SIMON PROPERTY GROUP, INC. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto that are included in this Annual Report on Form 10-K. OverviewSimon 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. In this discussion, 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 . According to theOperating Partnership's partnership agreement, theOperating Partnership is required to pay all expenses of Simon. We own, develop and manage premier shopping, dining, entertainment and mixed-use destinations, which consist primarily of malls, Premium Outlets®, and The Mills®. As ofDecember 31, 2021 , we owned or held an interest in 199 income-producing properties inthe United States , which consisted of 95 malls, 69Premium Outlets , 14 Mills, six lifestyle centers, and 15 other retail properties in 37 states andPuerto Rico . We also own an 80% noncontrolling interest inThe Taubman 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 several properties in theNorth America ,Europe andAsia . Internationally, as ofDecember 31, 2021 , we had ownership in 33Premium Outlets and Designer Outlet properties primarily located inAsia ,Europe , andCanada . We also have two international outlet properties under development. As ofDecember 31, 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 14 countries inEurope .
We generate the majority of our lease income from retail, dining, entertainment, and other 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,
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? 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.
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, 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 at times 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 periodic measures, the Company has experienced 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, including:
? significantly reduced all non-essential corporate spending,
? significantly reduced property operating expenses, including discretionary
marketing spend,
implemented a temporary furlough of certain corporate and field employees due
? to the closure of the Company's
governmental orders; reduced certain corporate and field personnel and
implemented a temporary freeze on company hiring efforts, and
? suspended more than$1.0 billion of redevelopment and new development projects. 58 Table of Contents Results Overview Diluted earnings per share and diluted earnings per unit increased$3.25 during 2021 to$6.84 as compared to$3.59 in 2020. The increase in diluted earnings per share and diluted earnings per unit was primarily attributable to:
? improved operating performance and solid core business fundamentals in 2021 and
the impact of our acquisition, development and expansion activity,
increased income from unconsolidated entities of
diluted share/unit, primarily due to favorable results of operations from our
other platform investments, including earnings from our acquisition of an
? interest in J.C.
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
TRG,
increased other income of
? primarily due to an increase in lease settlement income of
a non-cash gain in 2021 on acquisitions and disposals of
three properties of
? gain on the consolidation of one property of
share/unit, and net gains of
related to property insurance recoveries of previously depreciated assets,
primarily due to hurricane, flood and wind storm damage, a net loss in 2020 of$115.0 million , or$0.32 per diluted share/unit,
primarily related to impairment charges related to Klépierre, an unconsolidated
? investment, one consolidated property, and three joint venture properties,
partially offset by gains from disposition activity, of
per diluted share/unit,
? a non-cash gain in 2021 on the exchange of equity interests of
or
? a gain in 2021 on the sale of equity interests of
diluted share/unit, and
? an unrealized favorable change in fair value of equity instruments of
million, or
increased tax expense of
? primarily due to favorable year-over-year operations from other platform
investments and a
exchange of equity interests transactions 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, and
? a charge on early extinguishment of debt of
share/unit, in 2021.
Portfolio NOI increased 22.3% in 2021 as compared to 2020. Average base minimum rent forU.S. Malls and Premium Outlets decreased 3.4% to$53.91 psf as ofDecember 31, 2021 , from$55.80 psf as ofDecember 31, 2020 . Ending occupancy for ourU.S. Malls and Premium Outlets increased 2.1% to 93.4% as ofDecember 31, 2021 , from 91.3% as ofDecember 31, 2020 , primarily due to leasing activity, partially offset by 2020 tenant bankruptcy activity. Our effective overall borrowing rate atDecember 31, 2021 on our consolidated indebtedness decreased 12 basis points to 2.86% as compared to 2.98% atDecember 31, 2020 . This decrease was primarily due to a decrease in the effective overall borrowing rate on variable rate debt of 11 basis points (1.20% atDecember 31, 2021 as compared to 1.31% atDecember 31, 2020 ) and a decrease in the effective overall borrowing rate on fixed rate debt of 22 basis points (3.28% atDecember 31, 2021 as compared to 3.50% atDecember 31, 2020 ). The weighted average years to maturity of our consolidated indebtedness was 7.8 years and 7.3 years atDecember 31, 2021 and 2020, respectively.
