracts over 2.3 billion shopping visits annually to its properties. Simon is the largest publicly traded retail real estate company in North America with a total market capitali- zation at December 31, 1998, of nearly $17 billion. FINANCIAL HIGHLIGHTS December 31, 1998(1) 1997(1) % change HIGHLIGHTS Total Revenue $ 1,405,559 $1,054,167 33.3% OF 1998 Total EBITDA of the Simon Group $ 1,361,703 $ 940,028 44.9% ○ ○ ○○○○○○○○○○○○○○ Funds from Operations (FFO) of IN THOUSANDS, EXCEPT PER the Simon Group (2) $ 544,481 $ 415,128 31.2% SHARE AMOUNTS. PLEASE Funds from Operations per Share(2) $ 2.85 $ 2.58 10.5% REFER TO COMPLETE FINANCIAL STATEMENTS ON Regional Mall Occupancy(3) 90.0% 87.3% 2.7% PAGES 43-83. Regional Mall Average Base Rent(3) $ 25.70 $ 23.65 8.7% Comparable Sales per Square Foot(3) $ 346 $ 318 8.8% Gross Leasable Area 165,881 128,773 28.8% Share Price at December 31 $ 28.50 $ 32.69 (12.8)% (1) See financial statements Note 3 and Note 4 for discussion of acquisition activities. (2) See financial statements for description of Funds From Operations. (3) Mall and freestanding tenants in regional malls. TABLE OF HIGHLIGHTS OF 1998 1 CONTENTS REPORT TO SHAREHOLDERS 2 Record Performance: revenues rose 33% to $1.4 billion, funds from operations increased to $544 million; acquisitions completed totaling over $5 billion; more than $300 million invested in redevelopment projects; nationwide “branding” campaign launched. THE YEAR IN REVIEW 5 Completed CPI acquisition for $5.1 billion; acquired 50% interest in a portfolio of 12 regional malls; opened two new projects in Austin, TX and Muncie, IN; completed major renovations and expansions in FL, IN, LA and NY; commenced construction on the Mall of Georgia; membership in MALLPeRKS increased to more than two million; developed a consistent message of branding the Simon name throughout the Company’s portfolio; and opened first mall project in Europe. PROPERTY LOCATIONS 20 SELECTED FINANCIAL DATA 24 MANAGEMENT’S DISCUSSION AND ANALYSIS 26 FINANCIAL STATEMENTS 43 NOTES TO FINANCIAL STATEMENTS 57 BOARD OF DIRECTORS 84 INVESTOR INFORMATION 85 ANNUAL REPORT 1998 c SIMON PROPERTY GROUP 1 1998 ANNUAL REPORT mall and freestanding stores added significant new markets, ex- TO OUR increased to 90.0%, up from 87.3% in panded our presence in existing SHAREHOLDERS 1997. In 1998, our leasing group markets and increased earnings. ○ ○ ○ ○○○○○○○○○○○○○○○○ executed over 7 million square feet Simon’s aggressive cost control, en- AND FELLOW EMPLOYEES of leases. Retail sales by our tenants hanced leasing, and implementa- grew 8.8% to $346 per square foot in tion of revenue generating initia- RECORD REVENUES & EARNINGS, 1998 and the average initial base tives, including our SBV initiatives, MAJOR ACQUISITIONS, BRANDING, rent for new and renewal mall store improved the operating perfor- AND SIMON BRAND VENTURES leases increased by 15.7%. This mance of all the individual assets growth in occupancy, tenant sales and major portfolios we have ac- and rents, combined with the quired since our IPO. Simon is now or Simon Property Group, positive effect of our redevelopment clearly the most important landlord 1998 was a year of significant efforts and our Simon Brand to its retailers because it is not only Faccomplishment: record Venture (SBV) initiatives, resulted their largest landlord but also its earnings and growth; outstanding in same property EBITDA (earnings quality locations provide a signifi- portfolio performance; completion before interest, taxes, depreciation cant percentage of their sales and of the largest acquisition in and amortization) growth of 6%. profitability as well. industry history; the opening of our Simon acquired two major mall first international project; and the ACQUISITIONS portfolios in 1998. In September, we launch of several new innovative 1998 was a landmark year in the completed the $5.1 billion acquisi- programs to benefit our shoppers growth of our company through ac- tion of Corporate Property Inves- and retailers. The events of 1998 quisitions. We continue to be the tors (CPI), the nation’s largest, and firmly established Simon as the leader in the consolidation of our most productive, privately owned world’s leading retail real estate industry and our track record re- retail mall company. CPI owned 23 company. 