SIMON PROPERTY GROUP, INC. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report.
Overview
Simon Property Group, Inc. is aDelaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. REITs will generally not be liable forU.S. federal corporate income taxes as long as they distribute not less than 100% of their REIT taxable income.Simon Property Group, L.P. is our majority-ownedDelaware partnership subsidiary that owns all of our real estate properties and other assets. According to theOperating Partnership's partnership agreement, theOperating Partnership is required to pay all expenses of Simon. Unless stated otherwise or the context otherwise requires, references to "Simon" meanSimon Property Group, Inc. and references to the "Operating Partnership" meanSimon Property Group, L.P. References to "we," "us" and "our" mean collectively Simon, theOperating Partnership and those entities/subsidiaries owned or controlled by Simon and/or theOperating Partnership . We own, develop and manage premier shopping, dining, entertainment and mixed-use destinations, which consist primarily of malls, Premium Outlets®, and The Mills®. As ofSeptember 30, 2021 , we owned or held an interest in 201 income-producing properties inthe United States , which consisted of 95 malls, 69Premium Outlets , 14 Mills, six lifestyle centers, and 17 other retail properties in 37 states andPuerto Rico . We also own an 80% noncontrolling interest in theTaubman Realty Group, LLC , or TRG, which has an interest in 24 regional, super-regional, and outlet malls in theU.S. andAsia . In addition, we have redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants, underway at properties inthe United States ,Canada ,Asia andEurope . Internationally, as ofSeptember 30, 2021 , we had ownership in 32Premium Outlets and Designer Outlet properties primarily located inAsia ,Europe , andCanada . We also have two international outlet properties under development. As ofSeptember 30, 2021 , we also owned a 22.4% equity stake in Klépierre SA, or Klépierre, a publicly traded,Paris -based real estate company which owns, or has an interest in, shopping centers located in 15 countries inEurope .
We generate the majority of our lease income from retail tenants including consideration received from:
? fixed minimum lease consideration and fixed common area maintenance (CAM)
reimbursements, and
variable lease consideration primarily based on tenants' sales, as well as
? reimbursements for real estate taxes, utilities, marketing and certain other
items.
Revenues of our management company, after intercompany eliminations, consist primarily of management fees that are typically based upon the revenues of the property being managed. We invest in real estate properties to maximize total financial return which includes both operating cash flows and capital appreciation. We seek growth in earnings, funds from operations, or FFO, and cash flows by enhancing the profitability and operation of our properties and investments. We seek to accomplish this growth through the following:
? attracting and retaining high quality tenants and utilizing economies of scale
to reduce operating expenses,
? expanding and re-tenanting existing highly productive locations at competitive
rental rates,
? selectively acquiring or increasing our interests in high quality real estate
assets or portfolios of assets,
? generating consumer traffic in our retail properties through marketing
initiatives and strategic corporate alliances, and
? selling selective non-core assets.
We also grow by generating supplemental revenues from the following activities:
establishing our malls as leading market resource providers for retailers and
other businesses and consumer-focused corporate alliances, including payment
? systems (such as handling fees relating to the sales of bank-issued prepaid
cards), national marketing alliances, static and digital media initiatives,
business development, sponsorship, and events,
? offering property operating services to our tenants and others, including waste
handling and facility services, and the provision of energy services,
? selling or leasing land adjacent to our properties, commonly referred to as
"outlots" or "outparcels," and
? generating interest income on cash deposits and investments in loans, including
those made to related entities.
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We focus on high quality real estate across the retail real estate spectrum. We expand or redevelop properties to enhance profitability and market share of existing assets when we believe the investment of our capital meets our risk-reward criteria. We selectively develop new properties in markets we believe are not adequately served by existing retail outlet properties.
We routinely review and evaluate acquisition opportunities based on their ability to enhance our portfolio. Our international strategy includes partnering with established real estate companies and financing international investments with local currency to minimize foreign exchange risk.
To support our growth, we employ a three-fold capital strategy:
? provide the capital necessary to fund growth,
? maintain sufficient flexibility to access capital in many forms, both public
and private, and
? manage our overall financial structure in a fashion that preserves our
investment grade credit ratings.
We consider FFO and net operating income, or NOI, and portfolio NOI to be key measures of operating performance that are not specifically defined by accounting principles generally accepted inthe United States , or GAAP. We use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies. Reconciliations of these measures to the most comparable GAAP measure are included below in this discussion.
COVID-19
OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus, or COVID-19, a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has had a material negative impact on economic and market conditions around the world, and, notwithstanding the fact that vaccines are being administered inthe United States and elsewhere, the pandemic continues to adversely impact economic activity in retail real estate. The impact of the COVID-19 pandemic continues to evolve and governments and other authorities, including where we own or hold interests in properties, have imposed measures intended to control its spread, including restrictions on freedom of movement, group gatherings and business operations such as travel bans, border closings, business closures, quarantines, stay-at-home, shelter-in-place orders, capacity limitations and social distancing measures. As a result of the COVID-19 pandemic and these measures, the Company has experienced and may continue to experience material impacts including changes in the ability to recognize revenue due to changes in our assessment of the probability of collection of lease income and asset impairment charges as a result of changing cash flows generated by our properties and investments. Due to certain restrictive governmental orders placed on us, our domestic portfolio lost approximately 13,500 shopping days in 2020 the majority of which occurred in the second quarter. As we developed and implemented our response to the impact of the COVID-19 pandemic and restrictions intended to prevent its spread on our business, our primary focus has been on the health and safety of our employees, our shoppers and the communities in which we serve. In the second quarter of 2020, in connection with the property closures, we implemented a series of actions to reduce costs and increase liquidity in light of the economic impacts of the pandemic.