Our financing activity for the year ended
borrowing
? unsecured revolving credit facility, or Supplemental Facility, and using a
portion of the proceeds to remove the encumbrances with respect to
approximately
decreasing our borrowings under the
? commercial paper note program, or the Commercial Paper program, by$123.0 million , 59 Table of Contents
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, and together with the Supplemental Facility, the Credit Facilities,
as discussed below,
completing, on
? fixed rate of 1.125% with a maturity date of
unsecured notes offering funded the repayment of the remaining indebtedness
under the Term Facility, as discussed below,
? repaying, on
Term Facility, reducing the Term Facility balance to zero, and
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
million 2.750% notes due
Subsequently onJanuary 11, 2022 , theOperating Partnership completed the issuance of the following senior unsecured notes:$500 million with a floating interest rate of SOFR plus 43 basis points and$700 million with a fixed interest rate of 2.650%, with maturity dates ofJanuary 2024 andFebruary 2032 , respectively.The Operating Partnership used the net proceeds of the offering to repay$1.05 billion outstanding under the Supplemental Facility and for general corporate purposes, including the repayment of other indebtedness.
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 information 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 in TRG. 60
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The following table sets forth these key operating statistics for the combined
? properties that are consolidated in our consolidated financial statements,
? 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.
%/Basis Point %/Basis Point
2021 Change (1) 2020 Change (1) 2019
U.S. Malls and
Premium Outlets:
Ending Occupancy
Consolidated 93.5 % 200 bps 91.5 % -380 bps 95.3 %
Unconsolidated 93.1 % 220 bps 90.9 % -360 bps 94.5 %
Total Portfolio 93.4 % 210 bps 91.3 % -380 bps 95.1 %
Average Base Minimum
Rent per Square Foot
Consolidated $ 52.59 (2.6) % $ 53.98 1.7 % $ 53.06
Unconsolidated $ 57.55 (5.6) % $ 60.97 3.8 % $ 58.71
Total Portfolio $ 53.91 (3.4) % $ 55.80 2.2 % $ 54.59
The Mills:
Ending Occupancy 97.6 % 230 bps 95.3 % -170 bps 97.0 %
Average Base Minimum
Rent per Square Foot $ 33.80 0.1 % $ 33.77 2.1 % $ 33.09 (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 trends.
Current Leasing Activities
During the twelve months endedDecember 31, 2021 , we signed 992 new leases and 1,460 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 8.3 million square feet, of which 6.5 million square feet related to consolidated properties. During 2020, we signed 460 new leases and 1,175 renewal leases with a fixed minimum rent, comprising approximately 6.1 million square feet, of which 4.8 million square feet related to consolidated properties. The average annual initial base minimum rent for new leases was$55.90 per square foot in 2021 and$53.97 per square foot in 2020 with an average tenant allowance on new leases of$53.75 per square foot and$51.01
per
square foot, respectively.
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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. December 31, %/basis point December 31, %/basis point December 31, 2021 Change 2020 Change 2019 Ending Occupancy 99.8% +30 bps 99.5% +0 bps 99.5% Average Base Minimum Rent per Square Foot ¥ 5,509 1.14% ¥ 5,447 3.38% ¥ 5,269
Critical Accounting Estimates
The preparation of financial statements in conformity withU.S. generally accepted accounting principles, or GAAP, requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. From time to time, we reevaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. For a summary of our significant accounting policies, see Note 3 of the notes to the consolidated financial statements.
We, as a lessor, retain substantially all of the risks and benefits of
ownership of the investment properties and account for our leases as operating
leases. We accrue fixed lease income on a straight-line basis over the terms of
the leases, when we believe substantially all lease income, including the
related straight-line rent receivable, is probable of collection. Our
assessment of collectability incorporates available operational performance
measures such as sales and the aging of billed amounts as well as other
publicly available information with respect to our tenant's financial
condition, liquidity and capital resources, including declines in such
? conditions due to, or amplified by, the COVID-19 pandemic. When a tenant seeks
to reorganize its operations through bankruptcy proceedings, we assess the
collectability of receivable balances including, among other things, the timing
of a tenant's bankruptcy filing and our expectations of the assumption by the
tenant in bankruptcy proceeding of leases at the Company's properties on
substantially similar terms. In the event that we determine accrued
receivables are not probable of collection, lease income will be recorded on a
cash basis, with the corresponding tenant receivable and straight-line rent
receivable charged as a direct write-off against lease income in the period of
the change in our collectability determination.
We review investment properties for impairment on a property-by-property basis
to identify and evaluate events or changes in circumstances which indicate that
the carrying value of investment properties may not be recoverable. These
circumstances include, but are not limited to, changes in a property's
operational performance such as declining cash flows, occupancy or total sales
per square foot, the Company's intent and ability to hold the related asset,
and, if applicable, the remaining time to maturity of underlying financing
arrangements. We measure any impairment of investment property when the
estimated undiscounted operating income before depreciation and amortization
during the anticipated holding period plus its residual value is less than the
carrying value of the property. To the extent impairment has occurred, we
charge to income the excess of carrying value of the property over our estimate
of its fair value. We also review our investments, including investments in
? unconsolidated entities, to identify and evaluate whether events or changes in
circumstances indicate that the carrying amount of our investments may not be
recoverable. We will record an impairment charge if we determine the fair value
of the investments are less than their carrying value and such impairment is
other-than-temporary. Our evaluation of changes in economic or operating
conditions and whether an impairment is other-than-temporary may include
developing estimates of fair value, forecasted cash flows or operating income
before depreciation and amortization. We estimate undiscounted cash flows and
fair value using observable and unobservable data such as operating income,
hold periods, estimated capitalization and discount rates, or relevant market
multiples, leasing prospects and local market information and whether certain
impairments are other-than-temporary. Changes in economic and operating
conditions, including changes in the financial condition of our tenants, and
changes to our intent and ability to hold the related asset, that occur
subsequent to our review
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of recoverability of investment property and other investments could impact the
assumptions used in that assessment and could result in future charges to
earnings if assumptions regarding those investments differ from actual results.
