s i m o n property group, inc. 2002 annual report C o n t e n t s 1 • Highlights 43 • fi nancial Financial and portfolio statements highlights for the past fi ve years. 48 • notes to Financial 2 • Report of the CEO Statements David Simon discusses the key activities, events and 76 • glossary accomplishments of 2002. Defi nition of terms frequently used in the real Front cover: 17 • corporate estate industry. The Simon strategy is to own governance highly productive, high quality A discussion of Simon’s 77 • Corporate retail real estate assets in the best corporate governance and Offi cers markets. This is accomplished management philosophy. through acquisition, selective new development and the enhancement 78 • board of of existing portfolio assets through 6 • 2002 – AN Overview 20 • Simon Properties directors redevelopment activities. A review of the year’s dis- A complete listing of the Biographies of the positions, capital activities, Company’s properties as of Company’s Board of development and redevelop- December 31, 2002. Directors and Committee ment projects, supplemental Assignments revenues and earnings. 22 • selected fi nancial data 80 • investor Key fi nancial data for the information 12 • The Rodamco past fi ve years. How to contact the Acquisition Company’s transfer agent, In a unique and unprecedented 23 • fi nancial corporate address and partnership, Simon, The review website, Company contact Rouse Company and Management’s information, legal and s i m o n Westfi eld America Trust Discussion property group, inc. accounting representation, jointly acquired the real and Analysis time and location for headquarters indianapolis, indiana estate assets of Rodamco of Financial the Annual Meeting 246 locations in North America, N.V. This Condition of Stockholders and overview provides a fi nancial and Results of information Arizona Nebraska summary of the transaction Nevada Operations. on the Arkansas and descriptions of the high- California New Hampshire Company’s Colorado New Jersey quality assets added to the securities. Connecticut New Mexico Simon portfolio. Florida New York Georgia North Carolina Illinois Ohio Indiana Oklahoma corporate profile Iowa Pennsylvania Kansas South Carolina Simon Property Group, Inc. (NYSE:SPG), headquartered in Indianapolis, Indiana, is a real estate Kentucky South Dakota investment trust engaged in the ownership and management of income-producing properties, Louisiana Tennessee primarily regional malls and community shopping centers. Through its subsidiary partnerships, Maryland Texas as of December 31, 2002, it owned or had an interest in 246 properties containing an aggregate Utah Massachusetts of 185 million square feet of gross leasable area in 36 states, as well as eight assets in Europe and Minnesota Virginia Missouri Washington Canada and ownership interests in other real estate assets. Additional Simon Property Group Mississippi Wisconsin information is available at www.simon.com SIMON PROPERTY GROUP, INC. h i g h l i g h t s Percent Change 2002 vs. 2002 2001 2000 1999 1998 1997 2001 Operating data (in millions) Total Revenue $ 2, 186 $ 2,049 $ 2,021 $ 1,893 $ 1,406 $ 1,054 6.7% Simon’s Share of EBITDA 1,768 1,658 1,628 1,455 1,068 747 6.6% Funds from Operations (FFO) 944 850 793 715 544 415 11.1% Per share data Net Income (Diluted) $ 1.99 $ 0.85 $ 1.08 $ 0.97 $ 1.06 $ 1.08 134.1% Funds From Operations (Diluted) 3.79 3.51 3.28 2.98 2.83 2.58 8.0% Cash Dividends 2.18 2.08 2.02 2.02 2.02 2.01 4.8% Common Stock Price at December 31 34.07 29.33 24.00 22.94 28.50 32.69 16.2% Financial Position (in millions) Total Assets $ 14,905 $13,811 $13,938 $14,223 $13,277 $ 7,663 Total Liabilities 10,413 9,625 9,470 9,496 8,513 5,411 Total Shareholders’ Equity 3,468 3,215 3,064 3,254 3,409 1,557 Stock and Partnership Units outstanding at Year End (in thousands) Shares of Common Stock 185,544 173,806 171,946 173,165 166,775 109,643 Operating Partnership Units 63,746 63,930 64,966 65,445 64,182 61,851 Statistical Data, Regional Malls Comparable Sales per Square Foot $ 391 $ 383 $ 384 $ 377 $ 346 $ 318 Total Sales per Square Foot 386 378 377 367 343 315 Average Base Rent per Square Foot 30.70 29.28 28.31 27.33 25.70 23.65 Occupancy at December 31 92.7% 91.9% 91.8% 90.6% 90.0% 87.3% Number of Regional Malls and Mixed-Use Properties 176 178 177 178 161 128 Other Data Total Number of Properties 246 252 252 259 242 202 U.S. Gross Leasable Area (in thousands) 184,542 187,379 185,614 184,608 165,881 128,773 Total Market Capitalization (in millions) 21,309 19,202 17,511 16,976 16,809 11,815 2002 ANNUAL REPORT 1 An Eventful year r e p o r t o f t h e c h i e f e x e c u t i v e o f f i c e r The past year was one of the most This inclusion is an honor for our eventful and productive in our history. Company and heightened the aware- We successfully completed numerous