Results Overview
Diluted earnings per share and diluted earnings per unit increased$2.56 during the first nine months of 2021 to$5.30 from$2.74 for the same period last year. The increase in diluted earnings per share and diluted earnings per unit was primarily attributable to:
increased income from unconsolidated entities of
? diluted share/unit, the majority of which is due to favorable year-over-year
operations from, and additional interests in and ownership of, retailer investments of$309.1 million , or$0.82 per diluted share/unit,
increased other income of
? primarily due to an increase in lease settlement income of
2021,
a non-cash gain in 2021 on acquisitions and disposals of
? properties of
on the consolidation of one property of
share/unit, and net gains of
related to property insurance recoveries of previously depreciated assets,
? a non-cash gain in 2021 on exchange of equity interests of
? an unrealized favorable change in fair value of equity instruments of
million, or$0.03 per diluted share/unit, partially offset by 38 Table of Contents
increased tax expense of
? primarily due to favorable year-over-year operations from retailer investments
and a
equity interests transaction noted above,
increased interest expense in 2021 of
? share/unit, due to Term Loan borrowings, which were subsequently replaced by
notes issuances to fund our investment in TRG,
aggregate impairment charges in 2020 related to Klépierre, our investment in
? HBS, and three joint venture properties of
share/unit, and
? a charge on early extinguishment of debt of
share/unit, in 2021.
Portfolio NOI increased 18.7% for the nine month period in 2021 over the prior year period primarily as a result of the acquisition of our interest in TRG.
Excluding the impact of TRG, portfolio NOI increased 9.0% compared to the prior year. Average base minimum rent forU.S. Malls and Premium Outlets decreased 4.0% to$53.91 psf as ofSeptember 30, 2021 , from$56.13 psf as ofSeptember 30, 2020 . Ending occupancy for ourU.S. Malls and Premium Outlets increased 1.4% to 92.8% as ofSeptember 30, 2021 , from 91.4% as ofSeptember 30, 2020 , primarily due to leasing activity, partially offset by 2020 tenant bankruptcy activity. Our effective overall borrowing rate atSeptember 30, 2021 on our consolidated indebtedness decreased 15 basis points to 2.97% as compared to 3.12% atSeptember 30, 2020 . This decrease was primarily due to a decrease in the effective overall borrowing rate on fixed rate debt of 19 basis points (3.17% atSeptember 30, 2021 as compared to 3.36% atSeptember 30, 2020 ), partially offset by an increase in the amount of our fixed rate debt. The weighted average years to maturity of our consolidated indebtedness was 8.1 years and 7.3 years atSeptember 30, 2021 andDecember 31, 2020 , respectively.
Our financing activity for the nine months ended
decreasing our borrowings under the
? commercial paper note program, or the Commercial Paper program, by
million,
completing, on
the following senior unsecured notes:
of 1.75%,
of
offering funded the optional redemption at par of the
?
Operating Partnership's
Facility, which was a feature of, and in addition to, the Operating
Partnership's
Facility, as discussed below.
completing, on
? fixed rate of 1.125% with a maturity date of
unsecured notes offering funded the repayment of the indebtedness under the
Term Facility, as discussed below.
? repaying, on
Term Facility, reducing the Term Facility balance to zero.
completing, on
the following senior unsecured notes:
of 1.375% and
dates of
? offering, along with cash on hand, funded the optional redemption, including
make-whole amounts, of the following senior unsecured notes: Operating
Partnership's
2.625% notes due
notes dueFebruary 1, 2023 , onSeptember 9, 2021 .
United States Portfolio Data
The portfolio data discussed in this overview includes the following key operating statistics: ending occupancy and average base minimum rent per square foot. We include acquired properties in this data beginning in the year of acquisition and remove disposed properties in the year of disposition. For comparative purposes, we separate the information related to The Mills from our otherU.S. operations. We also do not include any information for properties located outsidethe United States or properties included within the TRG portfolio.
The following table sets forth these key operating statistics for the combined
? properties that are consolidated in our consolidated financial statements,
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? properties we account for under the equity method of accounting as joint
ventures, and
? the foregoing two categories of properties on a total portfolio basis.
September 30 ,
2021 2020 Change (1)
U.S. Malls and Premium Outlets :
Ending Occupancy
Consolidated 92.9% 91.5% 140 bps
Unconsolidated 92.4% 91.1% 130 bps
Total Portfolio 92.8% 91.4% 140 bps
Average Base Minimum Rent per Square Foot
Consolidated $ 52.51 $ 54.33 -3.3%
Unconsolidated $ 57.81 $ 61.22 -5.6%
Total Portfolio $ 53.91 $ 56.13 -4.0%
The Mills:
Ending Occupancy 97.0% 94.5% 250 bpsAverage Base Minimum Rent per Square Foot $ 33.68 $
33.83 -0.4%
(1) Percentages may not recalculate due to rounding. Percentage and basis point
changes are representative of the change from the comparable prior period.
Ending Occupancy Levels and Average Base Minimum Rent per Square Foot. Ending occupancy is the percentage of gross leasable area, or GLA, which is leased as of the last day of the reporting period. We include all company owned space except for mall anchors, mall majors, mall freestanding and mall outlots in the calculation. Base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy. Total Reported Sales per Square Foot. Given all of ourU.S. retail properties were closed for a portion of the prior year due to the COVID-19 pandemic, we are not presenting reported retail tenant sales per square foot as we do not believe the trends for the period are indicative of future operating results.