To maintain Simon's status as a REIT, we must distribute at least 90% of REIT
taxable income in any given year and meet certain asset and income tests. We
monitor our business and transactions that may potentially impact Simon's REIT
status. In the unlikely event that we fail to maintain Simon's REIT status, and
available relief provisions do not apply, we would be required to pay
? federal income taxes at regular corporate income tax rates during the period
Simon did not qualify as a REIT. If Simon lost its REIT status, it could not
elect to be taxed as a REIT for four taxable years following the year during
which qualification was lost unless its failure was due to reasonable cause and
certain other conditions were met. As a result, failing to maintain REIT status
would result in a significant increase in the income tax expense recorded and
paid during those periods.
In the period of a significant acquisition of real estate, we make estimates as
part of our valuation of the purchase price of asset acquisitions (including
the components of excess investment in joint ventures) to the various
components of the acquisition based upon the relative fair value of each
component. The most significant components of our real estate valuations are
typically the determination of relative fair value to the buildings
as-if-vacant, land and market value of in-place leases. In the case of the fair
value of buildings and fair value of land and other intangibles, our estimates
? of the values of these components will affect the amount of depreciation or
amortization we record over the estimated useful life of the property acquired
or the remaining lease term. In the case of the market value of in-place
leases, we make our best estimates of the tenants' ability to pay rents based
upon the tenants' operating performance at the property, including the
competitive position of the property in its market as well as sales psf, rents
psf, and overall occupancy cost for the tenants in place at the acquisition
date. Our assumptions affect the amount of future revenue that we will
recognize over the remaining lease term for the acquired in-place leases.
Results of Operations
In addition to the activity discussed above in the "Results Overview" section, the following acquisitions, dispositions, and openings of consolidated properties affected our consolidated results in the comparative periods:
? During 2021, we disposed of three retail properties.
? During the first quarter of 2021, we consolidated one
in
? During the fourth quarter of 2020, we disposed of one consolidated retail
property.
? On
adjacent to one of our properties from our joint venture partner.
? During the third quarter of 2019, we disposed of two retail properties.
In addition to the activities discussed above and in "Results Overview", the following acquisitions, dispositions, and openings of noncontrolling interests in joint venture entities affected our income from unconsolidated entities in the comparative periods:
? During the fourth quarter of 2021, we disposed of our noncontrolling interest
in one retail property.
On
? consideration of
cash consideration of
approximately 10.4%.
? On
in
? On
ventures of Forever 21 and Brooks Brothers for additional interests in ABG.
On
? Eddie Bauer. Our non-controlling interest in the licensing venture is 49% and
was acquired for cash consideration of
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? 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
in
On
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 interest in each of the retail
operations venture and in the licensing venture is 37.5%.
On
? Outlets, a 191,000 square foot center in
in this center.
In
? Group, formerly known as
respectively.
? On
create a new multi-platform venture dedicated to digital value shopping.
On
? square foot center in
this center.
For the purposes of the following comparisons between the years endedDecember 31, 2021 and 2020 and the years endedDecember 31, 2020 and 2019, 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 and operated in both years in the year to year comparisons.
Year Ended
Lease income increased$434.4 million , of which the property transactions accounted for a$17.6 million decrease. Comparable lease income increased$452.0 million , or 10.6%. Total lease income increased primarily due to an increase in variable lease income of$603.8 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$169.4 million . Total other income increased$65.3 million , primarily due to an increase in lease settlement income of$39.8 million , a$14.9 million gain on the sale of our interest in a multi-family residential property, an$11.5 million increase related toSimon Brand Ventures and gift card revenues, a$6.8 million increase from the non-cash dilution gain on a non-retail investment, and a$3.3 million net increase in dividend, interest and other income, partially offset by a$7.8 million decrease related to higher land and outparcel sale activity in 2020, and a$3.2 million decrease related to business interruption proceeds received in 2020.