1999 promises to be flects that our acquisition activities outstanding malls in markets such another year of significant add value to the company. Through as Atlanta, New York, Boca Raton and accomplishment as we open five these acquisitions, we have in- Boston. This portfolio generated an new projects, assimilate and creased the quality of our portfolio, industry leading $422 per square improve the assets acquired in 1998 and create brand awareness throughout the Simon portfolio. RECORD EARNINGS AND PORTFOLIO PERFORMANCE Consolidated revenues increased 33% in 1998 to $1.4 billion. Funds from operations (FFO) rose 31% to $544 million. On a per share basis, this amounted to $2.85 per share, up 10.5% from $2.58 in 1997. Our regional mall portfolio has never been stronger. Occupancy for Simon’s senior executives are (left to right): David Simon, Chief Executive Officer; Melvin and Herbert Simon, Co- Chairmen of the Board of Directors; and Richard S. Sokolov, President & Chief Operating Officer. 2 SIMON PROPERTY GROUP c ANNUAL REPORT 1998 SIMON PROPERTY GROUP, INC. foot in sales in 1998. mall featuring Dillard’s, Lord & Tay- CAPITAL We also acquired a 50% interest lor, JCPenney, Nordstrom, a 20 Our growth has been achieved while in a portfolio of 12 regional malls in screen Regal and IMAX movie the- maintaining the integrity of our a joint venture with The Macerich ater complex, and a village retail en- capital structure and balance sheet. Company. This transaction en- vironment with freestanding res- We are pleased that Simon contin- hanced our mall portfolio with ex- taurants and big box retailers. We ues to be afforded the highest invest- cellent locations in growing middle are also developing an adjacent ment rating of any company in the markets in the Midwest, a region power center, The Mall of Georgia mall sector and, because of our ap- where we have a history of success- Crossing, as part of the complex, proach, we have been successful in ful operations. featuring Target and other compli- accessing the public and private mentary retailers. markets for unsecured and property NEW DEVELOPMENT Concord Mills, a 1.4 million level mortgage debt. In 1998, we Profitable opportunities exist in the square foot value-oriented super- completed our most active year of United States for selec- regional mall, is scheduled to open capital markets activity ever, raising FFO Per Share tive new development as in September in the Charlotte, and arranging $7 billion in well- $2.85 a result of population North Carolina suburb of Concord. timed capital market transactions. $2.58 shifts, growth in metro- Also scheduled for completion in An example of this successful strat- politan markets, and the 1999 are two community centers – egy was the recent issue of $600 mil- $2.34 existence of infill loca- The Shops at Northeast Plaza in Ft. lion of senior unsecured debt. This $2.14 tions. We have 5 million Worth, Texas and Waterford Lakes al lowe d us to fix f loating rat es and $1.98 square feet of exciting Town Center in Orlando. extend loan maturities at an attrac- new development tive overall rate of less than 7%. projects under construc- REDEVELOPMENT tion, including projects We continued our practice of SIMON BRAND VENTURES in growing markets such investing redevelopment capital to Simon Brand Ventures, our strate- as Charlotte, Orlando, Ft. increase our properties’ market gic marketing division launched in 94 95 96 97 98 Worth and Atlanta. The share and franchise value, as well as 1997, is a comprehensive program diversity in asset type represented to raise barriers to entry by designed to leverage the size, qual- by these projects demonstrates competing projects. In 1998, we ity and marketplace dominance of Simon’s versatility as a developer. invested $300 million in the Simon portfolio to create cus- The Shops at Sunset Place in redevelopment projects that will tomer and retailer-targeted busi- South Miami, Florida opened in generate financial returns in excess ness opportunities. We are pleased January of 1999. Shops is a one-of-a of the company’s cost of capital. to report that in 1998, SBV exceeded kind specialty retail center that Included in this activity were major our financial expectations and cre- reflects the innovation of our renovations and expansions at ated numerous alliances in the ar- organization. It blends retail and Aventura Mall in Miami; Castleton eas of marketing and aggregation of entertainment with a tenant line- Square in Indianapolis; Prien Lake services. Simon’s shopper affinity up unparalleled in South Florida. in Lake Charles, Louisiana; and Walt program, MALLPeRKS (the We encourage all of our Whitman Mall on Long Island.
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