Current Leasing Activities
During the nine months endedSeptember 30, 2021 , we signed 734 new leases and 1,310 renewal leases (excluding mall anchors and majors, new development, redevelopment and leases with terms of one year or less) with a fixed minimum rent across ourU.S. Malls and Premium Outlets portfolio, comprising approximately 7.0 million square feet, of which 5.5 million square feet related to consolidated properties. During the comparable period in 2020, we signed 327 new leases and 648 renewal leases with a fixed minimum rent, comprising approximately 3.4 million square feet, of which 2.5 million square feet related to consolidated properties. The average annual initial base minimum rent for new leases was$55.28 per square foot in 2021 and$59.88 per square foot in 2020 with an average tenant allowance on new leases of$54.00 per square foot and$51.07 per square foot, respectively. Leasing Spreads. Leasing spreads can vary significantly based on the mix of leasing volume during the period and are dependent on factors such as property and space location, size of the space, term and whether lease income is structured as variable or fixed, or a mix thereof, among other factors. In addition, our historically reported leasing spreads did not include any estimates for variable lease income based on sales. As such, we are not presenting leasing spreads as we do not believe the trends for the period are indicative of future operating results. 40 Table of Contents Japan Data
The following are selected key operating statistics for ourPremium Outlets inJapan . The information used to prepare these statistics has been supplied by the managing venture partner. September 30, September 30, %/Basis Points 2021 2020 Change
Ending Occupancy 99.5 % 99.3 % +20 bps Average Base Minimum Rent per Square Foot ¥ 5,498 ¥
5,390 2.00 %
Results of Operations
The following acquisitions and dispositions of consolidated properties affected our consolidated results in the comparative periods:
? During the third quarter of 2021, we disposed of one consolidated retail
property.
? During the first quarter of 2021, we disposed of one consolidated retail
property.
? During the first quarter of 2021, we consolidated one
in
? During the fourth quarter of 2020, we disposed of one consolidated retail
property.
The following acquisitions and openings of equity method investments and properties affected our income from unconsolidated entities in the comparative periods:
On
? ventures of Forever 21 and Brooks Brothers for additional interests in ABG. Our
noncontrolling interest in ABG is approximately 11%.
On
? Eddie Bauer. Our non-controlling interest in the licensing venture is 49% and
was acquired for cash consideration of
? On
foot center in
In the first quarter of 2021, we and our partner, ABG, both acquired additional
? 12.5% interests in the licensing and operations of Forever 21 for
bringing our interest to 50%. Subsequently the Forever 21 operations were
merged into
? On
in TRG.
On
? liabilities of J.C.
interest in the venture is 41.67%.
? On
center in
On
and liabilities of Forever 21, a retailer of apparel and accessories, out of
? bankruptcy. The interests were acquired through two separate joint ventures, a
licensing venture and an operating venture. Our noncontrolling interest in each
of the retail operations venture and in the licensing venture was 37.5%.
On
? Outlet, a 191,000 square foot center in
this center.
In
? Group and
and
For the purposes of the following comparison between the three and nine months endedSeptember 30, 2021 and 2020, the above transactions are referred to as the property transactions. In the following discussions of our results of operations, "comparable" refers to properties we owned or held interests in and operated in both of the periods under comparison. 41
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Three months ended
Lease income increased$214.1 million , of which the property transactions accounted for a$4.5 million decrease. Comparable lease income increased$218.6 million , or 22.2%. Total lease income increased primarily due to an increase in variable lease income of$221.9 million primarily related to higher consideration based on tenant sales and lower negative variable lease income due to abatements granted in 2020 as a result of the COVID-19 pandemic, partially offset by decreases in fixed minimum lease and CAM consideration recorded on a straight-line basis of$7.8 million . Total other income increased$16.1 million , primarily due to an$8.2 million increase related toSimon Brand Ventures and gift card revenues, a$5.2 million net increase in dividend and other income and an increase in land sale income of$3.0 million .
Property operating expenses increased
Advertising and promotion expenses increased
Other expense decreased
During 2021, we recorded a loss on extinguishment of debt of
During 2021, we recorded a non-cash gain on exchange of equity interests of
Income and other tax (expense) benefit increased$64.5 million due to increased deferred tax expense as a result of the ABG transaction noted above, which had a non-cash tax impact of$47.9 million and$14.3 million related to strong operating performance of our retailer investments, as well as our acquisition of interests in several retailers throughout 2020. Income from unconsolidated entities increased$136.7 million primarily due to favorable results of operations from our retailer investments, including earnings from our acquisition of an interest in J.C.Penney in the later part of 2020. During 2021, we recorded a gain of$88.0 million related to the disposition of one consolidated property, and gains of$21.0 million related to property insurance recoveries of previously depreciated assets. During 2020, we recorded a$91.3 million loss related to an other-than-temporary impairment of our equity investments in three joint venture properties and to reduce our investment in HBS to its estimated fair value.
Simon's net income attributable to noncontrolling interests increased
Nine months ended
Lease income increased$242.2 million , of which the property transactions accounted for a$10.5 million decrease. Comparable lease income increased$252.7 million , or 7.8%. Total lease income increased primarily due to an increase in variable lease income of$398.0 million primarily related to higher consideration based on tenant sales and lower negative variable lease income due to abatements granted in 2020 as a result of the COVID-19 pandemic, partially offset by decreases in fixed minimum lease and CAM consideration recorded on a straight-line basis of$155.8 million . Total other income increased$65.5 million , primarily due to an increase in lease settlement income of$44.4 million , a$14.9 million gain on the sale of our interest in a multi-family residential property, a$6.4 million increase from the non-cash dilution gain on a non-retail investment, a$5.5 million net increase in dividend, interest and other income, and a$4.1 million increase related toSimon Brand Ventures and gift card revenues, partially offset by a$7.0 million decrease related to higher land and outparcel sale activity in 2020, and a$3.0 million decrease related to business interruption proceeds received in 2020.