Property operating expenses increased
Repairs and maintenance expenses increased$15.5 million primarily due to the reopening of properties that had been closed during 2020 as a result of the COVID-19 pandemic and the effect of the restrictions intended to prevent its spread and cost reduction efforts, as previously discussed. Advertising and promotion expenses increased$15.7 million primarily due to the reopening of properties that had been closed during 2020 as a result of the COVID-19 pandemic and the effect of the restrictions intended to prevent its spread and cost reduction efforts. 64
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General and administrative expense increased
Other expense increased
During 2021, we recorded a loss on extinguishment of debt of$51.8 million as a result of the early redemption of unsecured notes and the payoff of mortgages at nine properties. During 2021, we recorded gains on sale or exchange of equity interests of$178.7 million as a result of the contribution to ABG of all of our interests in the licensing ventures of Forever 21 and Brooks Brothers in exchange for additional interests in ABG and the sale of a portion of our interest in ABG, as discussed further in footnote 6. Income and other tax (expense) benefit increased$161.8 million due to increased deferred tax expense as a result of the ABG transactions noted above which had a non-cash tax impact of$55.9 million and$92.1 million related to strong operating performance of our other platform investments as well as earnings from our acquisition of an interest in certain retailers throughout 2020. Income from unconsolidated entities increased$563.0 million primarily due to favorable results of operations from our other platform 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 gains of$184.0 million related to the disposition of three consolidated properties, our interest in one unconsolidated property and the impact from the consolidation of one property that was previously unconsolidated, and gains of$21.2 million related to property insurance recoveries of previously depreciated assets. During 2020, we recorded$125.6 million of impairment charges related to one consolidated property, an other-than-temporary impairment on our equity investment in three joint venture properties, an other-than-temporary impairment to reduce an investment to its estimated fair value, and a$4.3 million loss, net, related to the impairment and disposition of certain assets by Klépierre, partially offset by a$12.3 million gain on the disposal of our interest in one consolidated property, a$1.9 million excess gain on insurance proceeds related to our two properties inPuerto Rico and 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
Year Ended
Lease income decreased$941.4 million , of which the property transactions accounted for$3.9 million of the decrease. Comparable lease income decreased$937.5 million , or 17.9%. Total lease income decreased primarily due to decreases in fixed minimum lease and CAM consideration recorded on a straight-line basis of$422.0 million and reduced variable lease income of$519.4 million , primarily related to lower consideration based on tenant sales and negative variable lease income due to abatements as a result of the COVID-19 pandemic. Total other income decreased$190.2 million , primarily due to a$75.7 million decrease related to Simon Brand Venture and gift card revenues, a$68.0 million decrease related to a gain on settlement with our former insurance broker in 2019, a$16.2 million gain on the 2019 sale of our interest in a multi-family residential property, a$10.9 million decrease in distributions from investments, a$9.1 million decrease in interest income and lower business interruption insurance proceeds received in connection with our twoPuerto Rico properties as a result of hurricane damages of$5.2 million , partially offset by a$6.2 million gain on a partial sale and mark-to-market adjustment of our retained interest in a non-retail investment and a$4.1 million gain related to the sale of outparcels.
Property operating expenses decreased
Repairs and maintenance expenses decreased
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Advertising and promotion decreased $51.7 million primarily due to the closure
of properties as a result of the COVID-19 pandemic and governmental restrictions
intended to prevent its spread and cost reduction efforts, as previously
discussed.
General and administrative expense decreased
Other expense increased
During 2019, we recorded a loss on extinguishment of debt of
Income and other tax expense changed by$34.7 million primarily as a result of a higher tax benefit due to larger losses on our share of operating results in the retail operations venture ofSPARC Group as compared to 2019, and reduced withholding and income taxes related to certain of our international investments, partially offset by tax expense from a bargain purchase gain recorded as a result of the acquisition of our interest in Forever 21. Income from unconsolidated entities decreased$224.5 million primarily due to unfavorable year-over-year domestic and international property operations, as well as results of operations from our other platform investments, both of which were impacted by COVID-19 disruption, partially offset by a$35.0 million pre-tax non-cash bargain purchase gain recorded as a result of the acquisition of our interest in Forever 21 and a gain from the sale of a non-retail asset, of which our share was$17.8 million . During 2020, we recorded$125.6 million of impairment charges related to one consolidated property, an other-than-temporary impairment on our equity investment in three joint venture properties, an other-than-temporary impairment to reduce an investment to its estimated fair value, and a$4.3 million loss, net, related to the impairment and disposition of certain assets by Klépierre, partially offset by a$12.3 million gain on the disposal of our interest in one consolidated property, a$1.9 million excess gain on insurance proceeds related to our two properties inPuerto Rico and a$1.0 million gain related to the disposition of a shopping center by one of our joint venture investments. During 2019, we recorded net gains of$62.1 million primarily related to Klépierre's disposition of certain shopping centers, offset by a$47.2 million impairment charge related to an unconsolidated investment.
