WorldReginfo - b17aae64-640b-4ba7-878c-aa92dcbb46fe - WorldReginfo 2017 ANNUAL REPORT ANNUAL 2017 SIMON PROPERTY GROUP, INC. 2017 ANNUAL REPORT INNOVATING THE FUTURE OF THE SHOPPING EXPERIENCE CONTENTS From the Chairman & CEO ii Financial Highlights iv Sustainability Highlights xi Investment Highlights xii Board of Directors & Management xiv 10-K 1 Management’s Discussion & Analysis 55 Financial Statements 75 Simon Property Group, Inc. (NYSE: SPG) is an S&P100 company and a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations. WorldReginfo - b17aae64-640b-4ba7-878c-aa92dcbb46fe ICONIC SHOPPING FOR EVERY STYLE AND TASTE THE SHOPS AT CLEARFORK Ft. Worth, Texas WorldReginfo - b17aae64-640b-4ba7-878c-aa92dcbb46fe ii SIMON PROPERTY GROUP, INC. FROM THE CHAIRMAN & CEO Dear Fellow Shareholders, As we enter our 25th year as a public company (58th year in total!), I could start this letter describing how we have changed for the better, but the real purpose of this letter is to reinforce to you, our shareholders, that we are focused on the future. Certainly our success in transforming our business since 1993 (our first year as a public company) is a good indicator that we are always adjusting and improving. Our organization lives for challenges, is driven to succeed, and is among the best-of-breed. We started our public company as a middle market mall company with 56 regional malls that were 85% occupied and generated approximately $250 in sales per square foot. Then our change began and I assure you will always continue. David Simon We led our industry in leasing, development ■ Industry-leading financial results. and acquisitions, knowing before others that ■ Industry-leading balance sheet. Chairman and scale could accelerate our growth. We got ■ Ongoing investment in our product. Chief Executive Officer away from the private real estate developer ■ More live, work, stay and play elements at yearning to have too much leverage, creat- our destinations. ing the soundest financial company in our sector. We redefined our company well over ■ Experimenting with technology to enhance a decade ago as a retail real estate company the value of the shopping trip for the con- that branched into highly successful product sumer from many different points of view, types beyond the mall and today operate four including discovery and convenience. distinct platforms – Malls, Premium Outlets®, ■ We have no bigger priority than continuing The Mills®, as well as our international busi- our work on our revolution in connecting ness. Today, we own over 190 retail destina- directly with our consumer. Our goal is to tions throughout the country that are on aver- do this in a way that adds value for the age 95% occupied and produce approximately consumer, but can enable our retailer base $630 in sales per square foot. We also have a in the services that they provide to the growing international business with 27 assets consumer. This is a work-in-progress and is located in 11 different countries, in addition to a terrific opportunity for our company. our 21% stake in Klépierre, a leading pan-Euro- ■ Adding new and exciting retailers and uses pean retail real estate company. Our domestic to our destinations. places generate over 2 billion visits per year ■ The redevelopment of our product as we with a distinct customer base of nearly 100 reclaim certain department stores. million customers! Which leads me to my next ■ Building on our four successful platforms – point. We are more than a retail real estate Malls, Premium Outlets®, The Mills® and company – we are a company that owns International – and our fifth platform will be premier shopping, dining, entertainment and focused on the consumer. mixed-use destinations. These destinations This list represents our priorities, but we are provide gathering places for millions of people not limited to only these. It will always change, every day and generate billions in annual sales. and I hope that the transformation you have However, that is not enough, so what can you seen over the last 25 years will give you the expect from us in the future? confidence that our future is bright and we will Here is what I expect: profitably move forward. WorldReginfo - b17aae64-640b-4ba7-878c-aa92dcbb46fe 2017 ANNUAL REPORT iii NORFOLK PREMIUM OUTLETS Norfolk, VA Now in case you thought we weren’t busy or ■ Comparable property NOI increased working hard, here are some highlights for you 3.2% for our U.S. Malls, Premium Outlets® to consider. and The Mills® (sector leading). ■ Our company generated over $1.4 billion $5.5 billion FINANCIAL RESULTS in excess free cash flow, after dividends, Consolidated