Property operating expenses increased
Advertising and promotion expenses increased
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Other expense decreased
Interest expense increased
During 2021, we recorded a loss on extinguishment of debt of
During 2021, we recorded a non-cash gain on exchange of equity interests of
Income and other tax (expense) benefit increased$111.4 million due to increased deferred tax expense as a result of the ABG transaction noted above which had a non-cash tax impact of$47.9 million and$54.9 million related to strong operating performance of our retailer investments as well as our acquisition of an interest in several retailers throughout 2020. Income from unconsolidated entities increased$405.5 million primarily due to favorable results of operations from our retailer investments, including earnings from our acquisition of an interest in J.C.Penney in the later part of 2020, and international investments which included the reversal of a previously established deferred tax liability at Klépierre resulting in a non-cash gain, of which our share was$118.4 million , partially offset by amortization of our excess investment in TRG. During 2021, we recorded a gain of$181.1 million related to the disposition of two consolidated properties and the impact from the consolidation of one property that was previously unconsolidated, and gains of$21.0 million related to property insurance recoveries of previously depreciated assets. During 2020, we recorded a$91.3 million loss related to an other-than-temporary impairment of our equity investments in three joint venture properties and impairment charge to reduce our investment in HBS to its estimated fair value and a$7.8 million loss, net, related to the impairment and disposition of certain assets by Klépierre, offset by a$1.0 million gain related to the disposition of a shopping center by one of our joint venture investments.
Simon's net income attributable to noncontrolling interests increased
Liquidity and Capital Resources
Because we own long-lived income-producing assets, our financing strategy relies primarily on long-term fixed rate debt. Floating rate debt comprised 4.7% of our total consolidated debt atSeptember 30, 2021 . We also enter into interest rate protection agreements from time to time to manage our interest rate risk. We derive most of our liquidity from positive net cash flow from operations and distributions of capital from unconsolidated entities that totaled$2.9 billion in the aggregate during the nine months endedSeptember 30, 2021 . As ofSeptember 30, 2021 , theOperating Partnership has a Credit Facility and a$3.5 billion unsecured revolving credit facility, or Supplemental Facility, and together with the Credit Facility, the Credit Facilities. The Credit Facilities and the Commercial Paper program provide alternative sources of liquidity as our cash needs vary from time to time. Borrowing capacity under these sources may be increased as discussed further below. Our balance of cash and cash equivalents decreased$573.2 million during the first nine months of 2021 to$438.4 million as ofSeptember 30, 2021 as a result of the operating and financing activity, as further discussed in "Cash Flows" below. OnSeptember 30, 2021 , we had an aggregate available borrowing capacity of approximately$6.9 billion under the Credit Facilities, net of outstanding borrowings of$125.0 million and amounts outstanding under the Commercial Paper program of$500.0 million and letters of credit of$12.4 million . For the nine months endedSeptember 30, 2021 , the maximum aggregate outstanding balance under the Credit Facilities was$2.1 billion and the weighted average outstanding balance was$583.8 million . The weighted average interest rate was 0.9% for the nine months endedSeptember 30, 2021 . Simon has historically had access to public equity markets and theOperating Partnership has historically had access to private and public long and short-term unsecured debt markets and access to secured debt and private equity from institutional investors at the property level. Our business model and Simon's status as a REIT require us to regularly access the debt markets to raise funds for acquisition, development and redevelopment activity, and to refinance maturing debt. Simon may also, from time to time, access the equity capital markets to accomplish our business objectives. We believe we have sufficient cash on hand and availability under the Credit Facilities and the Commercial Paper program to address our debt maturities
and capital needs through 2021. Cash Flows Our net cash flow from operating activities and distributions of capital from unconsolidated entities for the nine months endedSeptember 30, 2021 totaled$2.9 billion . In addition, we had net repayments from our debt financing and repayment activities 43 Table of Contents
of
funded the acquisition of the licensing venture of Eddie Bauer and acquired
? additional interests in the licensing and operations of Forever 21, the
aggregate cash portion of which was
? paid stockholder dividends and unitholder distributions totaling approximately
funded consolidated capital expenditures of
? development and other costs of
of
of
? funded investments in unconsolidated entities of
In general, we anticipate that cash generated from operations will be sufficient to meet operating expenses, monthly debt service, recurring capital expenditures, and dividends to stockholders and/or distributions to partners necessary to maintain Simon's REIT qualification on a long-term basis. At this time, we do not expect the impact of COVID-19 to impact our ability to fund these needs for the foreseeable future; however its ultimate impact is difficult to predict. In addition, we expect to be able to generate or obtain capital for nonrecurring capital expenditures, such as acquisitions, major building redevelopments and expansions, as well as for scheduled principal maturities on outstanding indebtedness, from the following, however a severe and prolonged disruption and instability in the global financial markets, including the debt and equity capital markets, may affect our ability to access necessary capital:
? excess cash generated from operating performance and working capital reserves,
? borrowings on the Credit Facilities and Commercial Paper program,
? additional secured or unsecured debt financing, or
? additional equity raised in the public or private markets.
We expect to generate positive cash flow from operations in 2021, and we consider these projected cash flows in our sources and uses of cash. These cash flows are principally derived from rents paid by our tenants. A significant deterioration in projected cash flows from operations, including one due to the impact of the COVID-19 pandemic and restrictions intended to restrict its spread, could cause us to increase our reliance on available funds from the Credit Facilities and Commercial Paper program, further curtail planned capital expenditures, or seek other additional sources of financing.
Financing and Debt
Unsecured Debt
AtSeptember 30, 2021 , our unsecured debt consisted of$18.4 billion of senior unsecured notes of theOperating Partnership ,$125.0 million outstanding under theOperating Partnership's $4.0 billion unsecured revolving credit facility, or Credit Facility, and$500.0 million outstanding under theOperating Partnership's global unsecured commercial paper note program, or Commercial Paper program.