Simon's net income attributable to noncontrolling interests decreased
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 only 7.6% of our total consolidated debt atDecember 31, 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$3.9 billion in the aggregate during 2021. 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
OnDecember 31, 2021 , we had an aggregate available borrowing capacity of approximately$5.8 billion under the Facilities, net of outstanding borrowings of$1.18 billion , amounts outstanding under the Commercial Paper program of$500.0 million and letters of credit of$11.8 million . For the year endedDecember 31, 2021 , the maximum aggregate outstanding balance under the Credit Facilities was$2.1 billion and the weighted average outstanding balance was$519.9 million . The weighted average interest rate was 0.85% for the year endedDecember 31, 2021 . Simon has historically had access to public equity markets and theOperating Partnership has historically had access to private and public, short and long-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 2022.
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Cash Flows
Our net cash flow from operating activities and distributions of capital from
unconsolidated entities totaled $3.9 billion during 2021. In addition, we had
net repayments of debt from our debt financing and repayment activities of $0.8
billion in 2021. These activities are further discussed below under "Financing
and Debt." During 2021, we also:
funded the acquisition of the licensing venture of Eddie Bauer, acquired
? additional interests in the licensing and operations of Forever 21 and acquired
additional interest in ABG, the aggregate cash portion of which was
million,
? 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
? funded investments in equity instruments of
? received proceeds from the sale of equity instruments 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 2022, 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
AtDecember 31, 2021 , our unsecured debt consisted of$18.4 billion of senior unsecured notes of theOperating Partnership ,$125.0 million outstanding under the Credit Facility,$1.05 billion outstanding under the Supplemental Facility and$500.0 million outstanding under the Commercial Paper program.
The Credit Facility also included an additional single, delayed-draw
InNovember 2021 , we amended our Credit Facility to transition the borrowing rates from LIBOR to successor benchmark indexes. The Credit Facility can be increased in the form of additional commitments in an aggregate 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, Pounds, Sterling, Canadian dollars and Australian dollars. Borrowings in currencies other than theU.S. dollar are limited to 95% of 67
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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 our 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 our 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 our corporate credit rating of between 0.000% and 0.400%. The Credit Facility includes a facility fee determined by our corporate credit rating of between 0.100% and 0.300% on the aggregate revolving commitments under the Credit Facility. Based upon our current credit ratings, the interest rate on the Credit Facility is SOFR plus 72.5 basis points, plus a spread adjustment to account for the transition from LIBOR to SOFR. InOctober 2021 , we amended, restated, and extended the Supplemental Facility. 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, Pounds, Sterling, Canadian dollars and Australian dollars. Borrowings in currencies other than theU.S. dollar are limited to 100% of the maximum revolving credit amount, as defined. The initial maturity date of the Supplemental Facility isJanuary 31, 2026 and can be extended for an additional year toJanuary 31, 2027 at our sole option, subject to satisfying certain customary conditions precedent. Borrowings under the Supplemental Facility bear interest, at our 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 our 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 our corporate credit rating of between 0.000% and 0.400%. The Supplemental Facility includes a facility fee determined by our corporate credit rating of between 0.100% and 0.300% on the aggregate revolving commitments under the Supplemental Facility. Based upon our current credit ratings, the interest rate on the Supplemental Facility is SOFR plus 72.5 basis points, plus a spread adjustment to account for the transition from LIBOR to SOFR. OnDecember 31, 2021 , we had an aggregate available borrowing capacity of$5.8 billion under the Facilities. The maximum aggregate outstanding balance under the Facilities during the year endedDecember 31, 2021 was$2.1 billion and the weighted average outstanding balance was$519.9 million . Letters of credit of$11.8 million were outstanding under the Facilities as ofDecember 31, 2021 .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 will be 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. OnDecember 31, 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 0.22%.