Revenue We achieved record and sector-leading results in 2017. in 2017, including: ■ Unfortunately, our stock price performance ■ Consolidated revenue increased 2% to did not reflect this financial success, howev- $5.539 billion (record). er we did outperform our peer group. $1.9 billion ■ Net income was $1.945 billion, or $6.24 per Net Income share (record). OPERATING METRICS ■ ■ Funds from Operations (“FFO”) increased Occupancy for our U.S. Malls and Premium 6% to $4.021 billion, or $11.21 per diluted Outlets® ended the year at 95.6% and The share (record). Mills® occupancy ended the year at 98.4%. $4.0 billion ■ U.S. Malls and Premium Outlets® ■ 2017 is the first year our FFO surpassed the FFO $4 billion threshold (record). occupancy has been over 95% for the last six years (certainly in contrast to the ■ Our annual FFO has increased almost $1 narrative on retail that you might see from billion over the last four years, despite the the media). spin-off of Washington Prime Group. ■ Base minimum rent for our U.S. Malls and $5.3 billion ■ We have achieved a compound annual FFO Premium Outlets® ended the year at Our Share Total NOI per share growth rate of 8% over the last $53.11, approximately 3% higher than the three years and more than 12% over the last prior year, and leasing spreads were 11.4%. seven years. ■ Reported retailer sales across our portfolio ■ Our FFO per share growth rate has out- were $628 per square foot, an increase of paced the growth rate of all equity REITs $7.1 5 more than 2% year-over-year. Dividends Per Share by more than 400 basis points over the last seven years and has been more than double ■ Retailer sales productivity increased five the rate of earnings per share growth for consecutive quarters through the end the S&P 500 over the same time period. of 2017 reinforcing the importance of high-quality brick and mortar locations ■ Total portfolio net operating income (“NOI”) to a retailer’s strategy. grew 4.5%, or more than $265 million year-over-year. WorldReginfo - b17aae64-640b-4ba7-878c-aa92dcbb46fe iv SIMON PROPERTY GROUP, INC. FINANCIAL HIGHLIGHTS Year ended December 31, (dollars in millions, except per share figures) 2017 2016 Consolidated Revenue $ 5,539 $ 5,435 Net Income Per Share (Diluted) $ 6.24 $ 5.87 Funds from Operations (FFO) $ 4,021 $ 3,793 FFO Per Share (Diluted) $ 11.21 $ 10.49 Dividends Per Share $ 7.1 5 $ 6.50 Common Stock Price at December 31 $ 171.74 $ 177.67 Total Equity Capitalization $ 61,573 $ 64,103 Total Market Capitalization(1) $ 93,050 $ 93,683 (1) Includes our share of consolidated and joint venture debt. CONSOLIDATED FFO PER DILUTED DIVIDENDS PER EQUITY MARKET REVENUE SHARE DILUTED SHARE CAPITALIZATION $ IN BILLIONS $ IN BILLIONS 7.15 50 5 . $ 0 6 . $ 6 70.3 $11.21 10.49 5.44 5 66.3 5.27 $ $5.54 $ 1 9.86 $ $ 64.1 . $ $ 4.87 65 $ 5 $ . 8.90 $61.6 $ $ $ $8.85 $4.54 $55.2 $4 15 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 This annual report contains a number of forward-looking statements. For more information, refer to the Company’s fourth quarter and full-year 2017 results and SEC filings on our website at investors.simon.com. This report also references non-GAAP financial measures including funds from operations, or FFO, FFO per share, portfolio net operating income growth and comparable property net operating income growth. These financial measures are commonly used in the real estate industry and we believe they provide useful information to investors when used in conjunction with GAAP measures. For a definition of FFO and reconciliations of each of the non-GAAP measures used in this report to the most directly comparable GAAP measure, refer to the Company’s fourth quarter and full-year 2017 results, SEC filings and Non-GAAP Reconciliations section under Financials at investors.simon.com. TOTAL RETURN PERFORMANCE 300 250 Simon Property Group, Inc. $208.14 200 FTSE NAREIT Equity REIT Index $157.14 150 $136.68 S&P 500 Index 100 50 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 YEAR-END COMPOUND 2017 ANNUAL RETURN ANNUAL 2012 2013 2014 2015 2016 2017 RETURN 3-YEAR 5-YEAR Simon Property Group, Inc. $100.00 $ 99.07 $ 129.97 $ 143.27 $ 135.36 $ 136.68 1.0% 1.7% 6.4% FTSE NAREIT Equity REIT Index $100.00 $ 102.47 $ 133.35 $ 137.61 $ 149.33 $ 157.14 5.2% 5.6% 9.5% S&P 500 Index $100.00 $ 132.39 $ 150.51 $ 152.59 $ 170.84 $ 208.14 21.8% 11.4% 15.8% The line graph above compares the percentage change in the cumulative total shareholder return on our common stock as compared to the cumulative total return of the S&P 500 Index and the FTSE NAREIT Equity REIT Index for the period December 31, 2012 through December 31, 2017.