The Credit Facility also included an additional single, delayed-draw
AtSeptember 30, 2021 , we had an aggregate available borrowing capacity of$6.9 billion under the Credit Facility and theOperating Partnership's $3.5 billion unsecured revolving credit facility, or Supplemental Facility, and together with the Credit Facility, the Credit Facilities. The maximum aggregate outstanding balance under the Credit Facilities and the Term Facility, during the nine months endedSeptember 30, 2021 was$2.1 billion and the weighted average outstanding balance was$583.8 million . Letters of credit of$12.4 million were outstanding under the Credit Facilities as ofSeptember 30, 2021 . The Credit Facility can be increased in the form of additional commitments under the Credit Facility in an aggregate amount not to exceed$1.0 billion , for a total aggregate size of$5.0 billion , subject to obtaining additional lender commitments and satisfying certain customary conditions precedent. Borrowings may be denominated inU.S. dollars, Euro, Yen, Sterling, Canadian dollars and Australian dollars. Borrowings in currencies other than theU.S. dollar are limited to 95% of the maximum revolving credit amount, as defined. The initial maturity date of the Credit Facility isJune 30, 2024 . The Credit Facility can be extended for two additional six-month periods toJune 30, 2025 , at our sole option, subject to satisfying certain customary conditions precedent.
Borrowings under the Credit Facility bear interest, at the
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equal to the greatest of the prime rate, the federal funds effective rate plus 0.50% or LIBOR plus 1.00%) (the "Base Rate"), plus a margin determined by theOperating Partnership's corporate credit rating of between 0.00% and 0.40%. The Credit Facility includes a facility fee determined by theOperating Partnership's corporate credit rating of between 0.10% and 0.30% on the aggregate revolving commitments under the Credit Facility. The Credit Facility contains a money market competitive bid option program that allows theOperating Partnership to hold auctions to achieve lower pricing for short-term borrowings. The Supplemental Facility's initial borrowing capacity of$3.5 billion may be increased to$4.5 billion during its term and provides for borrowings denominated inU.S. dollars, Euro, Yen, Sterling, Canadian dollars and Australian dollars. The initial maturity date of the Supplemental Facility isJune 30, 2022 and can be extended for an additional year toJune 30, 2023 at our sole option, subject to our continued compliance with the terms thereof. The base interest rate on the Supplemental Facility is LIBOR plus 77.5 basis points with a facility fee of 10 basis points.
In
Borrowings under the Supplemental Facility bear interest, at the Company's election, at either (i) (x) for Term Benchmark Loans, the Adjusted Term SOFR Rate, the applicable Local Rate, the Adjusted EURIBOR Rate, or the Adjusted TIBOR Rate, (y) for RFR Loans, if denominated in Sterling, SONIA plus a benchmark adjustment and if denominated in Dollars, Daily Simple SOFR plus a benchmark adjustment, or (z) for Daily SOFR Loans, the Adjusted Floating Overnight Daily SOFR Rate, in each case of clauses (x) through (z) above, plus a margin determined by the Company's corporate credit rating of between 0.650% and 1.400% or (ii) for loans denominated inU.S. Dollars only, the base rate (which rate is equal to the greatest of the prime rate, the federal funds effective rate plus 0.500% or Adjusted Term SOFR Rate for one month plus 1.000%) (the "Base Rate"), plus a margin determined by the Company's corporate credit rating of between 0.000% and 0.400%. The Supplemental Facility includes a facility fee determined by the Company's corporate credit rating of between 0.100% and 0.300% on the aggregate revolving commitments under the Supplemental Facility. Based upon the Company's current credit ratings, the interest rate on the new revolver is SOFR plus 72.5 basis points, plus a spread adjustment to account for the transition from LIBOR to SOFR.The Operating Partnership also has available a Commercial Paper program of$2.0 billion , or the non-U.S. dollar equivalent thereof.The Operating Partnership may issue unsecured commercial paper notes, denominated inU.S. dollars, Euro and other currencies. Notes issued in non-U.S. currencies may be issued by one or more subsidiaries of theOperating Partnership and are guaranteed by theOperating Partnership . Notes are sold under customary terms in theU.S. and Euro commercial paper note markets and rank (either by themselves or as a result of the guarantee described above) pari passu with theOperating Partnership's other unsecured senior indebtedness. The Commercial Paper program is supported by the Credit Facilities and if necessary or appropriate, we may make one or more draws under either of the Credit Facilities to pay amounts outstanding from time to time on the Commercial Paper program. OnSeptember 30, 2021 , we had$500.0 million outstanding under the Commercial Paper program, fully comprised ofU.S. dollar-denominated notes with a weighted average interest rate of 0.20%. These borrowings have a weighted average maturity date ofNovember 1, 2021 and reduce amounts otherwise available under the Credit Facilities. OnJanuary 21, 2021 , theOperating Partnership completed the issuance of the following senior unsecured notes:$800 million with a fixed interest rate of 1.75%, and$700 million with a fixed interest rate of 2.20%, with maturity dates ofFebruary 2028 and 2031, respectively. OnJanuary 27, 2021 , theOperating Partnership completed the optional redemption of its$550 million 2.50% notes due onJuly 15, 2021 . We recorded a$3.0 million loss on extinguishment of debt as a result of the optional redemption. Further, onFebruary 2, 2021 , theOperating Partnership repaid$750 million under the Term Facility. OnMarch 19, 2021 , theOperating Partnership completed the issuance of €750 million ($893.0 million U.S. dollar equivalent as of the issuance date) of senior unsecured notes at a fixed rate of 1.125% with a maturity date ofMarch 19, 2033 . Further, onMarch 23, 2021 , theOperating Partnership repaid the remaining$1.25 billion under the Term Facility reducing it to zero. OnAugust 18, 2021 , theOperating Partnership completed the issuance of the following senior unsecured notes:$550 million with a fixed interest rate of 1.375%, and$700 million with a fixed interest rate of 2.250%, with maturity dates ofJanuary 15 2027 and 2032, respectively.