These borrowings have a weighted average maturity date of
OnJuly 9, 2020 , theOperating Partnership completed the issuance of the following senior unsecured notes:$500.0 million with a fixed interest rate of 3.50%,$750 million with a fixed interest rate of 2.650%, and$750 million with a fixed interest rate of 3.80%, with maturity dates ofSeptember 2025 (the "2025" Notes"),June 2030 , andJune 2050 , respectively. The 2025 Notes were issued as additional notes under an indenture pursuant to which theOperating Partnership previously issued$600 million principal amount of 3.50% senior notes dueSeptember 2025 onAugust 17, 2015 . Proceeds from the unsecured notes offering funded the optional redemption at par of senior unsecured notes in July andAugust 2020 , as discussed below, and repaid a portion of the indebtedness under the Facilities. 68 Table of Contents
On
On
On
On
OnJanuary 27, 2021 theOperating Partnership completed the planned optional redemption of its$550 million 2.50% notes due onJuly 15, 2021 , including the make-whole amount. 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 , the proceeds of which were used onMarch 23, 2021 to repay 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 of 2021, theOperating Partnership completed the optional redemption of all of its outstanding$550 million 2.350% notes due onJanuary 30, 2022 ,$600 million 2.625% notes due onJune 15, 2022 , and$500 million 2.750% notes due onFebruary 1, 2023 . We recorded a$28.6 million loss on extinguishment of debt as a result on the optional redemptions. OnDecember 14, 2021 , theOperating Partnership drew$1.05 billion under the Supplemental Facility, the proceeds of which funded the early extinguishment of nine mortgages with a principal balance of$1.16 billion . We recorded a$20.3 million loss on extinguishment of debt as a result of this transaction. OnJanuary 11, 2022 , theOperating Partnership completed the issuance of the following senior unsecured notes:$500 million with a floating interest rate of SOFR plus 43 basis points, and$700 million with a fixed interest rate of 2.650%, with maturity dates ofJanuary 11, 2024 andFebruary 1, 2032 , respectively. The proceeds were used to repay$1.05 billion outstanding under the Supplemental Facility onJanuary 12, 2022 .
Mortgage Debt
Total consolidated mortgage indebtedness, which is typically secured by the
underlying assets and non-recourse to the
Covenants
Our unsecured debt agreements contain financial covenants and other non-financial covenants. 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 ofDecember 31, 2021 , we were in compliance with all covenants of our unsecured debt. AtDecember 31, 2021 , our consolidated subsidiaries were the borrowers under 36 non-recourse mortgage notes secured by mortgages on 39 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. AtDecember 31, 2021 , the applicable borrowers under these non-recourse mortgage notes were in compliance with all covenants where non-compliance could individually 69
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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 ofDecember 31, 2021 and 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 December 31, 2021 Interest Rate(1) December 31, 2020 Interest Rate(1) Fixed Rate$ 23,364,566 2.99% $ 23,477,498 3.50% Variable Rate 1,956,456 1.22% 3,245,863 1.31%$ 25,321,022 2.86% $ 26,723,361 2.98%
(1) Effective weighted average interest rate excludes the impact of net discounts
and debt issuance costs.
Contractual Obligations and Off-balance Sheet Arrangements
In regards to long-term debt arrangements, the following table summarizes the material aspects of these future obligations on our consolidated indebtedness as ofDecember 31, 2021 , and subsequent years thereafter (dollars in thousands) assuming the obligations remain outstanding through initial maturities: 2022 2023-2024 2025-2026 After 2026 Total Long Term Debt (1) (2)$ 1,898,889 $ 4,059,530 $ 6,589,689 $ 12,861,700 $ 25,409,808 Interest Payments (3) 718,712 1,308,849 977,571 3,771,163 6,776,295Consolidated Capital Expenditure Commitments (3) 236,318 - - - 236,318 Lease Commitments (4) 32,838 66,093 66,262 855,079 1,020,272
(1) Represents principal maturities only and, therefore, excludes net discounts
and debt issuance costs.
(2) Variable rate interest payments are estimated based on the LIBOR or other
applicable rate at
Represents contractual commitments for capital projects and services at
(3)
expansion activity is further discussed below under "Development Activity".
Represents only the minimum non-cancellable lease period, excluding (4) applicable lease extension and renewal options, unless reasonably certain of
exercise.
(5) The amount due in 2022 includes
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 notes to the consolidated financial statements. Our joint ventures typically fund their cash needs through secured non-recourse 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 ofDecember 31, 2021 , theOperating Partnership guaranteed joint venture-related mortgage indebtedness of$209.9 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 required contractually or otherwise. 70 Table of Contents Hurricane Impacts
As discussed further in Note 10 of the notes to the consolidated financial
statements, during the third quarter of 2017, two of our wholly-owned properties
located in
Since the date of the loss, we have received$84.0 million of insurance proceeds from third-party carriers related to the two properties located inPuerto Rico , of which$48.3 million was used for property restoration and remediation and to reduce the insurance recovery receivable. During the years endedDecember 31, 2021 and 2020, we recorded$2.1 million and$5.2 million , respectively, as business interruption income, which was recorded in other income in the accompanying consolidated statements of operations and comprehensive income.
During the third quarter of 2020, one of our properties located in
During the year endedDecember 31, 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 impairment, 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 year endedDecember 31, 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 impairment, 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 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. 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. OnDecember 20, 2021 , we sold a portion of our interest in ABG, resulting in a pre-tax gain of$18.8 million . In connection with this transaction, we recorded taxes of$8.0 million . Subsequently we acquired additional interests in ABG for tax consideration of$100.0 million .