ness of Simon Property Group within transactions consistent with our strat- the investing public. We sold nine Tegy to own highly productive, high million shares of common stock in quality retail real estate in the best connection with our inclusion in the markets and to maintain sufficient S&P at . per share, generating financial flexibility to profitably grow million of net proceeds. our business. We generated record net income Performance: 2002 vs. 2001 and funds from operations in a Net income increased % to challenging economic climate and million from million. After raised our common stock dividend. payment of preferred stock dividends, We acquired nine highly productive net income available to common malls in premier locations and stockholders on a diluted basis rose disposed of non-core properties % to million from for a net gain of million. We million or . per share versus . took advantage of the low interest per share. rate environment by refinancing . Diluted funds from operations billion of maturing mortgage debt increased % to . per share from at very favorable interest rates and . per share. issuing million of six and ten Year-end occupancy in our mall year unsecured notes. We renovated portfolio increased basis points to and expanded several properties, .% from .%. increasing their overall attractiveness Average base rents for mall and to our retailers and our shoppers. freestanding stores in our regional mall In addition, our company was portfolio increased % to . per added to the S&P 500 index. square foot from . per square foot. 2 SIMON PROPERTY GROUP, INC. 2002 ANNUAL REPORT 3 SPG shareholders experienced a faster and are more resistant to activities often exceed those from new % total return in , considerably economic downturns than lesser-quality development projects, and retailers higher than the returns provided by assets. often prefer to add new stores to the broader market indices (S&P 500 Last year we continued our effort existing, proven projects. We invested – down %; NASDAQ – down %; to acquire highly productive malls approximately million in our Dow Jones Industrials – down %). by purchasing a portfolio of assets redevelopment program in . We increased the quarterly cash from Rodamco North America NV dividend to common stockholders by (Rodamco) for . billion. This ac- The Forum Shops at Caesars over % in the past twelve months; quisition established a strong presence On February , , we announced to cents a share last May and then in Charlotte, Houston and Oklahoma the acquisition of the remaining inter- to cents a share in February, . and added to our existing portfolio in est in The Forum Shops at Caesars in Our strong operational and financial Boston, Memphis and Minneapolis/ Las Vegas from our limited partner. results for are a testament to St. Paul (please see pages to for Forum Shops is a world renowned further details). retail destination with a tenant Our focus on quality, growth and mix comprised of a “who’s who” in recycling of capital was the motiva- retailing – Christian Dior, Emporio tion behind our decision to dispose Armani, Versace, Gucci, Louis Vuitton, of non-core properties during Dolce & Gabbana, Valentino, Salvatore (and four additional properties Ferragamo, Escada, Fendi, Max Mara, in January of ). Gross pro- St. John, BOSS Hugo Boss, DKNY, ceeds of million from these Tourneau, Judith Lieber and many dispositions were utilized to reduce others. Traffic at this center averages existing indebtedness and finance the , shoppers every day and annual Rodamco portfolio acquisition. tenant sales exceed , per square We continue to be prudent in the foot. selection of new retail development A , square foot expansion projects. Stringent risk-adjusted of Forum Shops, which will extend returns must be met before con- the project to Las Vegas Boulevard, struction begins. We had no new is currently under construction and openings in , but currently scheduled to open in the fall of , David Simon, Chief Executive Officer have two premium outlet centers, in adding multilevel luxury retail, res- joint ventures with Chelsea Property taurant and entertainment venues to the popularity and resiliency of our Group, under construction. The this already successful project. Both retail real estate and the stability of Company’s anticipated share of total the acquisition and expansion are the cash flow stream produced by our cost for these projects is approximately expected to increase our earnings. portfolio. million. Our ongoing redevelopment Ten Years of Solid Performance Focus on Premium Locations program offers us the ability to As we enter our th year as a public The core of the Simon strategy is enhance existing retail real estate company, we have established a strong to own the best malls in the best mar- assets and strengthen their positions track record.