In the third quarter, the
Mortgage Debt
Total mortgage indebtedness was
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Covenants
Our unsecured debt agreements contain financial covenants and other
non-financial covenants. The Facilities contain ongoing covenants relating to
total and secured leverage to capitalization value, minimum earnings before
interest, taxes, depreciation, and amortization, or EBITDA, and unencumbered
EBITDA coverage requirements. Payment under the Facilities can be accelerated
if the Operating Partnership or Simon is subject to bankruptcy proceedings or
upon the occurrence of certain other events. If we were to fail to comply with
these covenants, after the expiration of the applicable cure periods, the debt
maturity could be accelerated or other remedies could be sought by the lender,
including adjustments to the applicable interest rate. As of September 30, 2021 ,
we were in compliance with all covenants of our unsecured debt.
At September 30, 2021 , our consolidated subsidiaries were the borrowers under 46
non-recourse mortgage notes secured by mortgages on 49 properties and other
assets, including two separate pools of cross-defaulted and cross-collateralized
mortgages encumbering a total of five properties. Under these cross-default
provisions, a default under any mortgage included in the cross-defaulted pool
may constitute a default under all mortgages within that pool and may lead to
acceleration of the indebtedness due on each property within the pool. Certain
of our secured debt instruments contain financial and other non-financial
covenants which are specific to the properties that serve as collateral for that
debt. If the applicable borrower under these non-recourse mortgage notes were to
fail to comply with these covenants, the lender could accelerate the debt and
enforce its rights against their collateral. At September 30, 2021 , the
applicable borrowers under these non-recourse mortgage notes were in compliance
with all covenants where non-compliance could individually or in the aggregate,
giving effect to applicable cross-default provisions, have a material adverse
effect on our financial condition, liquidity or results of operations.
Summary of Financing
Our consolidated debt, adjusted to reflect outstanding derivative instruments, and the effective weighted average interest rates as ofSeptember 30, 2021 andDecember 31, 2020 , consisted of the following (dollars in thousands): Effective Effective Adjusted Balance Weighted Adjusted Weighted as of Average Balance as of Average Debt Subject to September 30, 2021 Interest Rate(1) December 31, 2020 Interest Rate(1) Fixed Rate$ 24,345,041 3.02% $ 23,477,498 3.50% Variable Rate 1,239,331 2.03% 3,245,863 1.31%$ 25,584,372 2.97% $ 26,723,361 2.98%
(1) Effective weighted average interest rate excludes the impact of net discounts
and debt issuance costs.
Contractual Obligations
There have been no material changes to our outstanding capital expenditure and
lease commitments previously disclosed in the combined 2020 Annual Report on
Form 10-K of Simon and the Operating Partnership .
In regards to long-term debt arrangements, the following table summarizes the
material aspects of these future obligations on our consolidated indebtedness as
of September 30, 2021 , for the remainder of 2021 and subsequent years thereafter
(dollars in thousands), assuming the obligations remain outstanding through
initial maturities, including applicable exercise of available extension
options:
2021 2022-2023 2024-2025 After 2025 Total
Long Term Debt (1) (2) $ 805,030 $ 3,135,002 $ 5,968,426 $ 15,757,826 $ 25,666,284
Interest Payments (3) 193,643 1,467,154 1,216,760 4,216,894 7,094,451
(1) Represents principal maturities only and, therefore, excludes net discounts
and debt issuance costs.
(2) The amount due in 2021 includes
Commercial Paper program.
(3) Variable rate interest payments are estimated based on the LIBOR rate at
September 30, 2021 .
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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist primarily of our investments in joint ventures which are common in the real estate industry and are described in note 6 of the condensed notes to our consolidated financial statements. Our joint ventures typically fund their cash needs through secured debt financings obtained by and in the name of the joint venture entity. The joint venture debt is secured by a first mortgage, is without recourse to the joint venture partners, and does not represent a liability of the partners, except to the extent the partners or their affiliates expressly guarantee the joint venture debt. As ofSeptember 30, 2021 , theOperating Partnership guaranteed joint venture-related mortgage indebtedness of$209.2 million . Mortgages guaranteed by theOperating Partnership are secured by the property of the joint venture which could be sold in order to satisfy the outstanding obligation and which has an estimated fair value in excess of the guaranteed amount. We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such fundings are not typically required contractually or otherwise.