At
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 . InJanuary 2020 , we acquired additional interests of 5.05% and 1.37% inSPARC Group and ABG, respectively, for$6.7 million and$33.5 million , respectively. During the third quarter of 2020, SPARC acquired certain assets and operations of Brooks Brothers andLucky Brands out of bankruptcy. AtSeptember 30, 2020 , our noncontrolling equity method interests in the operations venture ofSPARC Group and in ABG were 50.0% and 6.8%, respectively. 71
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On
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. During 2021, we recorded net gains of$176.8 million primarily related to disposition activity which included the foreclosure of three consolidated retail properties in satisfaction of their respective$180.0 million ,$120.9 million and$100.0 million non-recourse mortgage loans. We also disposed of our interest in an unconsolidated property resulting in a gain of$3.4 million . During 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 (loss) gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statement of operations and comprehensive income. During 2019, we disposed of our interests in one multi-family residential investment. Our share of the gross proceeds on this transaction was$17.9 million . Our share of the gain of$16.2 million is included in other income in the accompanying consolidated statement of operations and comprehensive income. We also recorded net gains of$62.1 million , primarily related to Klépierre's disposition of its interests in certain shopping centers, of which our share was$58.6 million , as discussed in Note 6 to the consolidated financial statements.
Joint Venture Formation Activity
OnJune 1, 2021 , we and our partner, ABG, acquired the intellectual property of Eddie Bauer. Our non-controlling interest in the licensing venture is 49% and was acquired for cash consideration of$100.8 million . 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. 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, and restaurants are underway at several 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$944 million . Simon's share of remaining net cash funding required to complete the new development and redevelopment projects currently under construction is approximately$263 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. 72
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Summary of Capital Expenditures. The following table summarizes total capital expenditures on consolidated properties on a cash basis (in millions):
2021 2020 2019
New Developments $ 96 $ 27 $ 73 Redevelopments and Expansions 300 399 498 Tenant Allowances
127 53 162
Operational Capital Expenditures 5 5 143 Total
$ 528 $ 484 $ 876
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 in 2022 or 2023 is$172 million , primarily funded through reinvested joint venture cash flow and construction loans.
The following table describes recently completed and new development and
expansion projects as well as our share of the estimated total cost as of
Gross Our Our Share of Our Share of Projected/Actual
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 $ 42.2 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 $ 53.5 Oct. - 2022
Outlets
Paris-Giverny Designer Vernon (Normandy), 220,000 74% EUR 119.5 $ 135.6 Jan. - 2023
Outlet France
Expansions:
La Reggia Designer Marcianise 56,000 92% EUR 18.8 $ 21.3 Opened Oct. - 2021
Outlet Phase 3 (Naples), Italy
Dividends, Distributions and Stock Repurchase Program
Simon paid a common stock dividend of$1.65 per share in the fourth quarter of 2021 and$7.15 per share for the year endedDecember 31, 2021 .The Operating Partnership paid distributions per unit for the same amounts. In 2020, Simon paid dividends of$1.30 and$4.70 per share for the three and twelve month periods endedDecember 31, 2020 , respectively.The Operating Partnership paid distributions per unit for the same amounts. OnFebruary 7, 2022 , Simon's Board of Directors declared a quarterly cash dividend for the first quarter of 2022 of$1.65 per share, payable onMarch 31, 2022 to shareholders of record onMarch 10, 2022 . 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 13, 2017 , Simon's Board of Directors authorized a two-year extension of the previously authorized$2.0 billion common stock repurchase plan throughMarch 31, 2019 . OnFebruary 11, 2019 , Simon's Board of Directors authorized a new 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 warranted. The Repurchase Program was not extended. During the year ended 73
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December 31, 2020 , Simon purchased 1,245,654 shares at an average price of$122.50 per share. During the year endedDecember 31, 2019 , Simon purchased 2,247,074 shares at an average price of$160.11 per share, of which 46,377 shares at an average price of$164.49 were purchased as part of the previous program. As Simon repurchased shares under these programs, the Operating Partnership repurchased an equal number of units from Simon.
Forward-Looking Statements
Certain statements made in this section or elsewhere in this Annual Report on Form 10-K 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; and. We discussed these and other risks and uncertainties under the heading "Risk Factors" in Part 1, Item 1A of this Annual Report on Form 10-K. We may update that discussion in subsequent other periodic reports, but except as required by law, we undertake no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.
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, and portfolio 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. Gains 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 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.
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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.
The following schedule reconciles total FFO to consolidated net income and, for Simon, diluted net income per share to diluted FFO per share.