Hurricane Impacts
During the third quarter of 2020, one of our properties located in
During the quarter endedSeptember 30, 2021 , we recorded a$3.5 million gain related to property insurance recovery of previously depreciated assets. This amount was recorded in gain (loss) on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairments, net. During the third quarter of 2020, one of our properties located inLouisiana experienced property damage and business interruption as a result of Hurricane Laura. We wrote-off assets of approximately$11.1 million and recorded an insurance recovery receivable, and have received$27.5 million of insurance proceeds from third-party carriers. The proceeds were used for property restoration and remediation and reduced the insurance recovery receivable. During the quarter endedSeptember 30, 2021 , we recorded a$17.5 million gain related to property insurance recovery of previously depreciated assets. This amount was recorded in gain (loss) on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairments, net. Acquisitions and Dispositions Buy-sell, marketing rights, and other exit mechanisms are common in real estate partnership agreements. Most of our partners are institutional investorswho have a history of direct investment in retail real estate. We and our partners in our joint venture properties may initiate these provisions (subject to any applicable lock up or similar restrictions). If we determine it is in our stockholders' best interests for us to purchase the joint venture interest and we believe we have adequate liquidity to execute the purchase without hindering our cash flows, then we may initiate these provisions or elect to buy our partner's interest. If we decide to sell any of our joint venture interests, we expect to use the net proceeds to reduce outstanding indebtedness or to reinvest in development, redevelopment, or expansion opportunities. Acquisitions. The Company sponsored, through a wholly-owned subsidiary, a special purpose acquisition corporation, orSPAC , named Simon Property Group Acquisition Holdings, Inc. OnFebruary 18, 2021 theSPAC announced the pricing of its initial public offering, which was consummated onFebruary 23, 2021 , generating gross proceeds of$345.0 million . TheSPAC is a consolidated VIE which was formed for the purpose of effecting a business combination and is targeting innovative businesses that operate within Simon's "Live, Work, Play, Stay, Shop" ecosystem. OnJuly 1, 2021 , we contributed to ABG all of our interests in both the Forever 21 and Brooks Brothers licensing ventures in exchange for additional interests in ABG bringing our total interest in ABG to approximately 11%. As a result, in the third quarter of 2021, we recognized a non-cash gain of$159.8 million representing the difference between fair value of the interests received and the carrying value of our interests in the licensing ventures, less costs to sell. In the first quarter of 2021, we and our partner, ABG, each acquired additional 12.5% interests in the licensing and operations of Forever 21, our share of which was$56.3 million , bringing our interest to 50%. Subsequently the Forever 21 operations were merged intoSPARC Group .
In
During the third quarter of 2020, SPARC acquired certain assets and operations of Brooks Brothers andLucky Brands out of bankruptcy. AtSeptember 30, 2021 , our noncontrolling equity method interests in the operations venture ofSPARC Group and in ABG were 50.0% and 6.6%, respectively. 47
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Dispositions. We may continue to pursue the disposition of properties that no longer meet our strategic criteria or that are not a primary retail venue within their trade area.
In
During the second quarter of 2021, we sold our interest in one multi-family residential investment. Our share of the gross proceeds on this transaction was$27.1 million . The gain on the sale of$14.9 million is included in other income in the accompanying consolidated statement of operation and comprehensive income. During the first quarter of 2021, we recorded a gain of$89.3 million related to the foreclosure of a consolidated property in satisfaction of its$180 million non-recourse mortgage. OnOctober 1, 2020 , we disposed of our interest in one consolidated retail property. A portion of the gross proceeds on this transaction of$33.4 million was used to partially repay a cross-collateralized mortgage. Our share of the$12.3 million gain is included in gain on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statement of operation and comprehensive income.
Joint Venture Formation and Other Investment Activity
On
OnDecember 29, 2020 , we completed the acquisition of an 80% ownership interest in TRG, which has an ownership interest in 24 regional, super-regional, and outlet malls in theU.S. andAsia . Under the terms of the transaction, we, through theOperating Partnership , acquired all of Taubman Centers, Inc. common stock for$43.00 per share in cash. Total consideration for the acquisition, including the redemption of Taubman's$192.5 million 6.5% Series J Cumulative Preferred Shares and its$170.0 million 6.25% Series K Cumulative Preferred Shares, and the issuance of 955,705Operating Partnership units, was approximately$3.5 billion . Our investment includes the 6.38% Series A Cumulative Redeemable Preferred Units for$362.5 million issued to us. OnDecember 7, 2020 , we and a group of co-investors acquired certain assets and liabilities of J.C.Penney , a department store retailer, out of bankruptcy. Our noncontrolling interest in the venture is 41.67% and was acquired for cash consideration of$125.0 million . OnFebruary 19, 2020 , we and a group of co-investors acquired certain assets and liabilities of Forever 21, a retailer of apparel and accessories, out of bankruptcy. The interests were acquired through two separate joint ventures, a licensing venture and an operating venture. Our noncontrolling interest in each of the retail operations venture and in the licensing venture is 37.5%. Our aggregate investment in the ventures was$67.6 million . In connection with the acquisition of our interest, the Forever 21 joint venture recorded a non-cash bargain purchase gain of which our share of$35.0 million pre-tax is included in income from unconsolidated entities in the consolidated statement of operations and comprehensive income in the second quarter of 2020.
Development Activity
We routinely incur costs related to construction for significant redevelopment and expansion projects at our properties. Redevelopment and expansion projects, including the addition of anchors, big box tenants, restaurants, as well as office space and residential uses are underway at properties inNorth America ,Europe andAsia . Construction continues on certain redevelopment and new development projects in theU.S. and internationally that are nearing completion. Our share of the costs of all new development, redevelopment and expansion projects currently under construction is approximately$937 million . Simon's share of remaining net cash funding required to complete the new development and redevelopment projects currently under construction is approximately$285 million . We expect to fund these capital projects with cash flows from operations. We seek a stabilized return on invested capital in the range of 7-10% for all of our new development, expansion and redevelopment projects. International Development Activity. We typically reinvest net cash flow from our international joint ventures to fund future international development activity. We believe this strategy mitigates some of the risk of our initial investment and our exposure to changes in foreign currencies. We have also funded most of our foreign investments with local currency-denominated borrowings that act as a natural hedge against fluctuations in exchange rates. Our consolidated net income exposure to changes in the volatility of the Euro, Yen, Peso, Won, and other foreign currencies is not material. We expect our share of estimated committed capital for international development projects to be completed with projected delivery or capital expenditures in 2021 or 2022 is$191 million , primarily funded through reinvested joint venture cash flow and construction loans. 48 Table of Contents The following table describes these new development and expansion projects as well as our share of the estimated total cost as ofSeptember 30, 2021 (in millions): Gross Our Our Share of Our Share of Projected Leasable Ownership Projected Net Cost Projected Net Cost Opening Property Location Area (sqft) Percentage (in Local Currency) (in USD) (1) Date New Development Projects: West Midlands Designer Cannock (West 197,000 23% GBP 31.2 $ 42.1 Opened Apr. - 2021 Outlet Midlands), England Jeju Premium Outlets Jeju Province, 92,000 50% KRW 12,328 $ 10.4 Opened Oct. - 2021 South Korea Fukaya-Hanazono Premium Fukaya City, Japan 292,500 40% JPY 6,153 $ 55.1 Oct. - 2022 Outlets Paris-Giverny Designer Vernon (Normandy), 220,000 74% EUR 119.5 $ 138.5 Jan. - 2023 Outlet France Expansions: La Reggia Designer Marcianise 56,000 92% EUR 18.8 $ 21.8 Oct. - 2021 Outlet Phase 3 (Naples), Italy
Dividends, Distributions and Stock Repurchase Program
Simon paid common stock dividends of$1.40 per share and$1.50 per share in the third quarter of 2021 and$5.50 per share for the nine months endedSeptember 30, 2021 . Simon paid a common stock dividend of$1.30 per share in the third quarter of 2020 and$3.40 per share for the nine months endedSeptember 30, 2020 .The Operating Partnership paid distributions per unit for the same amounts. OnNovember 1, 2021 , Simon's Board of Directors declared a quarterly cash dividend for the fourth quarter of 2021 of$1.65 per share, payable onDecember 31, 2021 to shareholders of record onDecember 10, 2021 . The distribution rate on units is equal to the dividend rate on common stock. In order to maintain its status as a REIT, Simon must pay a minimum amount of dividends. Simon's future dividends and theOperating Partnership's future distributions will be determined by Simon's Board of Directors, in its sole discretion, based on actual and projected financial condition, liquidity and results of operations, cash available for dividends and limited partner distributions, cash reserves as deemed necessary for capital and operating expenditures, financing covenants, if any, and the amount required to maintain Simon's status as a REIT. OnFebruary 11, 2019 , Simon's Board of Directors authorized a common stock repurchase plan. Under the plan, Simon was authorized to repurchase up to$2.0 billion of its common stock during the two-year period endingFebruary 11, 2021 in the open market or in privately negotiated transactions as market conditions warrant. During the nine months endedSeptember 30, 2020 , Simon purchased 1,245,654 shares at an average price of$122.50 per share. As Simon repurchased shares under the program, theOperating Partnership repurchased an equal number of units from Simon. Forward-Looking Statements Certain statements made in this section or elsewhere in this Quarterly Report on Form 10-Q may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that its expectations will be attained, and it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Such factors include, but are not limited to: uncertainties regarding the impact of the COVID-19 pandemic and governmental restrictions intended to prevent its spread on our business, financial condition, results of operations, cash flow and liquidity and our ability to access the capital markets, satisfy our debt service obligations and make distributions to our stockholders; changes in economic and market conditions that may adversely affect the general retail environment; the potential loss of anchor stores or major tenants; the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise; the intensely competitive market environment in the retail industry, including e-commerce; an increase in vacant space at our properties; the inability to lease newly developed properties and renew leases and relet space at existing properties on favorable terms; our international activities subjecting us to risks that are different from or greater than those associated with our domestic operations, including changes in foreign exchange rates; risks associated with the acquisition, development, redevelopment, expansion, leasing and management of properties; general risks related to real estate investments, including the illiquidity of real estate investments; the impact of our substantial indebtedness on our future operations, including covenants in the governing agreements that impose restrictions on us that may affect our ability to operate freely; any disruption in the financial markets that may adversely affect our ability to access capital for growth and satisfy our ongoing debt service requirements; any change in our credit rating; changes in market rates of interest; the transition of LIBOR to an alternative reference rate; our continued ability to maintain our status as a REIT; changes in tax laws or regulations that result in adverse tax consequences; risks relating to our joint venture properties, including guarantees of certain joint venture indebtedness; environmental liabilities; natural disasters; the availability of comprehensive insurance coverage; the potential for terrorist activities; security breaches that could compromise our information technology or infrastructure; and the loss of key management personnel. We discussed these and other risks and uncertainties under the heading "Risk Factors" in the combined 2020 Annual Report on 49
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Form 10-K of Simon and the
Non-GAAP Financial Measures
Industry practice is to evaluate real estate properties in part based on performance measures such as FFO, diluted FFO per share, NOI, portfolio NOI and beneficial NOI. We believe that these non-GAAP measures are helpful to investors because they are widely recognized measures of the performance of REITs and provide a relevant basis for comparison among REITs. We also use these measures internally to measure the operating performance of our portfolio. We determine FFO based upon the definition set forth by theNational Association of Real Estate Investment Trusts ("NAREIT") Funds From Operations White Paper - 2018 Restatement. Our main business includes acquiring, owning, operating, developing, and redeveloping real estate in conjunction with the rental of real estate. Gain and losses of assets incidental to our main business are included in FFO. We determine FFO to be our share of consolidated net income computed in accordance with GAAP:
? excluding real estate related depreciation and amortization,
? excluding gains and losses from extraordinary items,
excluding gains and losses from the acquisition of controlling interest, sale,
? disposal or property insurance recoveries of, or any impairment related to,
depreciable retail operating properties,
? plus the allocable portion of FFO of unconsolidated joint ventures based upon
economic ownership interest, and
? all determined on a consistent basis in accordance with GAAP.
You should understand that our computations of these non-GAAP measures might not be comparable to similar measures reported by other REITs and that these non-GAAP measures:
? do not represent cash flow from operations as defined by GAAP,
? should not be considered as an alternative to net income determined in
accordance with GAAP as a measure of operating performance, and
? are not an alternative to cash flows as a measure of liquidity.
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The following schedule reconciles total FFO to consolidated net income and, for Simon, diluted net income per share to diluted FFO per share.
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