2021 2020 2019
(in thousands)
Funds from Operations (A) $ 4,486,964 $ 3,236,963 $ 4,272,271 Change in FFO from prior period 38.6 % (24.2) % (1.2) % Consolidated Net Income$ 2,568,707 $ 1,277,324 $ 2,423,188 Adjustments to Arrive at FFO: Depreciation and amortization from consolidated properties 1,254,039 1,308,419
1,329,843
Our share of depreciation and amortization from unconsolidated entities, including Klépierre, TRG and other corporate investments (B) 887,390 536,133
551,596
(Gain) loss on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net (206,855) 114,960
(14,883)
Unrealized losses in fair value of equity instruments 3,177 19,632
8,212
Net loss (gain) attributable to noncontrolling interest holders in properties 6,053 4,378
(991)
Noncontrolling interests portion of depreciation and amortization and gain on consolidation of properties (20,295) (18,631)
(19,442)
Preferred distributions and dividends (5,252) (5,252)
(5,252)
FFO of the Operating Partnership (A)$ 4,486,964 $ 3,236,963 $ 4,272,271 FFO allocable to limited partners 564,407 424,063
563,342
Dilutive FFO allocable to common stockholders (A)$ 3,922,557 $ 2,812,900 $ 3,708,929 Diluted net income per share to diluted FFO per share reconciliation: Diluted net income per share$ 6.84 $ 3.59 $ 6.81 Depreciation and amortization from consolidated properties and our share of depreciation and amortization from unconsolidated entities, including Klépierre, TRG and other corporate investments, net of noncontrolling interests portion of depreciation and amortization (B) 5.64 5.14
5.25
(Gain) loss on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net (0.55) 0.32
(0.04)
Unrealized losses in fair value of equity instruments 0.01 0.06
0.02
Diluted FFO per share (A)$ 11.94 $ 9.11 $ 12.04 Basic and Diluted weighted average shares outstanding 328,587 308,738
307,950
Weighted average limited partnership units outstanding 47,280 46,544
46,774
Basic and Diluted weighted average shares and units outstanding 375,867 355,282
354,724
Includes FFO of the
of debt of
common stockholders related to a loss on extinguishment of debt of
million for the year ended December 31, 2019 .
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The twelve months ended
additional amortization expense related to the nine months ended September
30, 2021 as a result of the finalization of purchase accounting.
The following schedule reconciles consolidated net income to our beneficial
share of NOI.
For the Year
Ended December 31,
2021 2020
(in thousands)
Reconciliation of NOI of consolidated entities:
Consolidated Net Income $ 2,568,707 $ 1,277,324
Income and other tax expense (benefit) 157,199 (4,637)
Gain on sale or exchange of equity interests (178,672)
Interest expense 795,712 784,400 Income from unconsolidated entities (782,837) (219,870) Loss on extinguishment of debt 51,841 -- Unrealized losses in fair value of equity instruments
8,095 19,632 (Gain) loss on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net
(206,855) 114,960
Operating Income Before Other Items 2,413,190 1,971,809
Depreciation and amortization 1,262,715 1,318,008
Home and regional office costs 184,660 171,668
General and administrative 30,339 22,572
Other expenses (1) 19,811 --
NOI of consolidated entities $ 3,910,715 $ 3,484,057
Less: Noncontrolling interest partners share of NOI (20,720) (19,745)
Beneficial NOI of consolidated entities $ 3,889,995 $ 3,464,312
Reconciliation of NOI of unconsolidated entities:
Net Income $ 668,061 $ 453,816
Interest expense 605,591 616,332 Gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities, net
(34,814) -
Operating Income Before Other Items 1,238,838 1,070,148
Depreciation and amortization 686,790 692,424
Other expenses (1) 26,013 -
NOI of unconsolidated entities $ 1,951,641 $ 1,762,572
Less: Joint Venture partners share of NOI (1,021,839) (921,147)
Beneficial NOI of unconsolidated entities $ 929,802 $ 841,425
Add: NOI from TRG 430,965 -
Add: NOI from Other Platform Investments and Investments 743,213 253,093
Beneficial interest of Combined NOI $ 5,993,975 $ 4,558,830
Less: Corporate and Other NOI Sources (2) 172,844 178,009
Less: NOI from Other Platform Investments 533,299 21,507
Less: NOI from Investments (3) 203,223 201,240
Portfolio NOI $ 5,084,609 $ 4,158,074
Portfolio NOI Change 22.3 %
Represents the write-off of pre-development costs, our beneficial interest of
(1) which was
million with respect to our share of unconsolidated entities, for the year
ended December 31, 2021 .
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Includes income components excluded from portfolio NOI and domestic property
NOI (domestic lease termination income, interest income, land sale gains, (2) straight line lease income, above/below market lease adjustments), unrealized
and realized gains/losses on non-real estate related equity instruments,
Simon management company revenues, and other assets.
(3) Includes our share of NOI of Klépierre (at constant currency) and other
corporate investments.
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